I recently contacted HMRC regarding sales & purchases of consulting services outside UK and was told:
1.When invoicing client in EC who is VAT registered we do not add VAT as it is "outside scope of UK"
2. If EC client is not registered for VAT charge VAT at 20%
3.When purchasing consulting service from supplier in EC they will not charge VAT (as we are VAT registered), but we make Reverse Charge on VAT Return.
However you say:
Just when you thought you’d got a handle on VAT and all it’s quirks here’s another curve ball! The reverse charge applies when you’re making a sale or purchase with another client or supplier based outside of the UK but in the European Community, where the company is also registered for VAT in their member state. In such cases you must account for the VAT at the local rate then apply the reverse charge.
I do not understand.
If you’re making supplies to other VAT registered companies elsewhere in the EC you do need to account for VAT, it’s not considered “Out of Scope”. You also need to include those sales on an EC Sales List.
Out of Scope is usually reserved for non-EC sales, e.g. to the US, Australia etc.
Thank you Glenn.
My question is to clarify the invoicing of EC VAT registered client.
XYZ is VAT registered in the UK and provides business advice services to ABC,a French business customer, also VAT registered in France.
• These services are invoiced to ABC without VAT –ABC will charge themselves VAT under the rules of their country of residence, under the Reverse Charge mechanism.
• EC Sales List – XYZ will need to complete an EC Sales List to declare the value of these services.
I understand from HMRC that no VAT is added to XYZ invoice, but is this classed as “Outside the Scope of UK VAT” or “VAT Exempt”? And does it make any difference?
Also your website states In such cases you must account for the VAT at the local rate then apply the reverse charge.. I believe this only applies to purchase of services & not to sales (B2B EC).
I hope my questions are clear. Thank you for your help.
There are many edge cases with VAT, and subtle differences between services and goods. At the moment we don’t have a specific way of differentiating the two so in some cases you may need to make manual adjustments. Any sales subject to the reverse charge will feature in box 8 of the VAT return.
There are a few existing threads on this subject here, that will cover previous explanations.