Q:
My company is supplying some services to a Finnish non-profit organisation which is a private research instititute which has been in existence for many years.
In Finland the VAT number is derived simply from the business registration number (how joined up!) but there is no corresponding entry on the EU list.
I assume that the organisation has no VAT registration and is therefore VAT-exempt.
I will of course confirm this status.
How do I treat this? Are exempt supplies just not recorded in the EU Sales List?
A:
Hi
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
Q:
My company provides services to a Foundation based in Germany. We have been treating them as any other VAT registered business in the EU which means that we have not been charging them VAT by quoting their VAT number on the invoice and stating that they are subject to a reverse charge.
Recently they contacted us saying that all the invoices we issued to them before July 2011 should have charged them VAT as all the non-profit foundations should have been treated as private individuals before 01 July 2011 and therefore charged VAT.
Is that a case, has there been any change in the EC VAT treatment of non-profit foundations and therefore is it valid what they are requesting? They want to pay the tax to us now that they claim should have been charged to them prior July 2011.
I was trying to find any notification on the HMRC website regarding that but couldn’t find anything that would be clear enough. I know that the correct VAT application depends on the use of supplies, whether it is business or non-business purpose. How does that apply to non-profit foundations?
Please help.
Violetta
A:
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