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Can I avoid paying VAT
Thread poster: Nehad Hussein
Nehad Hussein  Identity Verified
United Kingdom
Local time: 22:57
English to Arabic
Mar 27, 2014

Hello Prozians,

I have a small question to ask you. I have participated in the TGB of SDL 2014 freelance license offered by Proz during March. The price was a real bargain but when I am about to pay now, I found a VAT of nearly £100. So the saving I made earlier are flying away now. Is there any way to avoid paying that amount?

Thanks for advise and hope to hear from you soon.


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Samuel Murray  Identity Verified
Netherlands
Local time: 23:57
Member (2006)
English to Afrikaans
+ ...
First... Mar 27, 2014

Nehad Hussein wrote:
The price was a real bargain but when I am about to pay now, I found a VAT of nearly £100. So the saving I made earlier are flying away now.


First, you have to tell us if you are registered for VAT in your own country. I understand that the registration threshold in the UK is quite high, so not everyone who's in business is registered for VAT.


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Sheila Wilson  Identity Verified
Spain
Local time: 22:57
Member (2007)
English
+ ...
Do you pay VAT on other business expenses? Mar 27, 2014

ProZ.com buys are no different from buying a box of paper for your computer - if you can claim back the VAT on one you can claim it back on the other (or have it excluded from the invoice).

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Charlie Bavington  Identity Verified
Local time: 22:57
French to English
Different things Mar 27, 2014

You (Samuel, Sheila) are both describing the way that the net effect of being VAT registered is that, ultimately, the situation is as if you had not paid the VAT.

I would be entirely astonished if anyone who is, in fact, VAT registered was not entirely aware of this benefit. The question would therefore not arise. But even then, you do still pay the VAT in the first instance.

Avoiding VAT is an offence and we would all probably be well advised NOT to seek to facilitate it in any way, shape or form whatsoever.


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Sheila Wilson  Identity Verified
Spain
Local time: 22:57
Member (2007)
English
+ ...
Facilitating tax avoidance? Mar 27, 2014

Charlie Bavington wrote:
You (Samuel, Sheila) are both describing the way that the net effect of being VAT registered is that, ultimately, the situation is as if you had not paid the VAT.

I would be entirely astonished if anyone who is, in fact, VAT registered was not entirely aware of this benefit. The question would therefore not arise. But even then, you do still pay the VAT in the first instance.

Avoiding VAT is an offence and we would all probably be well advised NOT to seek to facilitate it in any way, shape or form whatsoever.

I don't think either of us came within a mile of doing that, Charlie. I think it's highly likely that the OP is NOT VAT registered or, as you say, he'd have known how it works. And if he isn't registered for VAT then he'll have to pay it.

But for things bought on-line from companies registered in other EU countries (ProZ.com are VAT-registered in Spain or Germany, I think, not the UK), I don't believe you pay the VAT at all, if you're registered, as it's all worked out on paper rather than going through banks. As a VAT payer, the OP is probably used to seeing everything priced including the VAT, so didn't expect this nasty surprise.

But the only thing I know for sure about VAT is that we in the Canaries aren't covered by it. We're in an annoying halfway-house situation: in the political EU but not in the fiscal EU. Try persuading companies they have to invoice a Spanish address without VAT - it isn't easy! They just ask you for your number and/or tell you to claim it back: bet they don't say that to US clients!


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Nehad Hussein  Identity Verified
United Kingdom
Local time: 22:57
English to Arabic
TOPIC STARTER
I am not VAT registered Mar 27, 2014

Thank you all for the comments. I recently started freelancing after many years of in house positions. So I am still unfamiliar with the tax situation for a freelancer. I checked and found out the the threshold is 79000 and obviously for a started I way behind reaching this limit yet.

I just asked my question, not to avoid it illegally, but to ascertain that I am missing a legal way out of this extra cost.

So to summarize your opinions, I have to pay this cost, right?


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Wolfgang Jörissen  Identity Verified
Belize
Member
Dutch to German
+ ...
Don't want to pay VAT? Mar 27, 2014

Easy! Just pack your stuff and move to a non-EU country.

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Charlie Bavington  Identity Verified
Local time: 22:57
French to English
Quite Mar 27, 2014

Sheila Wilson wrote:
I don't think either of us came within a mile of doing that, Charlie.


I in no way said that you had. I explained my precise view of your comments as they related to the question, being (put another way for the avoidance of doubt) that either the OP would have known that info already, or it wouldn't apply to the OP.

