[Marie Stein]

Yes, this seems to be the case. I’ve had a similar situation with a European client recently who was adamant that they should not have to have a separate EORI number for the UK. And it took me 4 attempts asking HMRC’s helpline to find out why!

Apparently HMRC’s import system still won’t issue c79s unless the EORI number is a UK issued number. So my client now has 2 numbers, one of which is used solely for the UK and the other for the rest of Europe.

Personally I think it’s quite ridiculous that HMRC hasn’t updated their system – the EORI procedure has existed for years! Either way, here’s the link to the HMRC information explaining the situation http://tinyurl.com/nxvzbvg.

Marie

[Marie Stein]

People often get confused about income from services to overseas companies and I often get queries about the subject. It concerns one of the fundamental VAT principles – the “place of supply” which is often misunderstood.

And to make things even more confusing, you are ALLOWED to register for VAT in the UK to recover VAT on your costs, even if you’re don’t have to charge VAT on your sales to overseas clients.

I’ve explained how this works in practice below.

Place of supply rule

HMRC’s VAT Leaflet 700/12: Should I be registered for VAT, section 2.1 says:
Value Added Tax (VAT) is a tax businesses have to charge when they make business supplies (that is, they sell goods or services) in the United Kingdom (UK) or Isle of Man.
http://tinyurl.com/m7v4hye

So VAT is a tax on supplies (i.e. sales, rentals etc) of goods and services made in the United Kingdom. The important words as far as international services are concerned are the final four: “made in the UK”.

It means that that you have to charge VAT on certain sales of goods and services (known as “taxable supplies) that are “made in the UK”. VAT isn’t charged when supplies are made outside the UK, so you have to know where the supplies are made to ascertain whether or not you have to charge UK VAT.

In the case of sales of goods, the place of supply is usually easy to determine because it’s where the goods are located at the time of sale. In the case of services, the place of supply is the UK when both the supplier and the customer belong in the UK. But under the “general rule”, the supply of most types of services to a business in another country, then the place of supply is deemed to be the country where your customer belongs.

That means that although you’d charge VAT if the customer belongs in the UK, you don’t charge VAT because the customer belongs overseas. So the supplies are made outside the UK, although they would be taxable if made in the UK.

I’ve explained this concept in my article more detail here https://vatexchange.co.uk/node/325, which also includes links to the relevant HMRC notices about the subject.

In the case of your services to Google Ireland, the place of supply of the services is Ireland, because I assume that’s where Google belongs for VAT purposes. So your services WOULD be taxable if made in the UK, but are made outside the UK.

VAT Registration

But there’s a lot of confusion because of the fact that the services to overseas businesses “would be taxable if made in the UK”, because people then assume that they should include the value of their services to overseas businesses for VAT registration purposes.

But as we’ve discussed above, most services supplied to overseas businesses aren’t “made in the UK” so the value of such sales does not count towards the UK VAT regisration limit. So you’re not required to register on account of your overseas sales, unless you make other taxable supplies in the UK that exceed the registration limit.

Unfortunately, I can’t find a sentence in any Notice 700/1 that confirms this without referring to the “place of supply” principle.. HMRC have to deal with so many different rules in their publications and they can’t cover every scenario. However the concept of place of supply is explained in more detail in VAT Notice 741a, see my article for the link. And if you remember that you only have to register for VAT if you make taxable supplies in the UK exceeding the VAT registration limit, then you’ve remembered the important principle.

However you can register for VAT on a voluntary basis to recover VAT on your costs. This DOES NOT mean that you have to charge VAT to your overseas clients. This is explained in the short table at section 2.9 of Notice 700/1 http://tinyurl.com/qcjv53x

But if you do decide to register, you will have to charge VAT on income from your UK clients and any other “taxable supplies” you make in the UK, even if the total is below the registration limit so you may want to find out whether your UK customers will be able to recover VAT that you charge them before deciding to register.

I hope this has helped to clarify the situation for you. It is a complicated subject and of course I can only provide general guidance here on the forum. But I suspect that this covers your situation, which means that you’re not liable to register for VAT if most of your income is from providing advertising services to Google in Ireland and the value of your UK supplies is below the registration limit.

Marie

[Marie Stein]

Hi Polly

I don’t know of any reason why the supply would be standard rated because the suppliers is the “distributor” of the leaflets. The zero-rating doesn’t depend on who is selling the leaflets, it’s the goods themselves that define the liability in the case of printed material.

