[Marie Stein]

Hi Markd

I don’t give definitive advice here on the forum about any specific transaction but I’ve set out the general principles below and explained why you might be getting conflicting information.

Advertising is one of those services that comes under the “supplied where received” rule which means that if you are providing services to a UK business, then you charge VAT as the service takes place in the UK. If you provide such services to a business in another EC country or to anyone outside the EC, then you don’t charge VAT as the service is deemed to take place where the customer belongs, ie outside the UK.

The rules are explained in VAT Notice 741A “The Place of Supply of Services” on the HMRC website here http://tinyurl.com/37bnn6v. I don’t know how familiar you are with the rules on international services but the main principles are set out in teh first few sections of the notice and advertising is discussed in section 15.4.

That’s the general rule but you need to work out the contractual arrangements to establish who you are providing teh advertising services to as the contractual position is usually what defines the VAT liability. And this is often complicated by transactions involving agents.

I suspect that the reason that you’ve received conflicting information is that it’s not clear whether your services are being supplied to the agent in the UK or to the clients.

You say that your advertising will be “provided by an intermediary AD sales agency operating from the UK”. I’m not sure exactly what that means as transactions involving ad agencies are sometimes not true agency in VAT terms. This is because as the “agent” might be acting as principal for VAT purposes, ie buying and selling the service as principal and possibly billing the clients in their own name. If, for example, you invoice the agent for 100% of the revenue and then the agent invoices the clients, then it may be the case that your services are being supplied to the UK agent and not the clients.

So you need to establish the correct contractual position and you might need to ask your solicitor to confirm all of this. I’d be happy to help through my consultancy service if you require formal advice on teh VAT issues. Either way I’d recommend you take formal advice on this to get the VAT liability correct especially if your income from this activity could be substantial.

Hope this helps
Marie

[Marie Stein]

Glad to hear I could help, hope your project goes to plan! Just be careful about the detail of the VAT stuff, it’s easy to make mistakes that could mess things up.

Guess it goes without saying that I’d appreciate you mentioning vatexchange to anyone you know who might need VAT advice – accountants, solicitors, anyone in the property business.

Marie

[Marie Stein]

Hi daddycoops

Yes there is such a scheme. You can find details of it in section 3 of VAT Notice 742A: Opting to Tax Land and Buildings here on teh HMRC website: http://tinyurl.com/3g32uz.

Normally if a commercial property owner/vendor has opted to tax a property, he has to charge VAT when he sells it. But if the purchaser intends to use or convert the property as a dwelling/dwellings or certain types of residential use, he can give the owner a certificate (Form VAT 1614D) which means that the owner can’t charge VAT on the sale.

The important point is that the certificate must be given to the owner/vendor BEFORE THE PRICE IS LEGALLY FIXED, ie before contracts are signed, heads of terms etc. So it’s important that you do this before anything is agreed about price.

The details are in the Notice and the Form can be downloaded from the HMRC website here http://tinyurl.com/le7vfh.

It’s normal in these cases for the sales contracts to include reference to the VAT issues so your solicitor will probably need to know what you’re planning to do before he starts to draw up the documentation.

Marie

[Marie Stein]

Hi Mikael

Sorry I can’t really help you here – the subject is far too complex to help out with any general advice, as I explained in my reply to your previous query about e-wallets.

To find out more about the subject, follow the link to the VAT Notice on the HMRC website here http://tinyurl.com/387l5gk for detailed information about the VAT rules and international business. You can find information about the special rule that applies to telecommunications services at section 15.10 onwards and particularly section 16 of the Notice.

Marie

[Marie Stein]

Hi Mikael

Well you are right, that is a complex set of questions and unfortunately not something that I would even contemplate trying to answer here.

When people leave queries on the forum, I never provide specific answers. The forums are for general information only. I try to help by explaining how the general VAT rules apply to a particular type of situation. I’ll then provide links to the relevant guidance on the HMRC website so that the questionner can read more about the subject and work out the answer for themselves.

Your questions are about very technical areas of the VAT law and it would take me ages to even explain how the main principles work. I don’t know how familiar you are with UK VAT legislation so it would be difficult to know where to start. Also your query concerns a number of money flows and supplies of services between a number of different parties. It would take a long time to analyse the transactions for VAT purposes (I’d need to see the contracts to see how the money flows reflect the supplies for VAT purposes) and frankly I just don’t do that sort of thing free of charge!

