A summarised guide to VAT on international transactions for UK VAT registered businesses

Contents:

 

  • Selling goods outside of the UK
  • Buying goods from a business outside of the UK
  • Place of supply for services
  • Where does a business belong?
  • Selling services outside of the UK
  • Buying services from a business outside of the UK
  • Other matters
  • How to post the VAT on international transactions on KashFlow


David Wilsdon FCCA

Revised 23 October 2014

Selling goods outside of the UK

 

Goods sent to an EU country to a VAT registered customer:

  • This type of sale is known as a dispatch
  • Zero rate VAT
  • State on invoice the customers VAT number
  • State on invoice “Reverse charge VAT applies to this transaction”
  • Customer has to account for reverse charge VAT in their country
  • VAT return: include the net value in box 6 and 8
  • Include in an EC Sales List

Goods sent to an EU country to a non-VAT registered customer:

  • Treat as UK sale with VAT as normal
  • Do not include in an EC Sales List
  • KashFlow: Record the sale with the standard UK VAT rate.

Goods sent to a country outside of the EU (all types of customer):

  • This type of sale is known as an export
  • Zero rate VAT
  • VAT return: include the net value in box 6
  • For retail situations treat as UK sale a first
  • Can zero rate and refund the VAT if retail customer later proof of export provided

In all cases of selling goods outside of the UK you must keep evidence of the goods leaving the UK.

 

Buying goods from a business outside of the UK

 

Goods received from an EU country (non-UK):

  • This type of purchase is known as an acquisition or arrival
  • Provide your supplier with your VAT number
  • Your supplier should not charge their country’s VAT.
  • Your supplier will record this sale on their EC sales list including your VAT number
  • You should account for reverse charge VAT in the UK
  • VAT return: include VAT in box 2 and 4
  • VAT return: include the net value in box 6, 7 and 9

Goods received from outside EU:

  • This type of sale is known as an import
  • There will be no VAT on the purchase invoice
  • UK VAT will be charged at the point of importation
  • VAT return: include the VAT paid amount in box 4 if appropriate
  • VAT return: include the net value in box 7

 

 

Place of supply for services

For goods the VAT position depends on the goods physically crossing country boarders. For services the VAT position depends on the ‘place of supply’.

For the purpose of place of supply of services a business is either a VAT registered or capable of being VAT registered. This can include businesses that are under the VAT threshold in their country. You must keep the VAT number of your customer or other proof that they are a business if they are not VAT registered.

The basic rule for the place of supply of service is:

  • business to business: place of supply is the country in which the customer belongs.
  • business to consumer: place of supply in the country in which the supplier belongs.

See below for details of how to determine where a customer or supplier belongs.

The main exception to this basic rule is that supplies directly relating to land (including hotel accommodation, restaurants, catering, architects, building work) and admission fees to events have a place of supply at the location of the land or event.

A further exception relates to sales of certain services to an individual or non-business organisation outside of the EU. Under the basic rules these normally have a UK place of supply as the customers are not businesses. However such sales are deemed to have a place of supply of the customer under Schedule 4A paragraph 16 VATA 1994. This is only for non-EU customers and the main services this relates to are:

  • advertising services,
  • services of consultants, engineers, consultancy bureaux, lawyers, accountants, and similar services, data processing and provision of information, other than any services relating to land,
  • the supply of staff,
  • the letting on hire of goods other than means of transport,
  • electronically supplied services (as to the meaning of which see paragraph 9(3) and (4)).

A new exception (from 1 January 2015) relates to electronically supplied services (e.g. websites, software, e-books) to an individual or non-business organisation inside of the EU (but outside of UK). Such sales are now deemed to have a place of supply of the customer (was place of supplier). There will no VAT threshold for such supplies therefore any such supply will require VAT registration in the country of that customer. The registration can be made using the Mini One Stop Shop (MOSS) facility. If you supply as e-services to consumers (not businesses) in EU (outside UK) contact us for further details on MOSS registration.

 

Where does a business belong?

A business with only one establishment will belong in the country where that establishment is located.

A business having more than one establishment is regarded as belonging at the location of establishment most closely related to the supply in question. Normally it is the establishment actually supplying or receiving the goods or services which is the establishment most directly connected with the supply, even if the contractual position is different.

Note, an ‘establishment’ has the technical and human resources necessary for providing or receiving services. An establishment for this purpose includes a branch or agency.

 

Selling services outside of the UK

Services with place of supply in EU (non-UK):

  • State on invoice “Reverse charge VAT applies to this transaction”
  • VAT return: include the net value in box 6 (not box 8)
  • May need to consider registering for VAT in country which is the place of supply
  • If customer is VAT registered they have to account for reverse charge VAT in their country
  • If customer is VAT registered include sale on an EC Sales List.

