VAT question from a business in the EU

Discussion in 'Accounts & Finance' started by StephenSumner, Aug 14, 2019.

  1. StephenSumner

    StephenSumner UKBF Regular Full Member

    127 34
    Hi
    I have a question on how to handle VAT, hopefully someone here can help.

    My business is registered in Sweden and is VAT registered, however most of my customers are UK companies. Most of these are VAT registered, so when I have been invoicing them I have been neutralising the 25% VAT (Swedish MOMS) and the UK clients account for it on their side.

    However, I have had one or two smaller UK ltd companies who are not VAT registered come to me recently and I have been passing on the 25%

    Most recently a UK company that is exempt from VAT (health care sector) has come on board with me, I have asked my accountant here in Sweden and this is the point I need help with. Here is her email to me...

    "" The main rule when selling a service to a EU country, is that VAT should not be added to the invoice if

    a) the customer is a “taxable person” and

    b) the service is provided in the country in which the customer resides


    Otherwise, if you for instance make a sale to a private person or the service is provided in Sweden, VAT should be added to the invoice.


    The thing is, you can be a taxable person, without being VAT-registered!

    In my opinion the health care company should be considered being a taxable person.


    If we can prove they are taxable persons, you don’t have to add VAT to the invoices. In this case we need to contact the UK equivalence to Skatteverket, to get some kind of paper stating they are taxable persons. We then send this to the Skatteverket and we also need to make a note in the momsdeklaration, as the periodiska sammanställningen will differ from the amount reported in the momsdeklaration.


    In the meantime, you need to add VAT when you invoice the new customer. ""


    So the main question is, what document should I be asking for either from the customer or the UK tax authorities? Would a certificate of company incorporation be what I need?


    Any pointers on what I need to do for customers in the UK who are clearly businesses and treated as taxable persons who are not VAT reg'd?

    Thanks so much to anyone who has got this far in my post here! :)



     
    Posted: Aug 14, 2019 By: StephenSumner Member since: Oct 15, 2016
    #1
  2. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    What supplies are you making to the health care company?

    If vatable supplies were made to the health care company by a UK company they would not be able to claim the VAT back so why would it make any difference if the supplies came from Sweden?

    If no VAT charge was correct all hospitals and health care companies would buy from Europe!
     
    Posted: Aug 14, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #2
  3. StephenSumner

    StephenSumner UKBF Regular Full Member

    127 34
    I supply a distance service (marketing) and the current VAT rate in Sweden is at 25% so for VAT registered companies I'm able to neutralise it and they account for it, but the situation for non-VAT companies, particularly those exempt from VAT is what I'm trying to establish.
     
    Posted: Aug 14, 2019 By: StephenSumner Member since: Oct 15, 2016
    #3
  4. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    As above VAT will due on your invoice if the business is not VAT Registered in the EU.
     
    Posted: Aug 14, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #4
  5. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,431 2,109
    Would not health companies in the UK be vat registered anyway, just because their product may be exempt, does not mean they cannot be registered
    we sold thousands of medical uniforms and always charged vat
     
    Posted: Aug 14, 2019 By: Chris Ashdown Member since: Dec 7, 2003
    #5
  6. TheCyclingProgrammer

    TheCyclingProgrammer UKBF Regular Free Member

    1,074 219
    What has been said in the original post is correct. VAT should not be charged on a B2B supply of services to another taxable business in another EU country. This includes businesses who are not VAT registered.

    EU rules are quite clear about this and HMRC also interpret these rules in their advice to UK businesses - they explicitly state that UK businesses who supply services to other EU customers should not charge VAT as long as they either have the customers VAT number - or if they are not registered - some alternative proof of their business status.

    OP should not be charging VAT in this case, the client should be accounting for VAT under the reverse charge rules. As they are not registered then the value of the supply will be counted towards the customers turnover for the purposes of the VAT registration threshold.

    It’s only a requirement for the customer to be VAT registered when zero rating goods for export!

    TLDR; OP should listen to their accountants advice as it is correct. As to what documentation you require I would imagine that is down to the Swedish tax authorities. HMRC are quite relaxed about what they accept for the UK businesses in the reverse situation. I would say a copy of their certificate of incorporation or even a letter confirming the business status on company headed paper would suffice but the Swedish tax man might disagree.
     
    Last edited: Aug 14, 2019
    Posted: Aug 14, 2019 By: TheCyclingProgrammer Member since: Jul 15, 2014
    #6
  7. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    its not VAT registered so it cant! its supplies are EXEMPT supply so can not register for VAT in the UK.