You clearly have some knowledge of VAT and the best thing I can do is to refer you to the HMRC Notice which deals with international telecommunications services, which is here on the HMRC website: http://tinyurl.com/387l5gk. As you will see, it is called “The Place of Supply of Services” (VAT Notice 741A) and explains in detail how these complex rules apply to all types of international services. It is not an easy subject and you really need to read through the first few sections of the Notice to understand teh terminology and the concepts involved. It is essential to understand the basic concepts so that you can follow the guidance about specific types of supply.

A special rule applies to certain telecommunications supplies called the “Use and Enjoyment Rule”. This ensures that VAT is collected on the supply of telecommunications services by non-EU suppliers to EU customers, according to where the service is “used” or “enjoyed”. See Section 15.10 of the notice onwards and particularly section 16 for a detailed explanation of this.

I would of course be willing to provide further advice through my formal consultancy service – see my contact details on the left hand menu if you would like to discuss this in further detail. Otherwise I hope you can find the information you need in the HMRC Notice.
Marie

[Marie Stein]

Hi jamesparker

The VAT treatment will depend on the type of discount and the contractual arrangement between you and your customer. Different EC countries may also have different rules and – as with all things EC – you will have to check out the rules for each country separately. Unfortunately I can only help out a bit with the UK position, although I suspect that the rules will be similar for each country. But hopefully I can at least give you a couple of useful links to start.

Here’s the link for information on VAT and discounts in the UK: http://www.hmrc.gov.uk/vat/managing/charging/discounts-etc.htm.

You say that you will initially commence your discounts in Ireland, here’s the link to the VAT section of the Irish Revenue Service http://www.revenue.ie/en/tax/vat/index.html. I’ve had a quick look and can’t find anything about discounts but I’m sure that the information will be on there somewhere and you’ll find it when you’ve time to have a proper look.

Hope this helps you find the information that you need.
Marie

[Marie Stein]

I guess that there are a number of options for finding the right person to give you the best advice! I have no idea whether the companies who advertise on the internet are any better or worse than debt management companies who are listed in your local business directories, thankfully I’ve never had to use any although I imagine that they all provide the same sort of service. I understand that most IPs deal with both personal and business insolvencies so you’d probably find that they all have similar experience.

But before getting an IP or any debt management company involved, you could also speak to someone from one of the free advisory services such as Money Advice Scotland or the Citizens Advice Bureau about your situation. They will give you a lot of information about different options that are available and more about how an IP could help you. Some of them will also help you with debt management arrangements free of charge and you may find that they can help you negotiate with HMRC without getting an IP involved. So it’s definately worth speaking to one or more of these organisations first.

If you decide that you need to take advice from an IP, the best place to start looking for an IP would be the official insolvency website. Here is the link to the website for the Scottish IP service http://www.aib.gov.uk/, There is a section called “Are you facing bankruptcy” with information about different insolvency options and also a link to the national register of IPs where you can have a look for someone in your local area.

If you want to deal with someone locally, you could ask round your business contacts for names of good accountants or solicitors in your area. Some will have inhouse IPs or will be able to refer you to a local IP.

Hope this helps you get the advice that you need.

Marie

[Marie Stein]

Hi Bobsmith

Sorry to hear that things have become so difficult. Unfortunately i don’t think that your proposal to transfer the VAT liability to a limited company would work for the reasons I’ve explained below.

But first of all, I strongly recommend that you get advice from an insolvency practitioner (an “IP”) – they have the experience with restructuring debts and dealing with HMRC that you need. In your circumstances, I’d suggest that you do this as soon as possible and certainly before HMRC start demanding payment.

Most accountancy firms and some solicitors have inhouse insolvency departments or you can look up independent IPs in your local area for advice. Nowadays there are several ways of dealing with debt and bankruptcy is usually the final resort. The most important thing is that you take proper advice before doing anything yourself that could make things worse.