The third paragraph was a general heads-up to us all, including me, about the wisdom of offering tax avoidance advice on a public forum

In my opinion the OP's options are:
a) pay up
or
b) investigate the validity of Proz charging VAT at all (which I assume it is entitled to do but I have not checked, and everyone makes mistakes) and challenge it if he believes they should not.

(edit to later add)
option c) pay up and voluntarily register for VAT, then claim the VAT back as suggested by Sheila and Samuel. You have a 3-month window, I think, for retrospective VAT claims.

With this extra option, of subsequent voluntary VAT registration, Sheila's and Samuel's comments become more relevant. Of course, voluntary VAT registration brings with it extra admin from that point onwards, which may outweigh the benefit of claiming a hundred quid back, but that's an individual decision (I have voluntarily registered for VAT, FWIW). And even then you haven't avoided paying it. You pay it and then get it refunded.

[Edited at 2014-03-27 16:49 GMT]


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Nehad Hussein  Identity Verified
United Kingdom
Local time: 22:57
English to Arabic
TOPIC STARTER
Thanks Mar 27, 2014

Thanks Everyone for enlightening me about VAT.

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Emma Goldsmith  Identity Verified
Spain
Local time: 23:57
Member (2010)
Spanish to English
Not ProZ, but SDL Mar 27, 2014

Charlie Bavington wrote:

investigate the validity of Proz charging VAT at all (which I assume it is entitled to do but I have not checked, and everyone makes mistakes) and challenge it if he believes they should not.



I purchased another program through a ProZ Group Buy recently, and I paid the software company, not ProZ.
So, if this is the same case, and if SDL has its registered offices in the UK (which I think it does), then the OP will have to pay VAT either way.


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Samuel Murray  Identity Verified
Netherlands
Local time: 23:57
Member (2006)
English to Afrikaans
+ ...
More comments Mar 27, 2014

Sheila Wilson wrote:
ProZ.com buys are no different from buying a box of paper for your computer - if you can claim back the VAT on one you can claim it back on the other (or have it excluded from the invoice).


No, I think it is more complex than that. You mostly buy paper in your own country, but anything you buy from the EU branch of a company outside your own country is an import or an acquisition, and may be subject to import taxes (which may or may not cancel out any VAT). It is so complex that I was not able to figure it out even though I looked at what must have been very helpful web sites.

I must add that I don't know where the company is located from which the OP is buying.

Charlie Bavington wrote:
I would be entirely astonished if anyone who is, in fact, VAT registered was not entirely aware of this benefit. ... But even then, you do still pay the VAT in the first instance.


The fact that VAT is pretty straight-forward in your own country does not mean that it is simple when it comes to intra-EU VAT shifts and exchanges. And it is not obvious that you'd have to pay the VAT to begin with. Are you sure that you have to pay VAT if you buy something from outside your own country? I'm not 100% certain about it, but I know that I have not been able to get a clear idea about it yet.

Avoiding VAT is an offence...


No, VAT evasion is an offense. VAT avoidance is what any smart business person should do if he encounters a situation in which he can't claim the VAT back or have the VAT shifted to the other party.

Charlie Bavington wrote:
Option C: pay up and voluntarily register for VAT, then claim the VAT back as suggested by Sheila and Samuel.


Ouch... you misquote me... I never said anything about claiming the VAT back.


[Edited at 2014-03-27 21:35 GMT]


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The LT>EN Guy  Identity Verified
United Kingdom
Member (2007)
Lithuanian to English
OP pays VAT - nasty trick indeed Mar 27, 2014

If a VAT-registered EU supplier makes a cross-border intra-EU sale, then you have to look at the status of the buyer. If the buyer is not incorporated as a company (which seems to be OP's situation), then the place of supply is the supplier's country. Therefore, the sale is subject to VAT in the supplier's country. Now, if the non-company buyer is registered for VAT as a freelancer, there is a mechanism for reclaiming foreign EU VAT. If the non-company buyer is not VAT-registered, then the VAT pill (excuse the pun) is to be swallowed. At least, you can claim it as a business expense, which will then mean the VAT will come back partially in the shape of income tax savings.

Were the buyer a company, then the place of supply would be the buyer's country. In the very unusual setup of such a company being non-VAT registered (some countries don't require VAT registration when trading under the threshold even if the trader is an incorporated company), the company would have to file their intra-community acquisition VAT liability and pay up to the tax guy separately from the invoice/supplier. In the other 99% of cases, where the buyer company is VAT-registered, the reverse charge mechanism applies. Recalling that the supply took place in the buyer's country and is subject to that country's VAT, the supplier's invoice will have no VAT (and it actually shouldn't be zero-rated as it sometimes is; rather, it should not have any VAT calculations and state the basis for this, e.g. "reverse charge mechanism" or similar). What the buyer then has to do is include in the acquisition VAT due on that purchase at their country's rate in their VAT return and simultaneously deduct that same VAT as VAT paid and deductible, which is what Sheila mentions.

