Today’s technology has made international business more accessible than ever. Armed with little more than a laptop and an internet connection, any small business or freelancer can easily work for a raft of international clients.
There are, however, a number of tax implications that come with supplying services abroad.
Predominantly, these implications revolve around the ‘Place of Supply of Services’ rules, used to dictate which country’s VAT regulations should be followed for each ‘sale’.
These rules also take into account the nature of the service, and whether you’re supplying the services on a B2B (business to business) basis, or as B2C (business to customer).
In this post, we’ll look at a few examples to show how VAT should be charged when you’re supplying services abroad - or supplying services here in the UK on behalf of an international client.
Place of Supply of Services - the ‘general rule’
While there are a number of caveats and special rules in place for certain services, most supplies of services are covered by what HMRC refers to as the ‘general rule’.
That general rule states that when you’re providing a service to a business customer (B2B), ‘the place of supply is the place where the customer belongs’.
If you’re providing the service to an individual (ie a non-business customer), HMRC states that ‘the place of supply is the place where the supplier belongs’.
Calculating when and what VAT to charge…
If, after applying the general rule, the place of supply is deemed to be the UK, you’ll charge UK VAT as per usual.
If it’s outside of the UK, but within the EU, you may have to charge EU VAT.
Indeed, in this case, you may need to register and account for VAT in the country of supply. To make sure you get it right, consult the tax authority in that country and find out how to treat the services you’re supplying.
Should the place of supply be outside the EU, it will be out of scope of VAT, and the sale should only be recorded in box 6 of your VAT Return (which asks for total value of sales, even those which are VAT exempt).
Some quick examples…
Let’s say you’re supplying catering for an event in the UK, but the client paying your invoice is a business customer based in the USA.
The general rule tells us that for a B2B sale, the ‘place of supply’ is (rather counterintuitively) where the customer is based - so you won’t have to charge VAT on the sale despite the event being held in the UK.
If the customer in this case were a US-based individual, rather than a business, then VAT would be levied and should be shown on boxes 1 and 4 of your VAT return.
Is your business growing into international markets? Need support and advice on your tax obligations? Give us a call on 0121 667 3882 or drop us an email on email@example.com
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