With my own experience at dealing with HMRC over the decades, I think that it’s unlikely that they would allow an extended repayment for a VAT debt over a number of years. Usually such arrangements are spread over a period of months, rather than years. But nowadays there are several different types of insolvency arrangements including informal arrangements, so you could have several options for dealing with the debt without declaring yourself bankrupt. You can have a look at HMRC’s VAT Notice about insolvency and VAT debts here http://tinyurl.com/2u8vtq2 for more information.

About your idea to transfer the business and debt to a limited company to minimise your personal liability. In theory it is possible to transfer a business as a going concern (“TOGC”) to a limited company – see VAT Notice 700/9 here http://tinyurl.com/37ktle2 for more information about the VAT implications of TOGCs. However this in itself wouldn’t get rid of your personal liability as VAT liabilities always belong to the “taxable person”, ie yourself as a sole proprietor, regardless of any other legal arrangements involved regarding the debt.

In order to transfer the VAT debt to the company you have to transfer the VAT registration number to the company as explained in section 3.4 of the Notice. However I suspect that HMRC wouldn’t allow you to transfer the registration number because of the existing debt. HMRC also have other rights – as a creditor – that could affect your ability to register for VAT in the future, including in any other role such as company director.

Given the issues involved, it’s important that you make sure that you get proper advice about this as soon as possible so that you understand your options and make the best decision.

Good luck sorting things out.

Marie

[Marie Stein]

Hi Colleen

Just posted an article about intercompany charges that goes into a bit more detail than my reply above:
https://vatexchange.co.uk/Intercompany-charges-april-2010

Marie

[Marie Stein]

Hi Colleen

I’m so sorry it has taken me a while to get back to you! I’ve had a bit of a hectic week and am behind with everything.

I suspect that your “recharges” are actually the way of sharing out the cost of overhead expenses – such as say the telephone bill – so that the subsidiary can use the facilities. In this case the “recharges” would be consideration for a taxable supply by the parent company to the subsidiary and liable to VAT. In effect the parent company is providing the telephone service available to the subsidiary in return for a share of the cost.

So the best way of thinking about these things is this: What does the subsidiary get in return for their share of the cost? Chances are it’s something that’s liable to VAT such as the use of motor vehicles, office facilities, telephone, IT services etc.

The most difficult areas are usually rent recharges and salaries – rent could be exempt from VAT in which you need to look at the advice given by HMRC in VAT Notice 742: Land and Property which is here on the HMRC website: http://tinyurl.com/dfof4l. Rent and property costs can be very complex so you’d need to spend a bit of time reading up on this subject if you are recharging a proportion of rent to the subsidiary for their exclusive use, eg if they have exclusive use of certain office or warehouse space.

Also staff recharges might not be liable to VAT, especially if the employees are employed under joint contracts of employment. You need to look at the VAT Notice 700/54: Staff which is here: http://tinyurl.com/ybo8mky for more information on this to work out if your recharges are consideration for a taxable supply of staff.

I hope this information helps you work things out. I’ve actually been working on a longer article for the forum about intercompany recharges which I hope to post in the next week or so which goes into this subject in more detail and I’ll post a link here when I’ve posted the article. But hopefully this is enough to help you with your current recharges.

Marie

[Marie Stein]

Hi Mikecrom

I wouldn’t speculate about how you set up your business or whether you set up companies in different countries etc – you really need to speak to a good accountant for proper advice about that sort of thing. But I can comment on the specific VAT issue and point you in the direction of where to find information on that subject.

You are correct in that the sale of online publications can’t be zero-rated because it’s not printed material. The VAT liability will depend on a number of factors, including what the customer receives in return for his subscription and in your case where the customer belongs.

The supply of online publications would probably fall within the heading of “electronically supplied services” but I’ll come back to that later on.

I don’t know how much you know about VAT so I’ve explained the main issue below and given you some links to the HMRC publications that contain further information on the subjects. There is some terminology involved that really has to be explained but once you’ve got your head around this, the principles are relatively straightforward.

EU VAT

VAT is a tax on supplies and all member countries of the EU are required to implement a VAT system based on certain EU Directives to ensure that there is a fair and equal system for all businesses operating throught the EU. There are different rules for goods and services but businesses in all countries are required to follow certain “place of supply” rules to establish whether they need to register for VAT in other EU countries and/or charge VAT to customers in other countries. So in principle the VAT rules would be the same regardless of which country you are based in. Also there is a scheme for non-EU businesses which requires them to charge VAT on certain “electronically supplied services” so there probably wouldn’t be any VAT benefit to setting up your business outside the EU.

