VAT

[Bumbling Amateur]

As the sole director of a limited company providing my own services should I charge VAT?

It seems to me that if my turnover is greater than £67k then registering for VAT is compulsory. Hence I would also have to charge VAT.

But if my turnover is less than £67k it is a voluntary decision. The benefits of registering are what exactly? Recovering VAT paid on a new computer perhaps whilst increasing the cost of my services by 15%?!

I look forward to being enlightened soon once again :)

[MyAccountantOnline]

As the sole director of a limited company providing my own services should I charge VAT?

It seems to me that if my turnover is greater than £67k then registering for VAT is compulsory. Hence I would also have to charge VAT.

But if my turnover is less than £67k it is a voluntary decision. The benefits of registering are what exactly? Recovering VAT paid on a new computer perhaps whilst increasing the cost of my services by 15%?!

I look forward to being enlightened soon once again :)

If your taxable turnover is over £67,000 then yes you must register for VAT.

If your taxable turnover is below £67,000 you don't have to register but you may be eligible to apply for 'voluntary registration'.

There can be advantages in registering such as...

increased business credibility;
potential savings if your supplies are zero rated but you can still reclaim VAT on your purchases;
potential savings if you mainly supply other VAT registered businesses who don't mind being charged VAT and you can then still reclaim VAT on your purchases.
This does however have to be weighed up against the hassle factor of completing VAT returns, and paying the VAT due every quarter. If you supply the general public you will probably not want to register as this simply puts your prices up by 15%.

[elainec100@cheapaccounting]

Also look at flat rate schemes.

[Bumbling Amateur]

Also look at flat rate schemes.

Are there any reasons why one wouldn't charge VAT on an invoice if registered for VAT? I'm thinking about my foreign clients specifically who would not, presumably, have any means to claim VAT back whilst not being happy about being charged a premium for my services.

[dimitri1]

Hello

You are not mentioning what kind of services you provide. However, have you thought about these matters:

1. Your business may not have to register for VAT even if it exceeds the threshold assuming your business supplies are exempt (outside the scope of VAT, e.g. medical, education, insurance ...)

2. If your supplies are zero-rated as defined by the vat legislation ("life's essentials" including food, books, some clothing), you do not have to charge vat on your sales invoices although you will have to register for vat when you reach the registration threshold (and thus be able to recover vat on your expenses and purchases).

3. Regarding your overseas customers, you should bear in mind that for electronically supplied services (websites, software, online games and many others) to EU businesses, , the vat on those services is due by the recipient of the service where the recipient of the service is a business in another EU country. If the recipient is outside the EU, the supply is exempt from VAT.

The above is general guidance as I am not aware of your company's activities. In my opinion, you should seek professional advice to make sure that you are not in default of the law as there are penalties/interest associated with default.

Kind regards
Dimitri
Chartered Certified Accountant

[JGOffshore]

Are there any reasons why one wouldn't charge VAT on an invoice if registered for VAT? I'm thinking about my foreign clients specifically who would not, presumably, have any means to claim VAT back whilst not being happy about being charged a premium for my services.

This is a complex area as you have to take into account where the foreign clients are based. If EU or EEA then things are quite different than for other countries. Also depending on which EU or EEA country there are variations and you may in fact need to register in those countries. Also it can depend on what type of service you are supplying. For example if it is property related then the place of supply would be where the property is not where your client is.

You need to give more detailed information and probably talk to a VAT specialist. I can help with some countries but not all.

[Bumbling Amateur]

This is a complex area as you have to take into account where the foreign clients are based. If EU or EEA then things are quite different than for other countries. Also depending on which EU or EEA country there are variations and you may in fact need to register in those countries. Also it can depend on what type of service you are supplying. For example if it is property related then the place of supply would be where the property is not where your client is.

You need to give more detailed information and probably talk to a VAT specialist. I can help with some countries but not all.

More specifically one regular client is a Singapore based company.

[DFL]

I disagree that this is complex.

The VAT rules on international supplies are quite clear and straightforward.

Don't let this sway your decision whether to register or not but do weigh up all other pros and cons.

[JGOffshore]

[quote=DFL;805018]I disagree that this is complex.