    VAT should be charged on the supply

    If that was not the case all health care companies would just order form Europe to avoid the VAT charge.
     
    Posted: Aug 14, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #7
  8. TheCyclingProgrammer

    TheCyclingProgrammer UKBF Regular Free Member

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    VAT registration status is irrelevant. The question is whether or not the customer is a taxable person or not. If they are then it’s a B2B supply and no VAT should be charged.
     
    Posted: Aug 14, 2019 By: TheCyclingProgrammer Member since: Jul 15, 2014
    #8
  9. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    Right - if a UK company only makes Exempt supplies of services (e.g healthcare) it can not register for VAT so it is blocked from claiming VAT back on all supplies from UK VAT Registered traders.

    So according to you they all just go and buy everything from Europe so they can avoid having to pay VAT?
     
    Last edited: Aug 14, 2019
    Posted: Aug 14, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #9
  10. TheCyclingProgrammer

    TheCyclingProgrammer UKBF Regular Free Member

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    So for OPs benefit I dug up the definition of taxable person. OPs client may be a taxable person but they will need to check and be sure of their language.

    Being exempt from VAT due to making only exempt supplies is one of the exceptions to the rule regarding taxable persons, so if this is the reason they are not registered then they may not be a taxable person and Swedish VAT should be charged.

    However if OP has used the word “exempt” in a more common sense and simply means that they are not registered because they are below the registration threshold then they are to be treated as a taxable person and no VAT should be charged.

    https://ec.europa.eu/taxation_custo...s-topic/taxable-persons-under-eu-vat-rules_en
     
    Posted: Aug 14, 2019 By: TheCyclingProgrammer Member since: Jul 15, 2014
    #10
  11. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    great I will tell the NHS Trusts to buy all its medical equipment & supplies from Europe it will save them loads in VAT.
     
    Posted: Aug 14, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #11
  12. TheCyclingProgrammer

    TheCyclingProgrammer UKBF Regular Free Member

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    Sure, completely ignore my post above.
     
    Posted: Aug 14, 2019 By: TheCyclingProgrammer Member since: Jul 15, 2014
    #12
  13. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

    4,607 767
    I think you will also find regardless of what is says in the definition of 'taxable persons' under EU VAT Rules many EU Member States work on the basis for B2B supplies to be a taxable person you must be registered for VAT certainly Spain & Italy do.
     
    Posted: Aug 14, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #13
  14. TheCyclingProgrammer

    TheCyclingProgrammer UKBF Regular Free Member

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    Im well aware of the fact that other countries get this wrong but I don’t really see how its relevant.
     
    Posted: Aug 14, 2019 By: TheCyclingProgrammer Member since: Jul 15, 2014
    #14
  15. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    i dont think they get it wrong - they do it deliberately otherwise its a distortion of trade between EU countries.

    Non VAT registered UK businesses making taxable supplies are able to avoid VAT by buying goods/services from the EU rather than from a UK based company. Who thought up that rule?
     
    Posted: Aug 14, 2019 By: UK Contractor Accountant Member since: Sep 18, 2013
    #15
  16. TheCyclingProgrammer

    TheCyclingProgrammer UKBF Regular Free Member

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    They do get it wrong. A sale between two taxable persons in the EU for business purposes is a B2B supply and the general rule for B2B supplies is that the VAT is accounted for where the customer belongs, not the supplier. A taxable person can be a private person who is VAT registered (i.e. a sole trader) or another legal business entity that may or may not be VAT registered. If you are making a supply that falls under the general rule to another EU based business that meets the definition of a taxable person then you should not - according to EU VAT regulations - be charging VAT as the reverse charge rules apply.

    What does it matter? That is the rule. It's not without consequences - the value of said purchases contribute towards the UK based company's turnover for the purposes of the registration threshold so if they purchase enough services from the EU, it could push them over the threshold.

    It's not really any different from purchasing services from a non-EU supplier who wouldn't normally charge VAT anyway? Those supplies also have to be accounted for under the reverse charge or added to your turnover if you're not VAT registered.

    You cannot avoid VAT on goods in this way as you do need to be VAT registered in order for a purchase from an EU supplier to be zero rated. This only works for services.
     
    Posted: Aug 14, 2019 By: TheCyclingProgrammer Member since: Jul 15, 2014
    #16