Invoicing
abroad
As of 1 January 2021, the UK ceased to be a member of the
customs union, and some of the VAT rules changed. VAT rules on EU imports and
exports have broadly aligned with those for non-EU imports and exports. If you
are not VAT-registered, or you are a VAT-registered business with UK customers
only, then your business will be largely unaffected by the changes.
If you invoice customers in Northern Ireland, please get
in touch with us for more specialised advice.
Place of supply
VAT notice 741A details the place of supply rules. There is now
no UK VAT levied on goods or services where the place of supply is outside the
UK. This does not necessarily mean the buyer will face no VAT in their own country on the "import" and determining the place of supply is not always straightforward.
The place of supply of a qualifying service is the country where that service is treated as being supplied and
where it may be liable 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. The place of supply is determined by where
the supplier or customer belongs and if they are a business or an ordinary consumer.
How do I know where a business or person belongs?
Typically where the person resides is where the place of
supply is. If the customer buying from you has no fixed establishment elsewhere
in the world, then the place of supply will be the UK, and VAT is due.
Two types of customer
1) Other Businesses; the transactions are from one
business to another. These are called B2B supplies.
2) Consumers are usually ordinary people outside of
business. These are called B2C supplies
A buyer will be deemed a relevant business person, a B2B,
if they are carrying on a business and are not receiving the supply in a
personal capacity. The other business does not need to be VAT registered to
qualify as a B2B. Where no evidence of being a business is
provided, HMRC direct under VATPOSS06500, that the transactions should be treated as B2C.
VAT on services (B2B)
The place of supply rule for business-to-business (B2B)
services remains unchanged. UK suppliers should therefore continue to zero-rate
their sales to relevant EU customers. As sales B2B outside the UK are outside the scope of VAT, they will not count towards your £90k turnover limit.
Example: An IT contractor advises a client in the UK for £10,000 and a client
in Dubai for £100,000. What are their VAT obligations?
They
are not over the VAT threshold of £90,000 as the Dubai client’s sales are
outside the scope. If they were voluntarily registered for VAT they would charge 20% on the
UK sales and would not charge VAT on the Dubai sales.
VAT on services (B2C)
The place of supply rule for business-to-consumer (B2C) services has changed. Previously, EU customers not VAT-registered were deemed to have the service supplied in the UK and were, therefore, subject to UK VAT. From 1 January 2021, these sales should be zero-rated in line with B2B rules. However, they still count towards your £90,000 VAT threshold.
If your B2C services are not covered by the exemptions in VATPOSS13250, you may need to charge VAT for each EU country separately. You can do this by registering for VAT in each EU member state or registering for the Non-Union MOSS scheme in a single EU state.
VAT on digital sales
Digital
services include the
supply of audio and visual content for the general public, sales of electronic
products such as e-books, games, online documents and website supply. All these
items to UK customers are subject to UK VAT. Sales outside the UK are not
subject to VAT but may be liable by the country where the individual is based.
If you market this via a third-party platform, they will have the
responsibility of accounting for the VAT instead of you.
If your services are simply digitally supplied live, such as
professional advice or educational courses on Zoom, they are deemed “electronically
supplied” and will be covered by the usual rules on services as if you did them
in person.
Sales of digital
supplies B2C
HMRC guidance on the rules that would apply to digital downloads to B2C
state that VAT would be needed to be accounted for on supplies of downloadable
material as per the rates of that country that the customer resides in and paid
to the Revenue of that country.
VAT on goods
The place of supply of goods is usually where the goods are physically based or where they are ordinarily dispatched. Supplies will count towards the £90,000 threshold. If your business exports goods to the EU, you must obtain
an Economic Operators
Registration and Identification number (EORI number). If you already have an EORI
number that does not start with GB, you must apply for a new one.
From 1 January 2021, all exports to the EU will be zero-rated.
However, a tax will be levied by the country receiving (importing) the goods.
An ‘importer of record’ must be named in the entry
documents. They would need to be registered for VAT in the destination country,
pay import VAT and charge this to the customer. In most cases, the customer is
expected to be the importer of record.
If the customer is the importer of record, they will be
liable for the VAT (effectively an additional cost for them). The UK supplier
has no liability.
If your business imports goods from the EU, please note
there will be no £135 minimum exemption threshold from 1 January 2021. The
place of supply will be deemed the UK, and therefore a VAT charge will be added
for all B2C purchases.
For B2B purchases, the reverse charge can still be used
if the business customer can provide their VAT registration number.
Don’t get caught out by not charging VAT!
Your responsibility is to assess and charge VAT where it
is due, not your customer’s responsibility to pay it. This means if you do not
charge VAT upon agreeing on a price, you are taking a risk that you will need
to pay VAT on the money you have received. If your customer is not VAT
registered, they are likely to be unwilling to agree to pay you an extra 20%.