VAT is one of the most complex areas of tax that CRM advises on. When you add into the equation overseas sales, exchange rates and rules with lots of exceptions, some key points can get lost in translation! We have distilled the most important details we consider when helping our clients with the complex processes involved.
The key question to bear in mind is: Who is supplying what to whom?
Who is supplying?
Most of our clients are based in the UK but we need to know if that is not the case. We will ask you for the location of all the parties in the transaction.
What is being supplied?
Some goods or services are subject to special rules and considerations, particularly in an overseas context, it is our job to investigate zero/reduced rating, exemption or option to tax.
Who is the recipient?
VAT rules vary when the transaction is business to business (B2B) or business to consumer (B2C). Supplies to charities, government bodies or intermediaries can be complicated – is their onward supply as principal or as your agent? We will ask: where does the customer ‘belong’?
Supply of goods
B2B – EU customer
Supplies of goods to an EU business customer are actually dispatches or removals, not exports. As long as certain conditions are met and the customer is VAT registered in the EU state to which the goods are being sent, the sale can be zero-rated.
To help HMRC charge the correct VAT, you have to report your zero-rated EU sales on your VAT return, on the EC Sales List (ECSL) and on the Intrastat Supplementary Declaration (if you sell over £250,000 of goods to other EU customers in a year).
B2C – EU customer
These sales are known as distance selling and UK VAT is charged unless distance selling thresholds for the country in which the recipient belongs has been breached. Each country has a different threshold (€35,000 or €100,000 per calendar year) and if the distance selling threshold is breached, you must register for VAT in that country.
B2B and B2C – outside EU
Goods sold to customers outside the EU are exports and zero-rated irrespective of whether B2B or B2C. It is critical to keep proof of exports and where the customer belongs.
Supply of services
B2B – EU customer
Generally for B2B sales, the place of supply is where the customer belongs. Where this is another EU country in which the client is not registered (e.g. due to distance selling rules), then no UK VAT is charged as it is outside the scope of UK VAT, and the customer will ‘self-supply’ on their domestic VAT return. It is important to quote the recipient’s VAT number on the invoice if possible (it’s good evidence that the customer is a business).
B2C – EU customer
UK VAT is charged in this case as the place of the supply is where the supplier belongs. This is treated as a normal sale on the VAT return and would not be included in an ECSL.
B2B or B2C – outside EU
Generally, services provided to a customer outside the EU are outside the scope of UK VAT. However, depending on local laws and thresholds, there may be a requirement to register in the country where the supply is deemed to take place (i.e. where the customer belongs).
Some services such land related services, cultural/sporting events, restaurants, international freight, telecoms and electronic services are exceptions to the basic rule and require special attention.
As you can see, there are many ways to slip up and submit the wrong data on your VAT return when overseas business comes into play. The safest way to deal with the complexities is to take expert guidance and assistance – that’s where CRM comes in. Whether it’s ECSL, MOSS, country thresholds or self-supply, it really pays to work with a professional in the field.
For further information, you could check out these HMRC guides:
Or save yourself the headache altogether and contact our team of experts on 01865 379272.