Cooper Accounting is keen to demystify the VAT implications when supplying services abroad.
If you are a VAT registered business operating and providing services through a UK Limited Company, do you need to charge VAT on your invoice when you supply services to an overseas company? The answer is…. complicated (and quite honestly it depends).
There are several tax implications that come with supplying services abroad. Predominantly, these implications revolve around the ‘Place of Supply of Services’ rules, used to dictate which country’s VAT regulations should be followed for each ‘sale’.
Is the place of supply of services in the UK subject to VAT?
If the supply is in the UK, it is subject to UK VAT. If the supply is in an EU member state or another country, it is said to be ‘outside the scope’ of UK VAT.
If you ‘belong’ in the UK and the place of supply of your services is the UK, you must charge any UK VAT due and account for it to HMRC regardless of where your customer belongs.
What ‘place of supply’ means…
The ‘place of supply’ is the place where you make a supply and where you may be charged and pay VAT.
With services, deciding the ‘place of supply’ can be complicated and there are various rules that apply, depending on:
- whether you’ve more than one business location
- the kind of service(s) you provide
- the place where your business, or your business customer ‘belongs’
It generally all comes down to how the HMRC classify the “place of supply” for your services.
If your place of supply is in the UK, then you need to charge and report UK VAT.
If your place of supply is in another EU country, you do not need to charge UK VAT.
However, you need to check with your overseas client to determine if they can apply the “reverse charge”. The reverse charge is a simplification measure whereby your client accounts for VAT in their country on your behalf. This avoids the need for suppliers to register in the member state where they supply their service(s). If the reverse charge is not available, you may need to account for VAT in that member country.
If your place of supply is in a country other than the EU, then you do not need to charge VAT as it is outside the scope of VAT.
How to determine the place of supply?
The general rule for working out the place of supply is if you supply services to a:
Business customer – the place of supply is ‘normally’ the place where the customer belongs
Non business customer – the place of supply is ‘normally’ the place where the supplier belongs
The customer will belong in the UK if:
- their business (head office or only office) is in the UK, and they have no fixed establishments (subsidiary offices or agencies) in other countries.
- their business establishment is in the UK, and they have fixed establishments in other countries, but the UK office is the one mainly concerned with supplying services.
- their business establishment is not in the UK, but they have a fixed establishment in the UK which is the one where you supply services from.
- they do not have either a business or fixed establishment in the UK or elsewhere, but their business is a corporate body (for example, a limited company) which is registered in the UK.
- they do not have a business or a fixed establishment in the UK, or anywhere else, but the UK is their usual place of residence.
If none of these apply, then it is likely that the customer belongs outside of the UK. Therefore, the place of supply will be in the country the customer is based in.
E.g. If your client has a head office in the UK but you are contracting to the Dutch subsidiary which has a fixed office based in Amsterdam then it is likely that the place of supply is the Netherlands not the UK.
Accounting for VAT
If your place of supply is in another EU country
You will need to zero rate these services. No VAT will be charged but the sales will need to go on the EC sales list.
You need to state on your invoice “Subject to reverse charge in the country of receipt” and you also need to include the customer’s VAT number.
If your place of supply is outside the EU
You should select VAT code no VAT on the sales invoices as the services are outside the scope of VAT.
Which country’s VAT rules should you use when charging VAT on services?
If you are in the UK and the place of supply of your service is in the UK, you charge and account for VAT according to UK VAT rules.
If you are in the UK and the place of supply of your service is in an EU country, you do not pay UK VAT.
However, for some supplies, you may need to register and account for VAT in the country of supply. You must check with the tax authority in that country to find out how to treat the service(s) you are supplying. A list of EU VAT contacts can be found in Notice 725.
If the place of supply of your service is not in the EU, you do not have to charge EU VAT, but you should include the sale in box 6 on your VAT Return.
If your business is involved in supplying services overseas and you are not sure about your VAT obligations, or if you’re finding things complicated and stressful – reach out to Cooper Accounting today.
Our friendly Accountants will offer you sensible advice, reduce your stress and uncomplicate overseas VAT.
Give Cooper Accounting a call today.
Work out your place of supply of services for VAT rules
Working out your place of supply.
Special rules for a place of supply.
Checking a VAT number in the EC is valid.
EU country codes for completing the EC sales list.
How to report EU sales for VAT (EC sales list).
VAT thresholds in other member states.
You can get in touch with Cooper Accounting today by giving us a call, email or filling out the form below.