Services with place of supply outside EU:

  • Outside the scope of UK VAT.
  • VAT return: include the net value in box 6

Special case where place of supply is in the UK:

Sales to international organisations (e.g. United Nations, EU) have a UK place of supply as these are not businesses. However such sales can be zero rated if a special certificate (under Article 15(10) of EC Council Directive 77/388/EEC) is obtained from the organisation that is being sold to.

 

Buying services from a business outside of the UK

Services with place of supply in EU (non-UK):

  • Provide your supplier with your VAT number
  • Your supplier should not charge their country’s VAT.
  • Your supplier will report the transaction on an EC Sales List including your VAT number
  • You must account for reverse charge VAT in the UK
  • VAT return: include VAT in box 1 and 4
  • VAT return: include the net value in box 6 and 7

Services with place of supply outside EU:

  • There will be no VAT on the sales invoice
  • You must account for reverse charge VAT in the UK
  • VAT return: include VAT in box 1 and 4
  • VAT return: include the net value in box 6 and 7

 

Other matters

Foreign currency transactions

 The currency of the invoice makes no difference for VAT purposes. You can invoice for the goods and services that you supply in any currency. However, if there is any UK VAT due on the transaction, then your invoices must also show the following in sterling:

  • the total net value of goods and services at each VAT rate
  • the amount of VAT, if any, at each rate

 

Other reporting requirements

An EC sales list is required if you supply goods or services to EU non-UK businesses that are VAT registered. The EC sales list has to be produced quarterly (calendar quarters) and is due 14 days after the quarter end.

Intrastat reporting is required if you sell more than £250,000 goods to customers in EU countries or buy more than £600,000 from suppliers in EU countries. Intrastat reports show the both the buying and selling of goods to EU non-UK businesses that are VAT registered.

Intrastat reporting is not required for services.

 

Effect of international transactions on UK VAT registration

The value of goods and services purchased from EU non-UK suppliers is added to turnover when checking VAT registration threshold.

Zero rated sales count towards the VAT registration threshold. HMRC will often agree to accept non-VAT registration of UK business with only zero rated sales. Such agreement must be obtained in writing and a VAT 1 form (VAT registration application) must still be completed.

A UK business which only or mainly sells its goods or services outside of the UK will usually still be able to register for UK. This may enable the reclaiming of UK VAT costs.

 

Non-UK VAT and other taxes

When selling any goods or services outside of the UK there can be a need to register for VAT or other local sales tax. There can also be a need to register for local direct taxes (equivalents to corporation or income tax) in the country in which you are selling.

Distance Selling rules mean that if selling more than €100,000 of goods to non-VAT registered customers one country then have to register in that country and have to charge that countries VAT.

 

How to post the VAT on international transactions on KashFlow

 

Selling goods outside of the UK

Goods sent to an EU country to a VAT registered customer:

Flag the good s nominal code as a product, enter VAT number in customer details (tick auto-include on invoices), flag the customer as ‘VAT registered in another EC member state’ and zero rate the sale.

Goods sent to an EU country to a non-VAT registered customer:

Record the sale with the standard UK VAT rate.

 

Goods sent to a country outside of the EU (all types of customer):

Flag the good s nominal code as a product, flag the customer as ‘Based outside the EC’ and zero rate the sale.

 

Buying goods from a business outside of the UK

Goods received from an EU country (non-UK):

Flag the good s nominal code as a product, flag the supplier as ‘VAT registered in another EC member state’ and record the purchase invoice as using the standard UK VAT rate.

 

Goods received from outside EU:

Record the purchase invoice using the details shown on actual invoice. For any UK VAT charge at the point on importation record a VAT only purchase invoice (net: £0, VAT: VAT paid).

 

Selling services outside of the UK

Services with place of supply in EU (non-UK):

Ensure that the service nominal code is not flagged as a product, enter VAT number in customer details (tick auto-include on invoices) if VAT registered, flag the customer as ‘VAT registered in another EC member state’ and zero rate the sale.

 

Services with place of supply outside EU:

Ensure that the service nominal code is not flagged as a product, flag the customer as ‘Based outside the EC’ and zero rate the sale.

 

Buying services from a business outside of the UK

Services with place of supply in EU (non-UK):

Ensure that the service nominal code is not flagged as a product, flag the supplier as ‘VAT registered in another EC member state’ and record the purchase invoice as using the standard UK VAT rate for such a service.

Please note that in this case ‘VAT registered in another EC member state’ means capable of being VAT registered in another EC member state.

 

Services with place of supply outside EU:

Ensure that the service nominal code is not flagged as a product, flag the supplier as ‘VAT registered in another EC member state’ and record the purchase invoice as using the standard UK VAT rate for such a service.


 

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