Two things come to mind – have a look at VAT notice 701/10: Zero-rating of books etc http://tinyurl.com/p6qsc4r, which explains the rules about zero-rated printed material. Section 3.3 explains the liability of leaflets so make sure your leaflets fall within the HMRC definition. The only reason it wouldn’t would normally be becaause it has areas to be completed, like an application form, in which case it would be standard rated if the area for completion is more than 25% of the whole document, as explained in section 3.4 of the notice.

The other thing is whether the distributor is acting as an “agent” for VAT purposes, in which case their mark up or “commission” would be standard rated under teh normal rules. The whole areas of agency gets a bit confusing for VAT purposes and sometimes both businesses and HMRC officers get confused because they don’t fully understand the legal and commercial arrangements properly. But if your supplier is showing only one charge, for the sale of the leaflets, I can’t see any reason why they have to charge VAT. It’s just the same as going to buy a book from WH SMith. The fact that WH Smith is the retail distributor and didn’t print or otherwise manufacture the book doesn’t change the VAT liability of the book, which is zero-rated.

There is some guidance about agents in HMRC’s VAT Notice 700: The VAT Guide, section 23, http://tinyurl.com/9ykqw. It is quite a technical section of the notice and hopefully you won’t have to go down this route with your suppliers.

You can always write to the VAT Enquiries section at HMRC and ask them for their opinion. Only thing is that they don’t normally give “rulings” to customers, but they may agree in principle with your interpretation of the liability.

I hope this helps you sort things out – I’d be interested to hear what your supplier has to say if he still refuses to credit the VAT.
Marie

[Marie Stein]

Hi Paul

I’m not surprised you’re confused – the subject is difficult. As you’re probably aware, the normal rate of VAT is 20% but residential conversion work can be at 5% as a “quailifying conversion” if certain conditions are met.

The rules are explained in detail in HMRC’s VAT Notice 708: Buildings and construction http://tinyurl.com/9e6e9wh.

Section 7 of the notice deals with conversions for residential use.

If there is an existing “single household dwelling”(“SHD”) in the property, then the conversion of the whole property into one single dwelling wouldn’t qualify for the reduced rate because you’re not changing the number of SHDs in the property. So you have to be certain that the work changes the number of SHDs in the property to qualify for the relief.

Section 7 includes the statement that the qualifying conversions would typically include conversions where “living accommodation which is not self-contained, such as a pub containing staff accommodation that is not self-contained..”.

You say that there is currently “no separate flat” in the property as the existing accommodation isn’t separate from the rest of the property. But you have to be certain that the existing accommodation doesn’t consitute an SHD as defined in the VAT legislation. The term is defined in the law and for this purpose the definition is as follows:

• is designed for occupation by a single household either as a result of having been originally constructed for that purpose (and has not been subsequently adapted for occupation of any other kind), or as a result of adaptation;
• consists of self-contained living accommodation;
• has no provision for direct internal access to any other dwelling or part of a dwelling;
• is not prohibited from separate use by the terms of any covenant, statutory planning consent or similar provision; and
• is not prohibited from separate disposal by the terms of any covenant, statutory planning consent or similar provision.

This is a legal definition (see paragraph 14.4 of notice 708) and if the existing accommodation fulfills ALL of these conditions, then it would be regarded as an SHD. In that case, the reduced rate wouldn’t apply to the conversion work because you wouldn’t be changing the number of SHDs even though you’re converting the whole of property, most of whch was previously used for business purposes.

Based on your description of the existing premises, it doesn’t sound as though there is any existing dwelling, therefore the conversion of the pub to a dwelling should qualify for the reduced rate, as explained in Section 7 in the Notice.

If you are in any doubt about whether the existing accommodations could be defined as a dwelling, then you might want to check with the local planning office or council tax office to see how the property has been previously used or designated for planning or council tax purposes.

You also have to remember that the VAT liability of the conversion is ultimately the responsibility of the building contractors, as they have to pay the VAT which they charge for their services and related goods to HMRC. So I’d recommend discussing the VAT liability when you’re engaging contractor(s) to carry out the work. Builders are often cautious when dealing with such issues in case HMRC disagree that the reduced rate applies.

If there is an existing SHD in the property which hasn’t been occupied for 2 years or longer, then the conversion work may be regarded as refurbishment and qualify for relief under teh rules in Section 8 of Notice 708. You might want to check out my article on domestic property conversions http://tinyurl.com/9j3dl2z which explains the subject in a bit more detail.

