Charge VAT or not? (EC services supply via intermediary)

[Milan Vasilko]

Hi ,
We are receiving conflicting advice on whether to charge VAT or not so I am hoping that one (or more!) of accounting professionals on the forum might be able to help and shed some more light on this.

Scenario:
UK company A supplies consultancy services to another UK company B
UK company B re-sells these services and supplies them to company C which is based in the EU.
There is no direct contractual relationship between Company A and C, however a member of the Company A’s staff works on the Company C's site in the EU, hence ‘place of supply and consumption’ is in the EU.

All companies are VAT registered, all transactions/invoices are in Euro.

When Company B invoices Company C, the VAT is ‘out of scope of UK VAT’ hence Company B does not charge VAT to Company C.

The question is:
Should Company A charge the UK VAT to Company B or not?

Two possible answers we are getting are:
(1) Yes, because both companies A and B are UK companies and there is no direct relationship between companies A and C.
(2) No, because the ‘place of supply’ is in the EU, hence VAT is 'out of UK VAT scope' also for invoices between companies A and B.

Which one is right?

Thank you,
Milan

[Milan Vasilko]

Does anyone know what the right answer is?
Many thanks, M.

[spidersong]

Currently (although there are revised rules coming in in 2010, I don't believe they change this) this is a UK supply.

Consultancy is a supply in Schedule 5 of the VAT Act which means it's supplied where the customer belongs, UK customer = UK supply.

To demonstrate the correctness of zero rating you quote the customers VAT registration number on the invoice, it would not be possible to quote a UK VAT number to deomonstrate that you'd made a supply in another member state (VAT officer would come along and look rather confused "Ah..I see that the other member state you're operating in is...the UK!!!").

Also consultancy is not a supply made where physically performed, really there is no physical performance of a purely intellectual (hopefully) supply. Supplies where physical performance makes a difference tend to be work on goods and 'performances' such as acting or singing, or teaching.

[elainec100@cheapaccounting]

it's all in here:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000346#P581_72574

[Milan Vasilko]

'spidersong' and Elaine,

Thank you both so much for your help. I shall study the 'Place of supply' document in detail to prepare myself for a debate with 'professionals' who should know better...

Have a good weekend!
Milan