I am VAT registered but selling to a non EU country, do I need to add VAT?
A Question and Answer session.
You: The answer is generally an easy no, but perhaps it is a little more complicated, and there are exceptions? Things I need to be aware of?
Me: It depends on what you’re selling – goods or services. If goods do you export them? If services then what kind of services?
The rules on this can be complicated but generally speaking:
- If you are exporting goods outside of the EU and have evidence of this, the sale is zero-rated: https://www.gov.uk/guidance/vat-exp…ods-abroad#vat-on-exports-to-non-eu-countries
- If you’re selling services then it depends on the place of supply – the general rule is that if you’re selling to another business the place of supply is where the customer belongs and if that is outside the EU then the supply is outside the scope of UK (and EU) VAT.
- If you’re selling services to a consumer the general rule is the supply is where the supplier belongs and UK VAT is chargeable BUT there are exceptions to these rules for certain kinds of service. See https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a particularly section 12 for exceptions to the B2C general rule.
You: To answer the questions above, it is services (consulting), to a customer not consumer. The customer is incorporated in Middle East.
You: I have four questions
1) Are the export of services to non EU customers zero rated, or outside of scope? I just wanted to double check. The page you linked mentions it is zero rated (but that is for goods not services).
2) Do the exports count as ‘taxable turnover’ when determining whether or not you have hit the £85k threshold for registering for VAT?
3) However, given that there is no VAT charged, I assume it is very much in my interest to register anyway so I can reclaim input VAT?
4) Do I need to look into VAT of the country I am exporting to? Or is the only thing that matters is that they are not in the EU?
Me: Here are the brief answers to your question and a request not to mix the rules on goods to services.
- Exported goods are zero rated. Exported services like yours are outside the scope of UK VAT.
- Supplies that are outside the scope of UK VAT do not count towards your turnover for the purposes of the registration threshold.
- Makes sense but depends on your choice
- No. If you are trading (doing business there) in any country you need to know the rules in that country and may have a liability to register for local taxes depending on the country. If UK and EU legislation places your supplies as being made in a foreign country then I would not be assuming that the foreign country has not reached that same conclusion too, and if they have then they may be quite keen on taxing supplies made in their own country.
You: Thanks again for your reply. Re question 2, it actually seems that I cannot register for VAT even if I wanted to, if all my supplies are outside of scope?
Me: You can register for VAT if your supplies are Outside the Scope but not if they are exempt. If you make Outside the Scope supplies that would be taxable if made in the UK and you are physically based in the UK then you can register for VAT and recover any UK VAT you incur whilst making those supplies under the auspices of Schedule 1 (paras 9 and 10) and Section 26 (2) b of the VAT Act 1994.
You: Thanks very much. I am very grateful for your extremely knowledgeable answers for the difference re. Outside the Scope and Exempt when it comes to registering. So the situation is this: I can register as long as I am making supplies that would not be exempt if the place of supply was UK. But, such supplies do not count towards the £85k threshold therefore there is no requirement for me to register, ever. Is this correct?
Thank you for bringing the VAT Act 1994 to my attention. I actually would like to match everything I have learned from this discussion to the source. Specifically these points:
1) Services outside the EU are outside of scope so no VAT is charged
2) Outside of scope services are not counted towards the £85k threshold and therefore there is never a requirement to register
Me: Some of that is actually fairly far ranging
and could probably take an essay, so take these as ‘starters for ten’
references: (VA will mean VAT Act 1994 S=Section, Sch=Schedule,P=paragraph)
1) Services outside EU are outside of scope:
VA S6 sets the scope of VAT so basically this single line tells you all the things that are covered by VAT: “VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him”.
Thus for VAT to apply the supply must be deemed to be made in the UK, so services made outside of the UK are outside of UK VAT. Since all other EU legislation follows broadly the same pattern in scope you can say the same throughout the EU (although they use ‘economic activity’ rather than business as a definition which can be a slightly broader and/or more informative term).
To determine whether something is in the UK you need to look at VA S7 for goods and VA S7A for services. Sch 4A sets out some special rules for certain services that shift place of supply from the ‘general rule’ in S7A.
So for 2 and what comes within the threshold:
VA Sch 1 sets out most of the provisions relating to registration (Sch 2 and 3 set out when you might need to register if you buy too much stuff from the EU but that’s looking at £70k+ of purchases so I wouldn’t worry too much).
Anyway Sch 1 P1 sets out when you are liable to register: “at the end of any month, if the person is UK-established and the value of his taxable supplies in the period of one year then ending has exceeded £85,000”
In there we can see that it’s the value of ‘taxable supplies’ that we look at and heading back to our old friend S4 we can see at S4 (2) that taxable supplies are “a supply of goods or services made in the United Kingdom other than an exempt supply.”
So anything outside the UK under the provisions above (or things which are exempt e.g. under VA Sch 9) doesn’t count towards the £85K.
You: This is amazing, thank you very much!!! I have genuinely enjoyed this lesson in the specifics of the VAT Act. One thing- I think you meant VA S4 not S6 with regards to “Services outside EU are outside of scope”
Ok so one final question I did not think of this before. I am pretty sure I know the answer but want to be sure. If I register for VAT (voluntarily of course) then I can reclaim input VAT and STILL do not need to add output VAT- because they are outside of scope- is this correct? This feels like cheating, but it seems to be in accordance with the law.
Me: Yes registering for VAT does not change the nature of your supplies so still outside the scope, no VAT charged and Input Tax to recover. It does of course mean that anything you do that is taxable (at standard or reduced) even if only a very small part of the business would need VAT charged upon it.
You: Thank you!!! Ok I know I said that was my final question but I have one more
Does everything you have said apply equally to me being self employed or if I incorporate and trade through an intermediary?
Me: That depends on what you mean by
trade through an intermediary.
Everything applies equally to a sole proprietor, a partnership, or a limited company, so the trading ‘vehicle’ does not really matter.
Intermediaries however can make a difference depending on the actual relationship. If they are just an introducer so that the contract lies still between yourself and the end client then everything’s still the same.
However some intermediaries/agents trade in their own name and so there are actually two transactions in each sale – you sell to them, they sell to the end user. So things like the Apple or Google App stores or some set ups with Amazon etc. in which case you would be looking at the place of supply rules based upon where the intermediary is rather than the end customer.
You: Thanks again for your replies.
Me: You are
more than welcome. If you have further questions do not hesitate to give me a
call at 01772 977 410 or email me at firstname.lastname@example.org.