I hope this helps but please remember that information provided here on the forums doesn’t constitute formal advice and is for general guidance only. VAT and property is a complex subject and people doing domestic conversions often get caught out because they don’t have much if any experience in the subject especially if they don’t run their own business and aren’t registered for VAT. The information here only deals with the specific issue of VAT on the conversion work, but you didn’t say what you’re planning to do with the property once the conversion work is completed and it is possible that you may be entitled to recover the VAT paid, depending on what you do with the converted proeprty.

Either way, if you’re in any doubt, or if, for example, the amounts involved in the conversion are significant, it may be worthwhile obtaining formal advice and I’d be pleased to help if required.

Marie

[Marie Stein]

Hi John

Sorry it has taken me a little while to reply to you, but I hope I can help.

I can understand your confusion. This is a really complicated subject and I may not be able to fully answer your query, but hopefully help you work it out.

First let’s deal with the German branch as this is the easier one. Normally charges between different parts of the same legal entity aren’t liable to VAT because THEY DON’T REPRESENT SUPPLIES FOR VAT PURPOSES. In other words, it’s not a “supply” in the VAT sense because all you’re doing is sharing out costs between different parts of the same legal entity.

Having said that, there are some anti-avoidance rules for businesses that are partly exempt to prevent such businesses from saving VAT by sharing costs around branches in different countries. But that’s a complex subject and I couldn’t help you with it here on the forum. However if your business is “fully taxable” for VAT purposes, i.e. you make supplies in teh UK which are liable to VAT at 20%, 5% or the zero-rate and you are entitled to recover all of your input tax, then the anti-avoidance rules wouldn’t apply.

N.B. I assume you know the difference between the zero rate of VAT and exempt supplies, which is that you can’t recover VAT on costs of goods and services used to make exempt supplies. Hence the anti-avoidance rules for exempt businesses.

For the purposes of this reply, I assume that your UK business is “fully taxable”. But let me know otherwise and it may be worth us talking about it at some point.

Dealing with the recharges to the French company brings us back to normal VAT principles.

You talk about “recharges of costs” but for VAT purposes, these would normally be regarded as payment for services of some sort. Before you decide whether or not you’d have to charge VAT, you have to decide what the charges represetn.

I’ve covered this issue in some detail in my article here https://vatexchange.co.uk/Intercompany-charges-april-2010 so have a read and see if this helps clarify the subject for you. Most of the article talks about recharges in general between UK companies, but the principles apply to such recharges to or from UK or overseas businesses and there is a section lower down which deals specifically with charges to overseas companies.

This should help you decide whether or not the recharges to the French company are liable to VAT – probably not – but until you’ve confirmed the nature of the paymetns, I can’t say.

What I would suggest is that you read the article and if you’re still struggling, you can send me your contact details and I’ll be happy to talk to you about your situation. Free of charge, no obligation. But dealing with recharges to overseas companies is a difficult area and if you want definitive advice, I would have to do that on a formal fee-paying basis.

However, give this a bit more thought and let me know if you’d like to have a discussion about it.

Marie

[Marie Stein]

Hi Colin,
Glad I could help and yes please let me know how you get on with HMRC. I’m always interested in case I come across similar situations in the future. And if you do get stuck, please do drop me an email and we can have a chat about it.
Regards
Marie

[Marie Stein]

Hi Colin

I don’t think that there should be a problem but I can’t give you a definitive reply. I’ve not dealt with the same situation in the past, or even anything similar. As you know, the claim form requires proof that the work has been lawfully carried out and requires you to send the planning permission for the work with the refund claim. As far as I can see, it doesn’t matter how the work is defined by the planning authority as long as the work carried out meets the VAT refund scheme criteria – i.e. that after the work was carried out there is a dwelling which didn’t previously exist.

There is, however, a further aspect that might affect the claim. I’m not sure whether the fact that the planning permission for the “rebuild” was given AFTER the work was started would affect the refund claim. Normally you can only recover VAT on costs where the work is done AFTER the planning permission is granted, so it’s not clear whether HMRC would accept that date of the ORIGINAL planning permission would apply or that of the REVISED planning permission. I’ve had a quick look at teh legislation and the HMRC guidance on the refund scheme and I can’t see anything that explains what should happen in such unusual circumstances.