The supply of many types of services – including electronically supplied services – falls within what is called the “general rule”, where you charge VAT at 17.5% for supplies to UK customers and non-business customers in other EU countries. That means that you wouldn’t charge VAT on sales to EU business customers and any customer outside the EU.

The technical term is that the services are “supplied where received”. You don’t need to know much more about the EU rules as such, but it’s important to be familiar with the terminology as this is used throughout the HMRC publication that you need to read.

The principle is therefore pretty straightforward. If you are based in the UK and want to run your business from the UK, then you would register for VAT and charge VAT to all UK customers and non-business customers in other EU countries.

Practical issues

What you need to do is first, to be certain that your services would fall within the “supplied where received” category and second, how to identify whether your EU customers are businesses or non-business customers.

You can find guidance on these issues on VAT Notice 741A “Place of Supply of Services” which is on the HMRC website here http://tinyurl.com/y5wyuoq. You really should read through the first 5 sections which explain the place of supply issues in more detail so you understand more about the subject.

• Services supplied where received – “electronically supplied services”

I’d suggest considering whether your supplies fall within the definition of “electronically supplied services” which is explained in section 15.12 of the Notice. The supply of an online publication probably falls within the list at 15.2.2 which includes “supplies of images, text and information” but you need to satisfy yourself whether or not your business activity would fall within this section. I can only give definitive advice on this sort of thing on a formal basis so at this stage I wouldn’t speculate any futher about whether or not your business would fall within this category. But it seems like a logical place to start. If you don’t agree, then have a look through the rest of section 15 to see if it would fall within any of the other business categories listed.

• Establish where your customer belongs

If you think that your business would fall within the “supplied where received” category, then you need to establish where your customer belongs in order to work out whether to charge VAT. The general guidance about this is explained in section 3.6, but there are some additional requirements for suppliers of electronically supplied services at section 19 which you should also read.

Other issues

As you’ll realise when you start to look at the HMRC guidance, the subject of VAT and international supplies can be complicated so you need to spend a bit of time making sure that you understand the issues that apply to your business. Whether you decide to set up overseas companies or not wouldn’t really make any difference because of the special scheme whereby businesses belonging outside the EU are required to register for VAT if they make certain supplies of electronically supplied services to EU customers (see section 20 of the Notice for information about this) so there wouldn’t be any benefit to setting up your business outside the EU to minimise the VAT issues. Businesses in other EU countries would have exactly the same issues that would apply here in the UK.

The other issue that you need to consider is that you would probably be required to submit EC sales lists if you are selling to EU VAT registered business customers – see VAT Notice 725: The Single Market for more information about this.

I hope this helps you to understand a bit more about VAT, although of course I can only cover the main principles here and this advice is for general information purposes only. I’d recommend that you find a good accountant who can help you decide how to organise your business for both tax and VAT purposes and ensure that you’ve got the VAT issues properly sorted out. I’d be happy to help on the VAT side through my consultancy business if you want more detailed advice.

Marie

[Marie Stein]

Hi Mikecrom
Sorry it’s taken me a while to answer your query – I hope to do it by the end of the week.
Marie

[Marie Stein]

Hi Loggy

I assume that when you refer to “EU List” you mean the “EU Sales List” or VAT 101 form? And that when you refer to “VAT-exempt” supplies you actually mean “services that are supplied where received”?

Technical stuff

Sorry to be so literal to begin with but it’s an important point and I just need to be certain that we’re talking about the same thing! In the UK we have a class of supplies which are “exempt” from VAT (eg insurance, banking services) and supplies which are “zero-rated” (eg most groceries and children’s clothing). In both cases the supplier doesn’t charge VAT to the customer but there is a fundamental difference in that the supplier is entitled to recover VAT on the cost of goods and services used to make “zero-rated” supplies, but not on the cost of goods and services used to make “exempt” supplies.

