It is easier than ever for companies to do business globally. That's why it's never been more important to make sure you understand International VAT.
Today’s technology has connected us to the world, and it is increasingly likely that a business with an internet presence will attract clients from outside the UK. This is good news from a business perspective but presents the challenge of understanding the complex VAT rules relating to international services.
VAT on international services is one of the most complex areas of VAT, but our specialist VAT advisory team have a wealth of experience in this area and can help guide businesses through the VAT rules and regulations governing international business transactions.
Whatever your VAT query involves, get in touch with our team of specialists today. Where necessary, we can support our clients with international advice through our Praxity Global Alliance colleagues.
The starting point for identifying the VAT treatment of international services is the ‘Place of Supply of Services’ rules which must be used to establish whether services are subject to UK VAT or fall within the VAT jurisdiction of another country.
The rules require you to consider the following:
Although there are exceptions, most supplies of services are covered by the general rule which states that where you are suppling services to a business customer (B2B) the place of supply is where the customer belongs, whilst the place of supply to a non-business customer (B2C) is where the supplier belongs.
Following the general rule, a UK business charges UK VAT on services provided to non-business customers (B2C), but UK VAT is not charged on services supplied to business customers (B2B) as these are outside the scope of UK VAT.
Exceptions to the general rule include:
These services are deemed to be supplied where performed regardless of where the customer is based.
B2C supplies of a professional, technical, financial, or intellectual nature are another exception to the general rule. They are outside the scope of UK VAT when the customer resides outside the UK.
Some services are covered by the ‘use and enjoyment’ rule. This ensures that VAT is charged based on where services are consumed rather than where the customer is located. The services covered by these rules are:
Where any of these services are ‘used and enjoyed’ by a customer in an EU member state, there may be a liability to register for VAT in that member state.
Learn more about use and enjoyment in the UK and EU in our blog.
B2C supplies of electronic services, including supplies of music, films and games, website hosting, software and software updates, and supplies of advertising space on websites are an exception to the general rule.
The place of supply is where the customer is located, and local VAT is chargeable if the customer resides in an EU member state. Options for charging and declaring EU VAT are:
Receiving a supply of services from outside the UK has VAT implications for the UK purchaser.
A UK VAT registered business purchasing services from an overseas supplier will not be charged VAT. However, UK VAT must be accounted for on the VAT return of the UK business under the reverse charge mechanism. A common and often overlooked example of this is software licenced from companies based in Ireland or the US.
There are numerous complexities and potential pitfalls associated with international VAT, and mistakes can be costly, both in time and money. This is why we believe it is essential that businesses seek qualified VAT guidance from those with experience in this complex and ever-evolving area of tax.
Read more: VAT Reverse Charge
UK businesses will need to consider signing up to the OSS if they make sales to consumers of either goods from within the EU or Northern Ireland. The IOSS can be used to report and account for non-UK VAT on online sales of goods from outside the EU to consumers within the EU. For a full guide on OSS and IOSS, we invite you to read our detailed blog.
VAT is a type of consumption tax that is applied to various goods and services, and is ultimately paid by the final consumer.
It is important for international businesses to understand how UK VAT works when doing business in the UK. Understanding VAT is necessary to comply with local tax laws, while it can also help you set appropriate pricing and manage cash flow.
You can learn more in our complete guide to VAT.
In the UK, the current standard rate of VAT is 20%. For certain goods and services, a reduced rate of 5% may apply. As well as this, some items are zero-rated (meaning that the items are subject to VAT but the rate of tax is 0% so no VAT is payable.). Furthermore, some items are exempt from VAT altogether.
UK businesses generally don’t need to register for VAT until their sales reach £85,000 in a year. But this threshold doesn’t apply to overseas businesses operating in the UK.
Any company from outside the UK that sells goods or services in the UK must register for VAT, no matter what their taxable turnover is.
Learn more about UK VAT registration.
The UK VAT threshold is the maximum amount of taxable turnover a business can make before Vat registration is required. This threshold is currently £85,000. However, this threshold does not apply to international businesses supplying to the UK. International businesses must register for VAT when making any taxable supply to the UK.
Online marketplaces function as digital ecosystems, connecting buyers with a diverse range of third-party vendors for the streamlined purchase of goods. The VAT rules governing sales made through online marketplaces are complex and depend on where the goods are located, where the seller is based and whether the customer is VAT-registered.
We encourage you to read our blog on VAT and eCommerce for more information.
If you’re registered as a business outside the UK and buy goods or services to use in your business, you may be able to use the VAT refund scheme to reclaim UK VAT.
You can reclaim VAT for most goods and services bought in the UK for your business including:
Yes, the Shorts VAT team has experience helping a wide range of UK businesses manage their VAT obligations when doing business in EU countries.
Non-compliance with VAT regulations will result in penalties being issued by HMRC. Penalties can be issued for late submission of VAT returns as well as for late VAT payments. These penalties will vary based on a number of factors, which you can read about in our guide to VAT penalties.
Non-UK businesses can register for UK VAT online through HMRC (HM Revenue & Customs) online services, the UK tax authority. This may be mandatory (if the business supplies taxable goods or services to UK customers), or voluntary, which may be beneficial in some cases.
Our team can help you register for VAT in the UK.
If your business makes any taxable supplies to the UK, it must register for VAT in the UK. The VAT registration threshold does not apply.
If your business has branches or subsidiaries in the UK which do not make supplies to UK customers, these services are outside of the scope of UK VAT. This means there will be no requirement to register for UK VAT.
If you’re registered as a business outside the UK and buy goods or services in the UK to use in your business, you may be able to use the VAT refund scheme to reclaim the VAT charged on these costs.
To use the scheme you must:
If these conditions are met, UK VAT can be reclaimed on most goods and services bought in the UK for business use including:
VAT cannot be reclaimed on the cost of buying a car, or for goods and services bought for resale, used for business entertainment, or used for non-business activities.
A claim can be made by yourself by completing form VAT65A – Application for refund of VAT. You can also use a UK Tax agent to submit a claim on your behalf.
A claim for a VAT refund must be made no later than 6 months after the end of the ‘prescribed year’ in which you were charged the VAT. The prescribed year runs from 1 July to 30 June, so you must make a claim by 31 December.
The claim must include the original invoices showing all the VAT being reclaimed and the first claim must be accompanied by an official certificate proving the business is registered in another country. A certificate is then required to be submitted every 12 months if claims continue to be made.
The amount which can be claimed is subject to the following minimum limits:
There is no maximum limit.
You must ensure that any claim is submitted within the prescribed time limits. A claim must be submitted no later than 6 months after the end of the ‘prescribed year’ in which the VAT was charged. The prescribed year runs from 1 July to 30 June, therefore, the deadline for a claim is 31 December.
Scott Burkinshaw
Brian Gooch
Lynne Gill
David Robinson
