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UK, VAT-registration & "buying" EU services
Thread poster: Charlie Bavington
Charlie Bavington  Identity Verified
Local time: 22:32
French to English
Mar 6, 2008

I am in the fortunate position of needing to seriously contemplate registering for VAT, as a self-employed person in the UK.

I understand from both the HMRC website and discussion here on proz that the general position will then be:
a) translation done for UK clients – I will charge VAT
b) translation done for EU (but not UK) clients – no VAT will be charged (or at least, not by me).

(let us assume for this discussion that I only do business-to-business work, I know that private individuals can complicate matters)

So far, so good.

Now, the reason for my wanting to register for VAT is because I sometimes have a need to outsource jobs (in pairs I can't do myslef), which has the effect of increasing my turnover, of course, without really increasing my own income in any significant way. When outsourcing, some of those translators are in the UK, some elsewhere in Europe.

Looking at HMRC and EU publications, they often seem to mention that, where services are supplied within the EU and VAT is not charged (naturally), then the purchaser needs to make arrangements for dealing with VAT domestically.

For example, notice 741 says (1.16)" If the place of supply of your services is another member State, you or your customer will be liable to account for any VAT due to the tax authorities of that country"

Now, since we have already established that if I am supplying a service to another member state, my customer is "liable to account for any VAT due…" , what is the situation if I am the customer, i.e. if I am the one "importing" a service exported from, say, France or Italy?
What "accounting for VAT" do I need to do?
I have looked (briefly) into reverse charging, which seems to be what they are talking about, but in my case this all seems to ultimately mean …. doing nothing (which, from what I have heard, might not be true if I were based in Germany, for instance)?
For example, looking at what Ralf posted here - http://www.proz.com/topic/93941 - it would seem that a French or Italian supplier could easily add a statement such as "You are required to account for VAT at your domestic rate on the value of these consultancy services using the 'reverse charge' procedure. This is in accordance with Article 21(1)(b) of the EC Council Sixth VAT Directive (77/388/EEC)" to an invoice sent to me.
Yet my investigations so far indicate that the VAT involved would be '0'.

Is it the case, then, that the basic situation, for me as a client of other translators:
a) when I use UK-based translators, deal with VAT according to whether they charge it or not (I'm fairly sure I understand this bit! – claim it back if charged, etc., don't worry about it if not charged)
b) when I use EU-based translators, do…nothing (*) – the amount I pay them is a "cost of sales" and that's it, they should never charge me VAT anyway.

(*) I appreciate "do nothing" might = write a couple of numbers on the VAT return.

I hope this is not going over old ground. I know that the initial portion of this post is well-established fact on proz. There seems to be much less on the forum about the 'reverse' situation.
I also appreciate that VAT can be complex - I'm just looking for a general rule at this stage.
Many thanks in advance.

[Edited at 2008-03-06 10:43]


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Marijke Singer  Identity Verified
United Kingdom
Local time: 22:32
Dutch to English
+ ...
VAT Mar 6, 2008

Hi Charlie,

I am not quite sure I understand the problem but I have now been VAT registered for nearly 2 years so here is how it works for me.

I outsource to a translator based in the EU but not the UK, he or she has a VAT number so they do not charge me any VAT because I supply my VAT number to them.
I send out invoices to customers in the EU but not the UK: I do not charge VAT because I have their VAT number (sometimes I will add a line to the invoice saying that VAT is 0%).
I have not yet outsourced work in the UK so I don't know how this would go (I suppose if they are VAT registered, they would charge and, if they are not, they would not).

I send out invoices to customers in the UK: I charge VAT.

Most of my customers are not in the UK (85% of my invoices goes to countries in the EU other than the UK) so I have the ridiculous situation that normally I get the VAT back on anything I have purchased and rarely have to send Customs any money due to VAT charged.

At first I had difficulty in understanding the forms they send (how to fill them in) but now it takes me around 4 hours each quarter to do the paperwork. The people who work for the VAT agency are very helpful and don't seem to mind when you ask them basic questions. They have also phoned me a couple of times to tell me I had filled in something wrong and could I please check my records.