In the EU VAT Directive, the term “exempt with credit” is normally used instead of “zero-rated”. Supplies made to overseas business customers who are required to account for VAT using the reverse charge are referred to as supplies that are “supplied where received”. Supplies that are “exempt” from VAT, such as insurance or banking services, aren’t “supplied where received” so wouldn’t go onto the EU sales list in any event. So to avoid confusion, in the UK we generally use the term “zero-rated” rather than “exempt with credit”.

Apologies for the technical lesson but I just wanted to be sure that you are referring to supplies that are “supplied where received” or “zero-rated” rather than supplies which are “exempt” under UK legislation.

Reverse charge services and EU sales lists

As you know, supplies of certain services to businesses in other EC countries can be “supplied where received” so you don’t charge UK VAT but the customer accounts for reverse charge VAT on their VAT return if they are registered. You have to be sure that the customer is a business or “taxable person” and receiving the supplies for business purposes, otherwise you have to charge UK VAT.

The normal way of verifying that the supplies are made to a business for business purposes is to obtain the customer’s VAT registration number but you are allowed to accept alternative evidence if the customer isn’t registered for VAT. Section 19 of HMRC Notice “Place of Supplies of Services” http://tinyurl.com/ylds7d4 says the following:

VAT registration numbers are the best evidence that the supply is not received for a wholly private purpose and should be requested. If your customer is unable to provide a VAT number, you can accept alternative evidence. This includes certificates from fiscal authorities, business letterheads or other commercial documents indicating the nature of the customer’s activities. Such evidence should be kept as part of your records. Where VAT numbers are available, they should be shown on your invoice.

So if you are satisfied that you don’t have to charge VAT but the customer isn’t registered for VAT, then you don’t include the value of the services on the EU sales list. This is explained in VAT Notice 725 “The Single Market”, section 17.27 http://tinyurl.com/yk4qee8 which reads as follows:

Should I record supplies to a ‘taxable person’ in another Member State if they do not have a VAT registration number?

No, you should only record on an ESL supplies to businesses in other Member States that are VAT registered and can provide a valid VAT registration number. If you make a supply to a business which is not registered for VAT in their Member State because it is below the registration threshold, but which has provided you with evidence that it is in business (for place of supply purposes), you should not include these supplies on your ESL. This is because the absence of a VAT registration number would cause it to be rejected. However, in some cases receipt of the supply will result in the business being required to register in their Member State. If this is the case and a VAT registration number is subsequently given to you, an amendment should be made to the ESL using form VAT 101B ESL Correction sheet. This form can be downloaded from the HMRC website or requested from the VAT Helpline (see paragraph 1.2).

I hope that is the information that you needed.

Marie

[Marie Stein]

Sorry it’s taken me a couple of days to reply to your query, I’m having an odd week so far!

This is what HMRC tell you to do in your situation:

You may wish to increase your prices to include VAT but until you have a registration number you must not show VAT as a separate item on any invoice you issue. You can explain to any of your customers who are also VAT registered that you will be sending them VAT invoices later. Once you have your registration number you should send them the necessary invoices showing VAT within 30 days.

So if you were issuing invoices for £1,000 you’d actually issue the invoice for £1,175 but not show the additional amount of £175 as VAT.

Here’s the link to the VAT Notice “Should I be registered for VAT” http://tinyurl.com/yda9vx7. The above exert is from section 4.1 which explains how you start accounting for VAT when you are newly registered.

Anyway hope that helps and that the reply was nice and gentle for you!
Marie

[Marie Stein]

That’s a really interesting question and to be honest, I don’t know the answer! It also covers a big subject area and I’ve been thinking about it for the past couple of days, which is why it has taken me longer than normal to post this reply.

The liability will depend on the specific services provided and how those services are carried out. Just because the services of registered health professionals can normally be exempt doesn’t mean that the exemption will also apply to the services of an online clinic. And if the VAT liability is important for your business model, then you really should get definitive confirmation about the VAT position, possibly also request a formal ruling from HMRC, otherwise you could end up with a real financial mess in the future. I can’t find any guidance about this specific business activity in HMRC’s VAT guidance so I’m not sure if there are any precedents to follow.

