Q:
Hi Guys,
My first post here…
I am not an accountant, but a company director, but since we are in holidays, and my accountant has shut, I thought I may get a quicker reply here…
I did a search on the old HMRC website, and didn’t really get anywhere.
In short, my question is this:
I have a client of mine looking to engage my services. The client is registered in the UK, as a limited company, but is trading as that company abroad, outside the EU (can’t remember where). The short of it is that this client wants to buy some items from me, and have some things custom made, and then shipped from me straight out to this company.
I am no expert, but I am pretty sure that as he is registered in the UK, despite the fact that these items are being shipped outside the EU, I SHOULD be charging VAT?
Here is a breakdown of the job, and the services/items and how it goes together my end:
– New equipment (purchased by me, for re-sale, at a profit)
– Ex-rental equipment (currently an asset, for sale)
– Labour Costs (to do certain things to the items etc )
The guy has said that straight from me, DHL are going to pick up and send to the country….
So, whats the deal with VAT here?
Cheers
Neil
A:
Hi Neil
Well actually in this case your client is probably right. Even though his company is a UK limited company, in this case the deciding factor is what happens with the goods.
You mention that the client wants to engage your “services” but in fact it sounds as though you will be making a supply of goods – albeit that you might carry out work on some of the goods to alter them to your clients’ specifications. So I assume that your contract would be for the sale of the goods and not for services. I’ve set out below the main rules for the export of goods and where to find further information on specific situations in the HMRC guidance.
In principle the supply of goods to a customer outside the EC is an export of goods and can be zero-rated if certain criteria are fulfilled, which are normally that the goods are exported from the UK and you receive proof of export within 3 months of the date of your supply.
Information on exports is in the VAT Notice 703, which is here http://tinyurl.com/y8klfds on the hmrc website. The notice is a bit of a minefield if you don’t know what you’re looking for, but if the customer organises delivery, then the transaction is regarded as an “indirect export” and the main rules for dealing with indirect exports are in sections 3.4 and 3.5 of the notice. In this case the supplier needs proof of export as explained in section 6.6, which deals with the evidence required when the good are supplied ex-works and the customer arranges the export. They include a list of information that can be used to substantiate that the goods have been delivered to a customer outside the EC.
The downside is that as the supplier it would still be your liability to pay the VAT if the goods don’t leave the UK or you don’t have proof of export within the 3 month time limit. HMRC suggest that you ask the customer to pay a deposit equal to the value of the VAT and refund this once you’ve received proof that the goods have left the UK. Sometimes this sort of thing is written into sales contracts to make sure that the customer provides the relevant proof of export.
I hope this helps you find the answer to your query but it’s probably worth confirming the exact details of the transaction with your accountant if it’s a large value contract or if you’re in any doubt.
Marie