Hope this helps,
Marijke


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xxxMarc P  Identity Verified
Local time: 23:32
German to English
+ ...
UK, VAT-registration & "buying" EU services Mar 6, 2008

Charlie Bavington wrote:

(*) I appreciate "do nothing" might = write a couple of numbers on the VAT return.


In all probability, yes (based on the German situation; I presume that the UK system is much the same).

You become liable to pay, to the UK VAT authorities, VAT on the service on which your supplier did not levy VAT (excuse the convoluted way of saying this, but you'll appreciate that this is not "the VAT that your supplier did not levy - had he done so, it might well have been at a different rate to that which you will have to pay to the UK authorities).

At the same time though, you can offset this liability as a business VAT expense (almost certainly not the correct term for it). So it becomes a mere administrative procedure on your part, and one that only takes a couple of minutes a month/a quarter once you know how.

For example, looking at what Ralf posted here - http://www.proz.com/topic/93941 - it would seem that a French or Italian supplier could easily add a statement such as "You are required to account for VAT at your domestic rate on the value of these consultancy services using the 'reverse charge' procedure. This is in accordance with Article 21(1)(b) of the EC Council Sixth VAT Directive (77/388/EEC)" to an invoice sent to me.


Not only could he do so, he should, and it is in your own interest. It is a declaration to your VAT authority that the reverse VAT charge arrangement applies. From what people more knowledgeable than I have said, if this declaration is not present on your supplier's invoice, you could find yourself in the position of being liable for the VAT, but not being able to offset it.

VAT may be confusing at first, but you'll probably find that it simplifies matters when you are dealing with suppliers and customers elsewhere in the EU, as the procedures are harmonized. It's when VAT-registered and non-VAT-registered businesses do business with each other in the EU that the confusion really starts.

Marc


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Gillian Searl  Identity Verified
United Kingdom
Local time: 22:32
Member (2004)
German to English
I looked at this recently because I thought I was near the limit. Mar 6, 2008

Customs and Excise told me that I don't have to register because I was not reaching the limit. Only the income on which you charge VAT is counted towards the 64k limit. For example, if you earn 10k a year on which you would charge VAT (e.g. from UK companies) and 60 k a year on which you woud not charge VAT because its with companies in the EU with VAT numbers, only the 10k count owards the 64k limit. In my case that meant I was under no obligation to register - and for me there are not many benefits from voluntary registration either. Of course if you believe there are benefits to registering because of the outsourcing then go ahead.
Gillian


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Charlie Bavington  Identity Verified
Local time: 22:32
French to English
TOPIC STARTER
Splendid replies :-) Mar 6, 2008

All sounds good to me (by which I mean it all chimes with my understanding of how it works). I can cope with writing some numbers in boxes Somewhere on the HMRC website, it does say that if you do it right, the net financial effect should be nil, I just wanted some confirmation from people who were "in the system".

Yes, I had read that you can seek dispensation not to register if all or most of your supplies are exempt. But while the euro exchange rate has moved very much in our favour this year (for those of us earning most of revenue in Europe), it could easily do the reverse in years to come. I would like to have a few more UK clients !
And yes, the fact that I can claim back the VAT on laptops, software etc. is a factor. I do plan to buy a new one this year!
Thanks to you all for taking the time to reply.

[Edited at 2008-03-06 14:46]


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Rebecca Lowery  Identity Verified
United Kingdom
Local time: 22:32
French to English
Incorrect VAT numbers can be a pain to deal with Mar 6, 2008

I'm VAT registered and I would advise that if you don't have to, don't do it as it's a bit of a pain. I have a normal VAT return for the UK and then I also have to fill in an EU VAT return which in theory is simple but in practice trying to get the VAT number out of a foreign client can be hard work. I've had my EU VAT return sent back to me several times as clients have given the wrong VAT numbers and it's been made very clear to me by Customs & Excise that if you don't manage to get the correct VAT number, you'll be the one paying their VAT!

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Marijke Singer  Identity Verified
United Kingdom
Local time: 22:32
Dutch to English
+ ...
Incorrect VAT numbers Mar 6, 2008

You can check whether you have been given the correct VAT number at the following webstie:
http://ec.europa.eu/taxation_customs/vies/vieshome.do?selectedLanguage=EN


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Emma Grubb  Identity Verified
United Kingdom
Local time: 22:32
Member (2010)
German to English
+ ...
Interesting topic Mar 7, 2008

I've recently been looking into VAT myself and wondering whether or not it would be worthwhile registering, but having read this topic I think I completely misunderstood the situation!