The VAT rules on international supplies are quite clear and straightforward.

quote]

Sorry, but you must live in cloud cuckoo land! I wish it was simple. Answers can be given but only if we know what other countries are involved.

[JGOffshore]

More specifically one regular client is a Singapore based company.

On the surface Singapore can be fairly straightforward from a VAT point of view but you may run into withholding tax problems on your invoices.

It isn't generally understood that if non Singapore companies/individuals send invoices to Singapore clients then the client has to pay you less witholding tax equal to the tax that would be payable if you were a Singapore business (without any allowance for your costs). It isn't true for every invoice but covers a range of services - so again, one would need to know exactly what services you are supplying.

This is not just an issue in Singapore but in many other countries including some EU/EEA countries. Not VAT I know - but still a cost not all of which is recoverable against UK corporation tax.

[DFL]

In relation to this poster the rules would (from current information) be clear and straightforward.

The business is owner managed, turns over less than 67k, is likely to be of same supply, and he/she has already mentioned that one regular client is Singapore based.

I do not disagree that VAT on international supplies can be complex for the non layman but I do disagree that for the purposes of this scenario that they are.

The problem that appears to be creeping in to this forum is that replies to posts are fishing expeditions for people to sell their areas of expertise rather than addressing the unique wants and needs of the original post.

Not aimed at you at all just a general observation.



[quote=DFL;805018]I disagree that this is complex.

The VAT rules on international supplies are quite clear and straightforward.

quote]

Sorry, but you must live in cloud cuckoo land! I wish it was simple. Answers can be given but only if we know what other countries are involved.

[Bumbling Amateur]

Let me try to provide more clarity. The solution is either very complex or straightforward at the moment! I sell my services as a technician/consultant to the hydrographic survey industry.

By the way DFL I'm not sure what 'of same supply' means?

Is 'withholding tax' a Singapore specific tax? Are you saying that if this tax was charged I could enter it in my accounts as a business cost?

[DFL]

With regard to exported services, the basic rule is that the services are provided where the supplier belongs (you - UK) although there are one or two overides contained within SI 1992/3121 of the VAT ACT (VATA 1994 - google it and have a look)

Without checking, I am pretty sure that your service would not be one of the exceptions which are usually land and transport related.

So on face of it all that is relevent for you is that you zero rate your invoices to your Singapore clients and any others in countries outside the UK and EU.

Same supply means not mixed. In your case, you would be supplying the same service therefore same treatment each time. Hence my point that it is not compicated - unlike a business exporting all manner of goods.

I will let others comment re witholding tax for Singapore as it is not my forte but as a brief overview it is not specific to Singapore, and maybe reduced by double taxation relief.

[JGOffshore]

.... Without checking, I am pretty sure that your service would not be one of the exceptions which are usually land and transport related.

That sounds about right to me.



... So on face of it all that is relevent for you is that you zero rate your invoices to your Singapore clients and any others in countries outside the UK and EU.....

Remembering the difference between a positive rate of zero and an exempt rate of zero.


... I will let others comment re witholding tax for Singapore as it is not my forte but as a brief overview it is not specific to Singapore, and maybe reduced by double taxation relief.


I've not been in my office today as I've been in board meetings so I have not had a chance to check the specifics of the withholding tax as it relates to Singapore. I'll get back to you on the withholding tax tomorrow.

[JGOffshore]

I’ve had a look at the Singapore situation.

Payments of technical assistance and service fees, and of management fees, to non-residents are subject to a non-final withholding tax at the current rate of 18%. However withholding tax is not imposed where the service is provided wholly outside Singapore.

This would mean that if I was asked to provide some advice from my office in the Isle of Man then my bill would be paid without a deduction of withholding tax. However if, say, an engineer went to Singapore and did some (even if not all) work there then his/her bill would be paid less 18% tax.

The purpose is simple, it is to stop people who live and/or work in Singapore invoicing from elsewhere and avoiding tax. In fact it is a fair system compared to many countries who impose tax irrespective of where the work was done.

There is the possibility also that if some work was done in Singapore the foreign supplier may have to register for GST (VAT) but the threshold is high at about £470,000 so I guess that’s not going to catch too many people.