My gut feeling is that HMRC would grant the full claim because of the unusual circumstances, I just can’t say for sure because I’ve never dealt with such situations in the past. And I appreciate that the VAT refund could affect the finances of the project so you need certainty before proceeding.

What I would suggest is that your father should write to or email the HMRC enquiries section http://tinyurl.com/cxhrj9y with the full facts and ask if the full claim will be granted given that:

1. the work has been designated as a rebuild by the local planning authority; and
2. the revised planning permission has been given AFTER the work commenced, although the original planning permission was given BEFORE the work commenced.

You could try calling the VAT helpline but given that your father’s circumstances are quite unusual, its important to get a written response and you can only get that if you put the query in writing.

I know that this doesn’t answer your query directly, but I hope this helps. I’m happy to talk about this in a little more detail (no charge or obligation) if you’d like to send me your contact details using the contact form.

Marie

[Marie Stein]

Hi Violetta

Sorry it has taken a while to reply to your query. The main reason is that it’s taken me a while to try and find an answer.

And unfortunately, I can’t find anything that would answer your query – I’ve checked both the public notices as well as the HMRC staff manuals and the business briefs and other news items and I can’t see anything about any change occuring in July 2011. That doesn’t mean that there hasn’t been a change, but I can’t find anything about it and that’s a bit strange as I pretty well know my way around the HMRC VAT publications. It is possible that there has been a ruling about the VAT treatment of NFPs in the German courts which hasn’t been widely circulated.

I’m not aware of any change to the application of VAT for NFPs. I’ve always understood that the treatment of NFPs is the same as charities, so that if the services relate to the commercial activities of NFP organisations, then the supplies would be treated under the general rule and be liable to VAT in the country of the recipient and vice versa if the services relate to the non-commercial activities.

The only thing I can suggest at this stage is that you write to the HMRC enquiries section and ask if they can help. It may be that there has been some change in policy that hasn’t been widely publicised, although it does seem to be a very strange situation. In principle, HMRC don’t normally object to you charging VAT on a supply that isn’t liable to VAT, but given the nature of your business, I’d normally recommend that you get a ruling from HMRC to avoid problems at a later date.

I will let you know if I find anything else on this subject – there are still a couple of places I can check out and I’ll let you know if there is anything that helps.

Marie

[Marie Stein]

Hi Lesley

Unfortunately I think your accountants are correct, as one of the main rules of the DIY scheme is that it doesn’t apply when the planning permission prevents the new dwelling from being sold or used separately from another property.

I appreciate it may seem unfair but the rules are there for a reason and in most cases, ensure that private housebuilders don’t get additional benefits than commercial housebuilders, who are also unable to recover VAT in similar situations.

I hope you’re able to find the finance to complete the project, I don’t know whether the planning office would consider changing the planning provisions so that your home can be sold/used separately from the other properties. It’s certainly worth asking the question.

Marie

[Marie Stein]

Hi Wooty

Thanks for the compliments and the offer to donate! If I’m able to help, then I’m happy if you can just mention the site to any accountants/business owners who may have VAT issues.

Unfortunately I can’t answer your questions at this stage as I need more information. As you’ve doubless already realised, the whole subject of VAT and international supplies of services is really complicated and I’d need a lot more information to give you any meaningful reply.

Let’s go back to basic VAT rules. If your income (or that of the company) exceeds the VAT registration limit, which is currently £77k pa, then you need to register for VAT. However, HMRC may allow you not to be registered if you would normally be claiming input tax because most or all of your income is not liable to VAT.

When the business provides supplies of services to overseas clients, then there are a number of factors (referred to as the “place of supply” rules) that establish whether or not the income is liable to VAT.

So to establish whether the Panama company’s income is liable to VAT, we need to consider a number of factors. These include :

• The nature of services that the Panama company is providing to its clients.
• Where are the clients based?
• Are the clients businesses or private individuals?

I’m also a bit unclear about the status of your income from the company – is this salary or dividends or payment for your services as a consultant? If you are providing your services to the company as a self-employed consultant, then you may also be liable to register for VAT as well as teh company.

You also mention the fact that the company receives payment from a Maltese bank or a Swiss bank and may be making large payments to Israel. What are these payments for?

Finally, regardless of where the payments come from, where are the clients based? I assume Malta or where their bank is based but it does matter!

HMRC publish a very detailed guide about the subject VAT Notice 741: Place of Supply of Services http://tinyurl.com/7yrzydt. It is a long document so you may struggle if you don’t understand much about how VAT works – have a look at my short introduction to “Place of supply” https://vatexchange.co.uk/node/325.

