Q:
I hope someone can help clarify this lingering issue for me.
I am about to embark on a new project. I have a UK company which will be buying merchandise from an EU based company and selling to an non-EU company. The merchandise never enters the UK. It is shipped direct from the EU company to a non-EU company. This is the only activity of the UK company. Volumes of sales will be greater than UK VAT threshold.
Do I need to register for VAT number?
Any help much appreciated.
Digi
A:
Hi Digi
I’m very sorry, have just realised that your query was sitting there waiting for a reply!
Based on the information you have provided, you don’t have to register for VAT in the UK if this is your only activity. This is because the goods never enter the UK and therefore the sales are “outside the scope” of UK VAT.
In principle the EU supplier who sells you the goods should be able to sell them to you without adding VAT because the goods are being shipped directly to the non-EU destination.
However you might want to register for VAT here if you are incurring any VAT bearing costs as you should be able to recover the VAT on those costs in the same way as any other UK business. This is called “voluntary registration”.
Also, it might be a good idea to register anyway in case you have any situations in the future where the goods are delivered to customers in the EU rather than outside the EU. If you aren’t registered for VAT in the UK or the EU country where the goods are delivered, your EU supplier would have to charge VAT which you would not be able to recover. That is a whole separate subject and you can find information on this and other intra-EU trade VAT issues in VAT Notice 725: The Single Market, which is on the HMRC website.
You do need to think carefully about whether or not to register in the UK on a voluntary basis – to begin with it will benefit you as you will be able to recover VAT on most UK costs, but it also means that you have to submit VAT returns and account for VAT on any taxable supplies in the UK.
There is more information on whether or not you need to register for VAT in the HMRC Notice 700/12 “Should I be registered for VAT” here http://tinyurl.com/3a4rak. Sections 1.11 and 2.9 deal with making supplies outside teh UK and voluntary registrations respectively.
I hope this helps a bit even if it’s a bit late, but let me know if you have any further questions on this subject.
Kind regards
Marie
Q:
Hi Marie,
I have have two follow up questions if I may.
(1) Does Digi’s activity fit the definition of triangulation?
(2) If Digi’s company is not VAT registered in the UK does this mean the EU supplier have to charge VAT to the UK company whom it will invoice?
Hope you can clear this up for me.
A:
Hi
Triangulation is a very specific term used to describe the following situations involving the transfer of goods WITHIN THE EU.
Suppose you have 3 companies each in different EU countries, say France, Germany and Spain. The French company sells goods to the German company which then sells them to the Spanish company. So you have 3 parties involved hence the term “triangulation”.
But the goods are sent directly from France to Spain, avoiding their transfer to and from Germany. In principle the German company would have to register for VAT in either France or Spain to avoid being charged VAT by the French supplier. But the special “triangulation” rules allow the French company to zero-rate the supply of the goods to the German company so that it doesn’t have to register in France or Spain. See VAT Notice 725, The Single Market, Section 13 for information on this special rule.
NB a bit of terminology – supplies of goods from one EU country to another are called “despatches” for VAT purposes, not exports. The term “export” refers to goods sent from an EU country to a non-EU country.
Now Digi’s situation is different. Because the goods are being sent directly from the EU to the non-EU customer, this is an “export” of goods. Even if Digi doesn’t register for VAT in the UK, the EU supplier should be able to zero-rate the sale to the UK company. The general rules for this are explained in VAT Notice 703 which deals with exports from the UK. These same rules should apply to exports from any EU country – ask the EU supplier to confirm that they will zero-rate the exports in these circumstances.
Hope this clarifies things for you!
Kind regards
Marie