There would only be a VAT issue at the UK end if the services carried out here related to property located in the UK but owned in Singapore.

[Bumbling Amateur]

I’ve had a look at the Singapore situation.

Payments of technical assistance and service fees, and of management fees, to non-residents are subject to a non-final withholding tax at the current rate of 18%. However withholding tax is not imposed where the service is provided wholly outside Singapore.

This would mean that if I was asked to provide some advice from my office in the Isle of Man then my bill would be paid without a deduction of withholding tax. However if, say, an engineer went to Singapore and did some (even if not all) work there then his/her bill would be paid less 18% tax.

The purpose is simple, it is to stop people who live and/or work in Singapore invoicing from elsewhere and avoiding tax. In fact it is a fair system compared to many countries who impose tax irrespective of where the work was done.

There is the possibility also that if some work was done in Singapore the foreign supplier may have to register for GST (VAT) but the threshold is high at about £470,000 so I guess that’s not going to catch too many people.

There would only be a VAT issue at the UK end if the services carried out here related to property located in the UK but owned in Singapore.

Thanks very much. That's really useful to know.

[Kevin Hall]

Let me try to provide more clarity. The solution is either very complex or straightforward at the moment! I sell my services as a technician/consultant to the hydrographic survey industry.

The correct VAT rules always depends heavily on detail. Just when you think everything is clear and you've taken into account all the possible exceptions, a client can drop a new fact into the equation that changes everything. It is usually best to examine contracts and documentation when making comments on trading activity, but this obviously is not possible here. In the absence of such conclusive evidence, I can only quote the law or HMRC's own guidance.

The "Place of Supply" of consultancy services is usually where the customer is located. HMRC's VAT Notice 741 helps explain this at Section 13.5:

13.5 Paragraph 3 of Schedule 5: Services of consultants, engineers, consultancy bureaux, lawyers, accountants, and other similar services; data processing and provision of information (but excluding from this head any services relating to land)

13.5.1 What types of services fall within paragraph 3?
This paragraph covers a wide range of services of different natures. It covers services of consultants, engineers, consultancy bureaux, lawyers and accountants as well as other services which are similar to them. Data processing services and the provision of information are also included. It does not matter how supplies of these services are delivered to a customer, which may be by electronic transmission, courier or mail.

However, where any of these services relate to land or property they are excluded from paragraph 3 of Schedule 5. See section 6.

The Place of Supply of services which are directly related to real estate is the country in which the real estate is located. HMRC's VAT Notice 741 states at Section 6.4:

6.4 What are land-related services?
Land-related services include:
...
- services of estate agents, auctioneers, architects, solicitors, surveyors, engineers and other services relating to land.

In my opinion, the information from Mr Amateur is not sufficient for a clear analysis of his supplies to his clients. Is he supplying land-related surveying (or maybe even work on goods) services, or is he supplying simple consultancy services? What is this "technician" work? Is his use of "consultancy" the same as HMRC's (e.g. provides a set of data with a conclusion)?

Of course, if Mr Amateur has a Singaporean company for a customer and heads out to Singapore to perform his services there, the result is probably the same for EC VAT purposes: the Place of Supply is Singapore (whether because the land is there, or because the customer is there) and therefore the transaction is outside the scope of EC & UK VAT.

But if Mr Amateur has (or ever does have) other customers which are (say) a Singaporean company with real estate in the UK, then Mr Amateur (or his VAT adviser) needs to distinguish whether the service is consultancy (supplied in Singapore, outside the scope of UK VAT) or is land-related surveying (supplied in the UK, potentially subject to UK VAT).

But if my turnover is less than £67k it is a voluntary decision. The benefits of registering are what exactly? Recovering VAT paid on a new computer perhaps whilst increasing the cost of my services by 15%?!

Yes ... unless your Place of Supply is outside the UK. If so, you might get to reclaim the VAT on your purchases without charging VAT on your supplies.

Even if your Place of Supply is usually within the UK, you would not be seen as increasing the cost of your services if your customers are themselves registered for VAT. They will only look at your "net" fee, as they will simply reclaim the VAT charge on their own VAT returns.

Hope it helps you in your decision?

[Bumbling Amateur]

Thanks Kevin for some more excellent food for thought.