If you think that you may need formal advice, you can get in touch with me via the contact form and we can have a conversation about how much it would cost and the information I’d need to know etc. However I’m happy to help here on the forum if you want to post more information here and I’ll do my best to point you in the right direction.

Marie

[Marie Stein]

Hi Gary

It depends on what you’re actually being charged for. But probably not.

VAT Notice 700, The VAT Guide, section 8.13.1 http://tinyurl.com/9ykqw states that cancellation charges made when customers cancel their booking are not liable to VAT as the payment is not consideration for a supply.

So if the charge is a cancellation charge, then it shouldn’t include VAT.

Marie

[Marie Stein]

Hi Denlian

I assume that your main concern is whether or not the wife will end up having to pay VAT on her income from her technician business.

Just to clarify a few points:

[Marie Stein]

Hi Rosiejo

You don’t say why the owner wants to set things up in this way. If the purpose is to sell VAT free goods, then it won’t work because if the goods will never leave the UK, then for VAT purposes, the Jersey company will be making supplies of goods in the UK and may be liable to register for VAT in the UK. The fact that the ordering/invoicing will be done online and through a Jersey company doesn’t change the VAT status of the transactions.

I don’t see any VAT problem if the owner simply wants a separate company for the purposes of having a separate “vehicle” for online sales. In principle, you can organise your business affairs as you like, but it doesn’t affect the underlying VAT principle which is that the place of supply of goods is where the goods are physically located, not where the supplier is based.

Sales from the existing UK company to the Jersey company will be liable to VAT in the same way as any other transaction. If the value of supplies to be made by the Jersey company will exceed the VAT registration limit, then it will be liable to register for VAT. Either way, the only way in which the Jersey company will have to recover the VAT charged by the UK company would be to register for VAT. The UK company can act as agent for the Jersey company to submit VAT returns etc if the Jersey company has no employees based in the UK. The guidance on this issue is in VAT Notice 700/1 Should I be registered for VAT, sections 8 – 10 http://tinyurl.com/d5jrb5u.

It might be possible for the Jersey company to enter into a VAT group registration with the UK company, which would minimise administration as there would only be one VAT return for both companies and it would not be necessary to raise invoices for transactions between the companies. However this may not be possible unless the Jersey company can satisfy certain residency requirements – you can find further information on this in VAT Notice 700/2 Group and Divisional Registration http://tinyurl.com/ybdq3gh

Marie

[Marie Stein]

Hello M Woodhead

I’m sorry it has taken me a while to reply to your query.

In these situations, if you’ve made a small error on a VAT return which doesn’t affect the VAT amounts on the return, HMRC aren’t usually too bothered and you can adjust the error on the next return. But in your case, because it meant that you entered something into Box 8, that automatically brings you into the “EC sales” category of businesses and they automatically send you EC sales lists. It’s not a major problem – all you have to do is to write to explain the error so that they can amend the return and that would get you out of future EC sales lists.

However I think you may be liable to complete EC sales lists anyway because you have been providing consultancy services to customers in other EC countries. From 1 January 2010, UK businesses have been required to complete EC sales lists for taxable services which are supplied to businesses in EC countries, in the same way as they are currently completed for supplies of goods to EC businesses.

You mention that your services are “consultancy” and that the customers are in other EC countries. If you don’t charge UK VAT on the basis that your customers are VAT registered and account for VAT on your services using the “reverse charge”, then you have to submit EC sales lists for thoses services. You can find out more about these rules here on the HMRC website http://www.hmrc.gov.uk/vat/managing/international/esl/reporting-esl.htm.

If you should have been submitting EC sales lists in the past and haven’t done so, I’d recommend that you contact HMRC as soon as possible to ensure that you get things up to date as soon as possible.

Marie

[Marie Stein]

Hi Carol

Sorry it’s taken me a few days to reply – I’m in the course of moving house and you know how that is!

Here is the EC guidance to VAT in France: http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/traders/vat_refunds/2010/vademecum-refund-france_2010_en.pdf

VAT in France is referred to as TVA. The guidance includes the contact details for the French tax authorities on the first page for non-established traders, i.e. businesses with no establishment in France.

I hope this enables you to sort things out. I would be interested in the outcome, so please let me know what the French tax authorities advise.

Regards
Marie

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