VAT on Google Adwords

[Simply Clicks]

I am working for a client in the insurance business. They have deliberately not registered for VAT as their products are sold in the UK with IPT rather VAT added.

All my other clients are VAT registered and the VAT number is included within their Google Adwords account. As Gogle operate from the Irish Republic they therefore avoid a direct VAT charge.

The insurance client seems happy to pay VAT at the Republic of Ireland rate of 21%. Does anyone know of any mechanism whereby the Irish VAT can be legally avoided, reclaimed or somehow mitigated?

 

[David Richards]

The insurance client seems happy to pay VAT at the Republic of Ireland rate of 21%. Does anyone know of any mechanism whereby the Irish VAT can be legally avoided, reclaimed or somehow mitigated?

Seems very unlikely. And even if possible, it probably wouldn't be worthwhile.

The first question you'll have to answer yourself is "could they recover any of the VAT paid if Google were based in the UK?". To do that they'd have to register for UK VAT. If they only make exempt supplies, then they can't be VAT registered.

If they make other (non-exempt supplies), they can be VAT-registered. So under the Reverse Charge Mechanism they'd account for 17.5% UK VAT on the Google invoice, instead of the 21% Irish VAT. But being partially exempt, then they wouldn't be able to reclaim all of that input VAT. And when the UK VAT rate goes up to 20% in January 2011, that seems a lot of effort for what may only be a small amount of money.

 

[David Griffiths]

Google adwords is a cross border supply of services and as such is subject to the reverse charge provisions. Google will not charge VAT on a supply to another business. You refer to your client being "happy to pay VAT at the Irish rate" but are Google actually charging this? I don't think that they should be and past experience indicates that they don't

However, the business receiving the supply must operate the reverse charge. That means that it calculates out VAT at the UK rate and enters that in Box 1 of the form. The same amount of VAT is recoverable as input tax in box 4 - subject to any partial exemption rules

Be aware, however, that the turnover on the reverse charge is taken into account for the registration threshold. That means that if the adwords expenditure alone is over £70k, or if added to other taxable supplies the turnover is over £70k, your client is obliged to register for UK VAT, like it or not.

 

[David Richards]

Google adwords is a cross border supply of services and as such is subject to the reverse charge provisions. Google will not charge VAT on a supply to another business. You refer to your client being "happy to pay VAT at the Irish rate" but are Google actually charging this? I don't think that they should be and past experience indicates that they don't

Google should only zero-rate the supply if it meets the conditions for zero-rating - which includes the requirement for the customer to provide their VAT registration number. In the OP's example the customer is not VAT-registered and doesn't have a VAT registration number - so Google should not zero-rate the supply.

So, in this example, Google should be charging 21% Irish VAT. (If they are not charging the VAT due, then that's a matter for Revenue in Ireland - as they are being short-changed.)

However, the business receiving the supply must operate the reverse charge. That means that it calculates out VAT at the UK rate and enters that in Box 1 of the form. The same amount of VAT is recoverable as input tax in box 4 - subject to any partial exemption rules

Assuming the the business receiving the supply is VAT-registered. (In the OP's example they are not.)

Be aware, however, that the turnover on the reverse charge is taken into account for the registration threshold. That means that if the adwords expenditure alone is over £70k, or if added to other taxable supplies the turnover is over £70k, your client is obliged to register for UK VAT, like it or not.

Indeed. Although in this instance it appears that the OP's client only makes exempt supplies, so their total of taxable supplies is nil. If Google Adwords is the only 'reverse chargeable' service they receive, then (as you indicate) they would have to receive £70k worth of supply from Google before needing to register for UK VAT. Which is quite a lot.

If the supply is a much smaller amount, then the OP's client would have to register voluntarily for VAT and do all the admin required in order to file VAT returns etc.

The end result is that from January 2011 they will pay 20% UK VAT instead of 21% Irish VAT. And if they only make exempt supplies, they still won't be able to claim back any of the VAT paid.

Seems like a lot of effort to save 1%.

 

[David Griffiths]

Google should only zero-rate the supply if it meets the conditions for zero-rating - which includes the requirement for the customer to provide their VAT registration number. In the OP's example the customer is not VAT-registered and doesn't have a VAT registration number - so Google should not zero-rate the supply.

So, in this example, Google should be charging 21% Irish VAT. (If they are not charging the VAT due, then that's a matter for Revenue in Ireland - as they are being short-changed.)

That's not the situation under the current rules. The changes referred to as "The VAT Package" took effect on 1 January 2010, and mean that for UK registered businesses no UK VAT is chargeable on any service (other than specific exceptions) to

- any VAT registered customer in another EU member state
- any unregistered customer in the EU who is in business, or
- any business customer outsidet the EU

 

[David Richards]

That's not the situation under the current rules. The changes referred to as "The VAT Package" took effect on 1 January 2010, and mean that for UK registered businesses no UK VAT is chargeable on any service (other than specific exceptions) to

- any VAT registered customer in another EU member state
- any unregistered customer in the EU who is in business, or
- any business customer outsidet the EU

Hmmm, that seems perverse as it is a distortion of the single market. It means that a business that isn't VAT-registered can avoid paying VAT by purchasing services from suppliers in other EC countries. But then when did anything in taxation make any sense...

 

[KM-Tiger]

That's not the situation under the current rules. The changes referred to as "The VAT Package" took effect on 1 January 2010, and mean that for UK registered businesses no UK VAT is chargeable on any service (other than specific exceptions) to

- any VAT registered customer in another EU member state
- any unregistered customer in the EU who is in business, or
- any business customer outsidet the EU

Wasn't aware of that, but it doesn't affect me.

But just to be clear is that services only, not goods, and does place of supply of a service have any bearing?

 

[UKSBD]

No UK VAT is chargeable on any service (other than specific exceptions) to

- any VAT registered customer in another EU member state
- any unregistered customer in the EU who is in business, or
- any business customer outsidet the EU

No VAT is chargeable, but is the person receiving the service responsible for the VAT? and if so, how if they are not VAT registered?