Q:
Hi Marie,
I have a VAT registered business that has started to do consultancy work for a number of business based abroad. Having read numerous long HMRC documents I believe the current recording of transactions should be as follows:
1) Services supplied to EC Member Countries
Charge 0% VAT and make sure their VAT registration number is on the invoice and check that it is a valid VAT number. (https://taxation-customs.ec.europa.eu/index_en)
These Sales are reported on the VAT return in Box 1 (as currently Box 8 is for EC supplied goods only) I therefore use my 0% VAT code for these sales in my accounts software.
2) Services supplied to non-EC Member Countries
Charge 0% VAT. Use 0% VAT code and report the Sales number in Box 1 on VAT return.
3) Receipt of services from EC Member Countries
Give supplier my VAT number and invoice should have 0% VAT on it.
These purchases are reported in Box 7 and I use the VAT code 0% purchase from EC Suppliers
4) Receipt of services from Non-EC Member Countries
I should be getting charged 0% VAT and report this purchase in Box 7
In you opinion is the above summary correct? I know there are changes planned for 1st Jan, 2010 regarding Service to EC member countries but will leave the treat of reading about them for a later date 🙂
I appreciate your feedback.
Regards
Backno
A:
Hi Backno
Thanks for your query – as you say there is loads to read up on this subject but you’ve made a really good start.
I do have a few points which I’ve noted after your queries below. These rules apply to the VAT reporting for the supply or receipt of services such as consultancy which are deemed to take place where the customer belongs. So as long as your business involves the supply and receipt of this type of service and your business is “fully taxable” (ie you don’t make any exempt supplies which affect your entitlement to recover input tax) then this should pretty well cover your VAT reporting requirements.
I’m not an accountant and not familiar with accounts software, so you’ll need to confirm how to post the transactions for accounts purposes with your accountant.
1) Services supplied to EC Member Countries
Charge 0% VAT and make sure their VAT registration number is on the invoice and check that it is a valid VAT number. (http://ec.europa.eu/taxation_customs/vies/vieshome.do?selectedLanguage=EN)
These Sales are reported on the VAT return in Box 1 (as currently Box 8 is for EC supplied goods only) I therefore use my 0% VAT code for these sales in my accounts software.
This is the main error – Box 1 on the VAT return is for the value of tax, not the value of the sale itself. So if your services are all supplied to overseas businesses and you have not charged any VAT, you enter “NIL” in box 1. The value of the sale goes into Box 6 of the return, “Value of Outputs”. You are correct that Box 8 is only for despatches of goods to EC businesses, but the value of all taxable supplies of goods and services (whether made in the UK or overseas) goes into box 6.
2) Services supplied to non-EC Member Countries
Charge 0% VAT. Use 0% VAT code and report the Sales number in Box 1 on VAT return.
As for point 1 above.
3) Receipt of services from EC Memeber Countries
Give supplier my VAT number and invoice should have 0% VAT on it.
These purchases are reported in Box 7 and I use the VAT code 0% purchase from EC Suppliers
This is correct as far as you go, but you also have to account for “reverse charge” VAT on imported services from EC or non-EC suppliers. It won’t affect the amount of VAT that end up paying to or claiming from HMRC on the VAT return, as long as your business is fully taxable. But it is an accounting entry that businesses are required to make when they purchase certain services (including consulting) from overseas suppliers.
I’ve summarised the mechanics of the reverse charge in the appendix of my article here: https://vatexchange.co.uk/management-services/place-of-supply-of-services-2/. And you can find more detailed information in VAT Notice 741, Section 16, Reverse Charge.
Although this probably won’t affect the tax that you pay to HMRC, it’s a good idea to get into the habit of making these entries on your return. Strictly speaking your VAT return is in error if such information is not included and although I have never known HMRC to take any action in these cases, things could change!
4) Receipt of services from Non-EC Member Countries
I should be getting charged 0% VAT and report this purchase in Box 7
As point 3 above.
The Reverse Charge Sales list which is being introduced next year will be relatively easy to complete. If you can get used to the terminology involved for the VAT return accounting, you shouldn’t have any problems with that.
Hope this clarifies things, let me know if you need any further help.
Marie
Q:
I work for a solicitors and we provide legal services to a personal client in France. He is not a business so therefore does not have a VAT number to quote on our invoice. I’m not sure if we are meant to be charging the VAT to this client or not. All services are provided from our only office in the UK and we are VAT registered.
Is anyone able to assist?
A:
Hi Chris
It’s not a simple yes or no answer, so I’ve summarised the main rules below to help you decide whether or not to charge UK VAT.
The general rule is that if you are supplying legal services or any other services that are “supplied where the customer belongs” to a non-business customer in another EC country, then you charge UK VAT.
This is explained in section 12 of VAT Notice 741: Place of Supply of Services which can be downloaded from the HMRC website. Paragraph 12.4.1 explains that the supply of such services to non-business customers in other EC countries is “supplied in the UK” which means that the supply is liable to UK VAT.
You also need to read sections 13.5.6 and 13.5.7 of the notice which explain which legal services are covered by this rule – and therefore liable to UK VAT – and those that are excluded.
The main exception is if the legal services are related to land or buildings in another EC country – for example in France. In that case, the place of supply of the services is where the land or buildings are situated and the solicitor may be liable to register for VAT in that country, regardless of where the customer belongs. This is explained in more detail at section 6 of the notice.
The rules sound somewhat complex but once you’ve got your head round these principles, you should be able to work out the correct liability.
Kind regards
Marie
Q:
Hi Marie,
I’ve just read Backno’s query and wonder if it is similar for vehicles supplied to EU states.
Here is a scenario.
1. Client buys and sells vehicles both here and within EU. They bought vehicle in Uk with VAT added and sold it to a member state at a profit – is the VAT recoverable by my client?
2. They bought vehicle in Uk with no VAT on purchase receit and sold it to a member state at a profit – how is this treated with regards to VAT
Regards
Cris
A:
Hi Cris
Just seen your query and I won’t have time to reply properly today. But the rules about VAT and motor vehicles or any other goods are different to those relating to services. If you want to start reading up on the subject, you can look at VAT Notice 725: The Single Market, which deals with the sale and purchase of goods between businesses in different EU counties. You can download the notice from the HMRC website: http://www.hmrc.gov.uk.
Read the section about “Despatches” and “Acquisitions” of goods to/from other EU countries as this explains how the EU VAT system works for intra-EU sales of goods.
I need to know a few things before I can help with your specific queries – is your client registered for VAT in the UK or in any other countries? Also, you say that the client sold cars to purchasers in other EU countries – was this to a business customer or a non-business customer? This is important as the EU arrangements differ according to whether the customer is business or non-business (eg a private individual).
Kind regards
Marie