Non-EU companies selling online to EU customers have to get EU VAT registration. They can choose any country's tax administration to process their registration, but they are not actually registering for that country's VAT. They get a Union-wide VAT ID (which can't be checked on VIES - the EU's tool for checking all national VAT ID numbers...ugh!), and when selling to non-incorporated, non-VAT registered buyers, they apply the buyer's country's VAT rate. When selling to VAT-registered buyers, they charge no VAT and should not show the buyer's VAT ID on the invoice. The buyer then has to treat the purchase as a non-EU import (which it is) and pay import VAT (simultaneously deductible just like with reverse charge). Perhaps the specifics vary from country to country. If it's a service, like in this case, I imagine some countries would not have even figurative VAT on it. Not sure how exactly it works in the UK as I never had to deal with it.

The OP has to pay ProZ VAT at the UK rate. Not sure if you can make subsequent claims for pre-registration purchases of services? I thought this only applies for goods which are purchased right before registration and in use at the time of registration, whereas services are treated as used up at the time of purchase. Might well be wrong, though...

[Edited at 2014-03-27 23:25 GMT]


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Parrot  Identity Verified
Spain
Local time: 23:57
Member (2002)
Spanish to English
+ ...
Uhm... Mar 27, 2014

Charlie Bavington wrote:

In my opinion the OP's options are:
a) pay up
or
b) investigate the validity of Proz charging VAT at all (which I assume it is entitled to do but I have not checked, and everyone makes mistakes) and challenge it if he believes they should not.

(edit to later add)
option c) pay up and voluntarily register for VAT, then claim the VAT back as suggested by Sheila and Samuel. You have a 3-month window, I think, for retrospective VAT claims.

With this extra option, of subsequent voluntary VAT registration, Sheila's and Samuel's comments become more relevant. Of course, voluntary VAT registration brings with it extra admin from that point onwards, which may outweigh the benefit of claiming a hundred quid back, but that's an individual decision (I have voluntarily registered for VAT, FWIW). And even then you haven't avoided paying it. You pay it and then get it refunded.


I'm not quite sure it works that way. If accounting rules apply strictly, date of invoice vs. date of VAT registration may not leave any option but to pay up. I could be off the mark about VAT law in the UK, of course. This is more on the lines of IFR standards.

And SDL is in my books as an IE (Irish) VAT number.


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Tom in London
United Kingdom
Local time: 22:57
Member (2008)
Italian to English
Off-topic Mar 28, 2014

Charlie Bavington wrote:

.....
Avoiding VAT is an offence and we would all probably be well advised NOT to seek to facilitate it in any way, shape or form whatsoever.


Charlie, I don't know if you ever visit Nottingham. That's where the the head offices of Her Majesty's Revenue and Customs are located, in a large and opulent building designed by a famous architect. Just across the road is a pub, no doubt heavily frequented by HMRC staff. THe name of the Pub is "The Vat and Fiddle".

http://www.pubsgalore.co.uk/pubs/31141/



[Edited at 2014-03-28 09:06 GMT]


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RobinB  Identity Verified
Germany
Local time: 23:57
German to English
Registered for VAT Mar 28, 2014

Nehad,

Are you registered for VAT in the UK? Or do you have confirmation from HMRC that you fall below the threshold?

Either way, buying software will always be a transaction on which VAT will be payable one way or another. The question is purely whether you can reclaim the VAT as input tax (which you can do if you're registered for VAT), or whether you have to pay the gross amount.

The fact that SDL is selling you the software from Ireland is not really the decisive factor here - if you have a VAT ID, you quote that when buying the software; although you don't pay the VAT in cash, you do have to add it to your VAT return, and at the same time reclaim the same amount as input tax. If you don't have a VAT ID, you'll have to pay the gross amount in cash.

Please remember also that B2B transactions are normally quoted ex-VAT, in contrast to B2C transactions, which always have to show the VAT due.

VAT only adds to the headline cost of a transaction if you're not yourself registered for VAT, in which case of course you can still claim the gross amount as a business expense for tax purposes. VAT is really a matter of cash flow, plus some admin - no more than that. And the fact that a translator isn't registered for VAT doesn't make their translations any "cheaper" for their business clients (though that myth still seems to have a long shelf life).

Robin


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