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VAT: Do I have to charge it?

by AtomicTeam
3 December 2022
in Finance
194
VAT: Do I have to charge it?

Image by rawpixel.com

Which products / services do I have to charge VAT on?

When it comes to VAT, there is no one-size-fits-all answer.

In the end, there are always exceptions, but VAT appears to have exceptions to the exceptions as well. Brexit and new building laws, the increase of internet sales, and more global enterprises during Covid have complicated VAT procedures.

Brexit

As the EC Sales List is no longer required, exporting products to the EU requires less reporting. Import VAT and customs charges will still apply when products arrive in the UK from outside the EU (which is exactly what happened before Brexit – and will continue to happen after Brexit), but this is a zero-rated transaction for EU businesses.

Depending on the country’s VAT thresholds and laws, it may be necessary to register for VAT in the EU.

Supplying EU citizens (or anybody outside the UK) is no longer subject to VAT.

Notably, export documentation must be maintained to verify that the products are exported. In addition, within three months following the sale, you must get proof of the transaction. The supply location is in the UK if you are shipping items to a UK forwarding business. Standard VAT would be required as a result.

 

Services

The “place of supply” guidelines govern how services are provided. In a B2B (business-to-business) transaction, the place of supply is the client’s location. A B2C (business-to-consumer) transaction takes place where the provider has its headquarters or where the service is rendered unless it pertains to one of the services listed below, in which case it is exempt from VAT.

  • Copyright, trademark, and licence transfers and assignments acceptance of any responsibility to abstain from engaging in any commercial activity
  • other comparable services provided by consultants and engineers, as well as attorneys, accountants, and other experts – Any banking, financial and insurance-related services are not included in the scope of this service.
  • supply of natural gas and electricity systems,
  • as well of heat and cooling networks,
  • as well as other directly associated services;
  • transmission; or distribution;
  • items other than transportation emissions allowances that may be rented

The supply of services to an EU company is consequently exempt from VAT, whereas the supply of services to an individual is subject to VAT.

As a result, various services are subject to different restrictions (including land, transport hire, digital services and others).

When a consumer in the European Union uses a digital service, the “place of supply” remains where the customer is located. The consumer is responsible for paying VAT in the EU member state where he or she lives.

The hospitality rate (which covers vacation accommodations) is currently 12.5% (formerly 5% until 1 October 2021), and it will rise to 20% in April 2022. Keep this in mind while planning your trip.

 

Digital services and MOSS VAT scheme

You must consider:

  • Customer’s home address
  • Confirm whether the service you’re looking for is available online
    • If not, the usual supply rules shall be followed.
  • A company or an individual (B2B or B2C) is your customer.
  • If your client is located in a nation other than the United Kingdom, you may be required to register for VAT in that country.

VAT rules for digital services

Type of supply UK VAT No UK VAT Potential VAT in the country of supply
Digital services to UK customers Yes
Digital services to non-UK customers Yes Yes
Via a 3rd party platform or marketplace Digital platform is responsible for accounting for VAT on the supply instead of you
Digitla services to customers in the EU Place of supply is where the customer is located. You must either:
– Register for the non-Union VAT MOSS scheme in an EU member state
– Register for VAT in each EU member state where you supply digital services to customers

Source: Russell & Russell

This is a brief overview. Further details can be found here and here.

Construction CIS

From 1April 2021 the rules in the construction industry changed. If you are in this sector, then it is worth seeking specialist advice.

In summary, while HMRC does have some useful information online, rules are complex and varied and it is always worth speaking to a professional.

 

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