Digital Purchases Abroad + VAT

DavidGiant · Sep 13, 2010

Hi,

Was just curious. When I buy something physical abroad I am hit with some extra tax when - I assume - it passes through customs.

When I make a digital purchase in dollars on some US website no such VAT is paid. Does this matter? Does VAT even apply?

geester · Sep 13, 2010

David,
When I have made purchases of digital products I have been charged VAT even though they are based in the USA and I download them! How does that work?

David Richards · Sep 13, 2010

DavidGiant said:
When I make a digital purchase in dollars on some US website no such VAT is paid. Does this matter? Does VAT even apply?

Is it B2B transaction? Are you VAT-registered? If so, you'll normallly have to account for the VAT yourself using the Reverse Charge Method. But it depends on where the place of supply is deemed to be - and for electronically supplied services that can be affected by where the service is 'used and enjoyed'. See this page and this page on the HMRC website.

Is it a B2C transaction? In that case the supplier may be required to register for VAT and charge VAT on their sales to consumers in the EC. Technically they might have to register for VAT in every EC country, but a special scheme lets them register in just one country (of their choice) - although they still charge the rate of VAT applicable to the where the EC customer is based.

David Griffiths · Sep 13, 2010

Complex area and basically one for our VAT experts. Covered by HMRC Notice 741 - place of supply of services

Assuming that in both cases the supplier is based outside the EU the position depends on the status of the customer

If the customer receives the service for business purposes, then no VAT is charged (even if the customer is not VAT registered) and the customer accounts for VAT under the reverse charge. For a registered business, that means that the amount of the supply is included as a sale and output tax paid to HMRC. At the same time, input tax can be claimed on the same supply, so there is no net liability. The whole point of this is that partially exempt businesses may only be able to claim part of the input tax. If the UK business is not VAT registered then the reverse charge turnover must be counted to see if turnover goes over the VAT registration limit.

If the customer receives the supply for non business purposes then the supplier must charge VAT but will only be required to register and charge VAT if UK turnover is over the registration limit. If there's no VAT then the overseas supplier might not sell enough to the UK, or might simply not know the rules

Oh, and all of this changed from Jan 1 last year, so if something different happened last year, that's why.

I look forward to any of this being corrected by our experts!

DavidGiant · Sep 13, 2010

Ah, I might just be purchasing services then. I don't know. I will pay more attention when I make my next service.

Also, how do you define a B2B and a B2C transaction. I am self employed and not registered for VAT. Does that mean that transactions are B2C or the fact that the purchase is for my business uses make it B2B?

wizzard · Sep 13, 2010

DavidGiant said:
Ah, I might just be purchasing services then. I don't know. I will pay more attention when I make my next service.

Also, how do you define a B2B and a B2C transaction. I am self employed and not registered for VAT. Does that mean that transactions are B2C or the fact that the purchase is for my business uses make it B2B?

B2B is if you supply your goods to a company for example Joe Bloggs Ltd or another sole trader

B2C is if you for example supply your goods to Fred down the road.

David Richards · Sep 13, 2010

DavidGiant said:
Ah, I might just be purchasing services then. I don't know. I will pay more attention when I make my next service.

What are you buying? For example; if you buy a CD which is physically posted to you, that's a supply of goods - but if you download an MP3, that's an electronic supply of a service.

DavidGiant said:
Also, how do you define a B2B and a B2C transaction. I am self employed and not registered for VAT. Does that mean that transactions are B2C or the fact that the purchase is for my business uses make it B2B?

If you are buying it for your business, then it's B2B.

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Digital Purchases Abroad + VAT

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