VAT for US services

[k_los]

Hi all I wonder if anyone can help, i've searched the web but no luck!

I am having an ecommerce website created in the US which will be used for our company primarily for the UK market. (the software I want is only available in the US)

The US web developers have quoted $6000 around £3700 and have said that they don't charge taxes because there is no physical product, it is all professional service on their end. So when I pay for the site do i then have to declare it and pay UK VAT and poss import tax on it?

I am a sole trader (not VAT registered).

Any info on this would be much appriciated.

thanks

 

[David Richards]

The general rule for most services supplied by non-EC suppliers is that they are subject to reverse charge VAT 'where the customer belongs'. In your case that would be in the UK.

Reverse charge VAT is where effectively you pay (and reclaim) the VAT yourself. But as you're not VAT registered, then you don't have to worry about that.

One thing you should note however, is that reverse charge VAT purchases count as part of your sales turnover for VAT registration threshold purposes. So if you're close to the VAT registration threshold, you need to add the £3.7k to your turnover to work out if you've reached the compulsory VAT registration threshold.

There's more information about reverse charge VAT on the HMRC website.

 

[k_los]

Thanks loads for you prompt reply, just to clarify as im not great at accounts.

you say "But as you're not VAT registered, then you don't have to worry about that."

Does that mean i wont have to pay VAT on the £3700?

Thanks again

 

[David Richards]

Does that mean i wont have to pay VAT on the £3700?

That's correct.

If the supplier does a lot of business for EC customers, they might be required to register for VAT in one or more EC country and charge VAT, but that's an issue for them and not for you. (And, of course, if the transaction was subject to some sort of sales tax in the US the supplier will have added it on.)

It's one of the quirks of the system; that a non-VAT registered business like you is better off sourcing services like these from EC or non-EC suppliers, as you won't have to pay any VAT. Whereas if the same service was supplied by a UK supplier, you would have to pay the VAT.

 

[k_los]

Thanks loads for you reply, you've help me greatly!