Having looked at the HMRC website, it seemed to me that I would have to register if my turnover reached £64,000, regardless of where my clients were based. Having read the above posts, however, it looks like there is no need to register unless you reach the limit solely based on UK clients alone? Is that correct?

So (theoretically!), if my turnover is £100,000 with £40,000 of this coming from UK clients, £40,000 from EU clients and £20,000 from US clients, does this mean I don't have to register?

I'd be grateful if anyone could confirm this, as it would certainly save me a lot of hassle!


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Gillian Searl  Identity Verified
United Kingdom
Local time: 22:32
Member (2004)
German to English
Exactly Emma Mar 7, 2008

When I called HRMC that is exactly what they told me. Call them and see what they say. So I may never reach the limit because most of my business is with EU companies with VAT numbers.
Gillian


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Charlie Bavington  Identity Verified
Local time: 22:32
French to English
TOPIC STARTER
Do you not need an official 'tick in a box'? Mar 7, 2008

Gillian Searl wrote:
When I called HRMC that is exactly what they told me. Call them and see what they say. So I may never reach the limit because most of my business is with EU companies with VAT numbers.
Gillian


I am currently in a similar position to you. My understanding from reading around the subject was that you did need to keep HMRC informed, though. You couldn't just blithely carry on regardless, and wait for them to spot you, and then respond by saying I didn't bother to register becos.... (situation as described). I thought you had to be proactive about it, so to speak.
Is that not the case?
Have you got anything "official"?
Because otherwise, if you report turnover over £64k on your self-assessment form, are they not gonna turn round and say "Oi, where's yer VAT?"


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Gillian Searl  Identity Verified
United Kingdom
Local time: 22:32
Member (2004)
German to English
Give the help line a call Mar 7, 2008

My mistake when I called was not to get a reference for the call. I am currently in Brazil until Easter but when I get back I will call them again and get a reference. Then its official and they can't go back on it.
Gillian


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Charlie Bavington  Identity Verified
Local time: 22:32
French to English
TOPIC STARTER
If anyone is still reading (!) Mar 11, 2008

Charlie Bavington wrote:

Yes, I had read that you can seek dispensation not to register if all or most of your supplies are exempt.


In fact, they are not "exempt", which is the term used for supplies where under the usual VAT rules, it ought to be charged but isn't, for whatever reasons.

Translation in the UK done for EU customers would appear to be "outside the scope" of VAT.
UK VAT only applies to supplies made in the UK.
Notice 741 tells us that the place of supply for translations is, in essence, where the customer is.

Ergo, it would seem that such work is actually as irrelevant to HMRC as me selling off a few old CDs to a mate for 50 quid. Outside the scope of VAT.
That is how I understand it now.
Which possibly explains why you don't get any "official" bits of paper...??


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Gillian Searl  Identity Verified
United Kingdom
Local time: 22:32
Member (2004)
German to English
That was the phrase they used when I spoke to them Mar 11, 2008

"outside the scope of the VAT rules"

So they really are not interested!!!
Gillian


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xxxMarc P  Identity Verified
Local time: 23:32
German to English
+ ...
Still reading Mar 11, 2008

Charlie Bavington wrote:

Translation in the UK done for EU customers would appear to be "outside the scope" of VAT.
UK VAT only applies to supplies made in the UK.


Not quite: it's outside the scope of *UK* VAT. Translation done by a UK supplier for a German customer, for example, falls under the scope of German VAT. The transaction doesn't simply cease to exist, and the supplier still has to account for it.

"outside the scope of the VAT rules"


Again, not quite. For one thing, translation done in the UK for EU customers is outside the scope of (UK) VAT only if the customer is a business. For private individuals, it falls within the scope of UK VAT. It follows that there must be rules governing whether it is done for private individuals or businesses. Those rules can turn round and bite you! Outside the scope of UK VAT, yes; outside the scope of the VAT rules, no.

Marc


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