… consider the position of VAT on overseas sales!
Or at least, that’s what I did, and I thought it might be useful to share the story so far. Like many businesses, Adviserly will be providing services overseas, creating a potential nightmare when it comes to local sales taxes.
I’d love to know if this story resonates and how other businesses have gone about this process. Contact me here if you want to discuss.
Keep it manageable
Before going to advisers, I like to get a good understanding of the subject, so I research. (see a previous post on this subject). First thing I did was put my ambitions in a box. “VAT on overseas sales” is a massive topic. So start small, and start with what you know – which in my case is the UK and EU.
I then wrote down all the questions I needed answer to on a practical level, along these lines:
- Will I have to register for UK VAT?
- Will I have to register for VAT in the EU?
- Do I have to register in each country separately?
- If not, what do I have to do?
As anyone who has tried to book a holiday in the last year will attest, you need to check the rules in your home country as well as your destination.
So let’s start with the rules from home to get our bearings.
VAT on overseas sales: Services or Goods?
A google search got me to VAT Notice 741A the gov.uk website which seemed like a good, if not terribly exciting, start.
This concerns VAT and services (intangible things you do). If you are interested in goods (tangible things you make), you’ll need VAT Notice 703.
Dinosaur that I am, I printed these pages out. With something this fiddly I’m going to need to scribble on the page, highlight and then be able to find it easily the next time I look at it.
Place of supply?
From VAT Notice 741A, it’s clear a key consideration is “place of supply”. Essentially, what I have to do depends entirely on where my “place of supply” is.
Note, this is not where services are actually supplied – but where they are “treated” as being supplied. (Legalese and plain English part company early on in this journey, as is so often the case with tax law.)
So where is Adviserly’s “place of supply”? I carry on reading and it’s clear that this depends on whether the supply is B2B or B2C…
B2B or B2C?
The general rule for services is that B2B supplies are deemed supplied where the customer “belongs” (not in the “back where you belong” sense), but for B2C it’s where the supplier belongs.
Adviserly is the supplier and “belongs” in the UK (“belong” really is a daft word for this). Its customers, the advisers, belong in their jurisdiction.
So following the general rule for B2B services, it looks like Adviserly is outside scope of UK VAT, and VAT is chargeable in each of the customer countries. Nightmare.
However, all is not lost, thanks to Principal VAT Directive Article 196, which places a mandatory “reverse charge” on the business customer in their member state for B2B Services.
Overrides and exceptions
Before we go galloping into what the “reverse charge” is, we need to check if any exceptions to the general rule apply. We need to look at the UK VAT Act 1994, Schedule 4A.
The only exception which might apply to Adviserly appears to be “Electronically supplied services” supplied B2B to EU countries which says that where such services are “used and enjoyed” in the UK, the “place of supply” will be the UK.
This isn’t much of a problem for us as our advisers are by definition located in their respective country.
So the general rule applies.
The “Reverse Charge”
A lawyer attempting to explain accounting principles is like a physicist explaining medicine to a patient – it’s not going to end well. Instead, I’ll quote the UK government:
“You simply credit your VAT account with an amount of output tax, calculated on the full value of the supply you’ve received, and at the same time debit your VAT account with the input tax to which you’re entitled, in accordance with the normal rules.”
This is a requirement on the advisers, not Adviserly. It means Adviserly does not need to register for VAT in the EU. We have an obligation to inform our advisers that they will need to apply the reverse charge on our invoices (as they will have to do for all services they receive from overseas).
To make sure I’d got it broadly right, I then checked how UpWork do it… and thankfully they seem to do it in the same way.
- Will I have to register for UK VAT? I will be making supplies to UK advisers which will be within the scope of UK VAT. I can voluntarily register for VAT even if I am below the threshold initially.
- Will I have to register for VAT in the EU? No.
- Do I have to register in each country separately? No.
- If not, what do I have to do? I will need to make sure I am only providing service to businesses, ideally by requiring the businesses to have a VAT number. I will need to inform the Advisers that they need to apply the reverse charge on my invoices.
Now to check all this with an actual tax adviser. If only there was an organisation for that…
I should highlight that I’m not a VAT lawyer, and all the documents referred to in this post are publicly available for free online. If you spot a mistake, do let me know…….