First of all, HMRC’s views about the VAT position of services provided by health professionals is set out in VAT Leaflet 701/57 which is here http://tinyurl.com/yfd3j26 on the HMRC website. I’m sure you’ve already seen this but if not, sit down and read it cover to cover. If your business is in the health sector, you need to make sure you’ve covered every aspect as it will affect not only the prices you charge for your goods/services, but also how much VAT you can recover if some or all of your services are exempt. It’s not a long notice and you need to invest the time in reading up on this stuff. It explains when services of health professionals can be exempt and when drugs dispensed by pharmacists can be zero rated.

Unless the supplies made by your clinic fall within the strict guidelines set out in the legislation and explained in the Notice, you’d have to assume that the services of the clinic and the drugs are both standard rated. So that’s got to be your starting point.

For the purposes of this post, I assume that the doctors you would be using are all properly qualified and registered under the UK medical register so that their services would normally be exempt under the VAT legislation as set out in section 2 of the VAT Notice. What you have to establish is whether the service provided by the clinic fall within the exemption as health services.

You say that “The clinic allows patients to complete a thorough online health assessment for a given health condition. We then have a number of UK registered doctors available to assess the patient’s condition.”

HMRC state in their leaflet that: exemption will only apply to health services supplied by registered health professionals which are intended principally to protect (including maintain or restore) the health of an individual.

At first glance, it looks as though the services of your clinic could qualify for exemption as the primary concern is to assess and restore the health of the patients. However I wonder whether analysing the results of a questionnaire – online or otherwise – actually counts as health services given the way it could be carried out. Section 2.3 of the Notice contains a list of services which HMRC believe to be exempt:
 health services provided under GMS, PMS, APMS, PCTMS, GDS and PDS contracts
 sight testing and prescribing by opticians
 hearing tests
 treatment provided by osteopaths and chiropractors
 nursing care provided in a patient’s own home and
 pharmaceutical advice.

One of the main factors in all of these is that each of them involves some level of direct contact between the health professional and the patient. I assume that this means that HMRC would take the view that only services involving some direct contact – whether by the health professional or a supervised individual – can qualify for exemption.

So there are a number of issues to consider. How will the assessments be carried out? Will they be done by a member of staff or will they be done by a programme which is designed to identify those patients who may be at risk and only then a doctor is involved, so that only a proportion of patients are actually referred to a doctor? If so, then the “assessment” element might not be regarded as the provision of health care, simply a service of identifying potential “at risk” individuals and providing information, which might not qualify for exemption. However even in that situation there could be an arguement for exemption under the supervision rule – for example if the assessments are carried out by non qualified staff under the supervision of a medical professional as set out in section 4 of the VAT leaflet.

The liability could also depend on the contractual arrangements involved. For example are there different levels of charge according to whether or not a doctor or other healthcare professional is involved? In this case the charges could vary between standard rated or exempt.

You do say that the patient would pay for the assessment and prescription in one single price and in the event that teh assessment is exempt and the drugs zero-rated, then you’d have to apportion the price between the two.

Those are some of the main issues that I came up with. I’ve also had a quick look at HMRC’s internal manuals to see if I could find anything else to help – here is the link http://www.hmrc.gov.uk/manuals/vathealth/vathlt2100.htm. I couldn’t see anything that deals specifically with online medical services, but you might want to have a look through the guidance – which is more technical than the Notice and presumes a certain level of VAT knowledge – to see if you can find anything else yourself that would point you in the right direction.

I’m not sure whether this post helps much, I know I’ve rambled on quite a lot without coming to any conclusion. From a practical point of view, you might want to start by finding out what similar businesses are doing in respect of VAT and see whether your business model is the same or similar to theirs. But it’s important to remember that every VAT registered business is responsible for its own VAT affairs – in other words you can’t rely on the fact that a competitor is treating something as exempt, it always depends on your own specific circumstances.

Of course I may be getting teh whole thing out of perspective and it is possible that HMRC would agree that the services of your online clinic are exempt without any major problems! But I assume that the VAT liability is important to your business model and financial projections and I wouldn’t be helping if I over-simplified things for the sake of a quick answer. If you haven’t already, you really do need to take professional advice about this, whether from your accountant or other VAT professional. I would of course be happy be help through my formal consultancy services.

Either way it’s an interesting subject and I hope your do well in your new venture.

Marie

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