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VAT Reverse Charge on sales to EC country

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    VAT Reverse Charge on sales to EC country

    Hello

    Anyone got direct experience with VAT Reverse Charge and sales to EC countries? Just trying to get me head round it

    On regular VAT calculation (not Flat Rate VAT)

    Understanding the VAT reverse charge is essential for businesses buying and selling goods or services cross-border in the EU - rbcVAT Limited

    ie. my LTD CO sells a service to Germany company for 100 GBP.
    German company pays us 100 GBP, and writes Reverse Charge on receipt.

    Called HMRC VAT line, but they didn't really know about it, just pointed me online.
    So it seems we record
    Sale: 100 GBP

    Box 2 acquisition tax: 20
    Box 4 reclaim: 20
    Box 5: Nothing to pay

    Box 7 net price: 100

    Box 9 EU acquisitions: 100

    Does this sound right?

    What seems surprising, is that HMRC make no money out of VAT on foreign sales.. German company doesn't pay German VAT authority either.. so it's kind of completely exempt!?
    Last edited by richy; 14 October 2017, 18:33.

    #2
    I’m a confused, are you selling the service as you say in your post?

    If you are the supplier and the customer is a German business (they don’t necessarily have to be VAT registered but probably will be), then you supply without U.K. VAT, indicate on the invoice that the reverse charge applies and the German customer will account for the VAT on their German VAT return. You just need to keep evidence that your customer was a business and you’ll also need to complete an EC sales list.

    If the German company is the supplier and you are the customer and they are treating it as a B2B supply (normally after asking for your U.K. VAT number) then you should have received an invoice for €xxx without German VAT and it is YOU that needs to account for U.K. VAT on the purchase under the reverse charge on your return.

    To account for a service purchase from an overseas supplier under the reverse charge you simply treat it as if you both supplied and received it yourself, so you would enter the net amount and 20% VAT in both the purchase and sale boxes on your return (IIRC it’s boxes 1, 4, 6 and 7) thus cancelling them out.

    The acquisitions boxes have nothing to do with sales of services, these are for supplies of goods.
    Last edited by TheCyclingProgrammer; 14 October 2017, 21:25.

    Comment


      #3
      Thank you for your reply. I'm not quite clear myself!
      But German company acts as an agent to sell our services, this is why it is a bit confusing, as they send us our money, with a receipt - after they have sold our service! (They take a small commision for pocessing this). Yes it is B2B, they are german ltd, we are uk ltd co.

      I appreciate your reply, as it looks like I have done it wrong. As we are supplier, we simply leave it off the return? Maybe we only include the Net?

      So aqusitions of services are simply not listed?
      When I called the VAT line, they said list in box2, and box4 the same amount (so they cancel out)

      Comment


        #4
        You don’t have an “acquisition” of services. Imported goods are acquisitions. Imported services are subject to the reverse charge on services.

        In this case you’re the supplier so you don’t need to apply the reverse charge to anything (unless the agent is billing you for their services, see my final paragraph). You only apply the reverse charge to services you purchase from outside the U.K.

        Does the agent act as an undisclosed agent? In other words, does the end customer think they are purchasing from the agent or do they think they are purchasing from you via the agency? I’m guessing it’s the former.

        If the agent is basically acting like a reseller (an undisclosed agent) and they make their “commission” by adding a markup to the price they resell for then you only need concern yourself with the supply from you to the agent.

        As you are the supplier in this case then it is the agent that will account for the supply under the reverse charge at their end which is possibly why they have mentioned it on their receipt.

        The supply is outside the scope of U.K. VAT however if you’re on the standard VAT scheme then you should still include the value of this supply in Box 6 on your VAT return. If you’re on the flat rate scheme then you leave the supply off your return entirely as it is not part of your flat rate turnover. On either scheme you will need to complete and submit an EC sales list.

        If the supply is between you and the end customer andnthe agent is simply facilitating the sale and invoicing you for their commission then it gets a bit more complicated as there’s more than one supply for you to deal with (a supply of services from you to end customer and a supply of agent services from the German agent to you).
        Last edited by TheCyclingProgrammer; 14 October 2017, 22:57.

        Comment


          #5
          Many thanks for your reply.

          Ok, sounds like VAT helpline may have misinformed me, if services don't count as acquisitions. They told me to put the "notional" vat in both Box2 and Box4.

          I've filed the amount we received on EC sales list now. Yes, I have already included in Box6.

          The service, is the sale of a domain name. The agent is SEDO if that helps

          Yes, the customer would understand we owned the domain name, but we have no dealings with the customer. The customer may misunderstand, and think they are buying from a re-seller as you say. Unfortunately the statement we have from SEDO doesn't clarify.


          I've looked at commission the german agent sent us. Example with figures below.

          ========
          Sheet is marked "Payment notification"
          Sale of our domain name 1200
          Deduction of agent commision: 200
          Paid: 1000
          The agent is VAT registered in DE

          ==========
          There is a separate sheet marked "invoice", for VAT registered bussinesses
          Commission: 200

          "The reversal of VAT liability referred to in § 13b UStG applies."
          ===========

          So maybe only VAT reversal on the 200 commision?

          Comment


            #6
            Ok it’s much easier to help if you share important details like this in the first place.

            You have supplied the domain to the end customer. The agent has supplied you with their services and has invoiced you for their commission.

            Everything I’ve said about the supply you’ve made is still true if that end customer is a business. They will account for the reverse charge, you record net sale of 1200 in box 6 on your VAT return and report using an EC sales list.

            You need to account for VAT under the reverse charge on the 200 commission. 40 into boxes 1 and 4 and 200 into boxes 6 and 7.

            If the end customer was not a business then I would have said you should have to account for U.K. VAT on the sale unless there are special rules for selling via an agent which I’m not certain about.

            Comment


              #7
              Thank you again for your reply! I'll do it as you suggest. It looks like I really had everything wrong in my mind before.

              I already filed (incorrect) EC sales list. I'd put that in as 1000. Do I really need to make corrections for these things? It's just incorrect records right?

              Re End customer/B2B
              I never know who the end customer is, but for these prices they almost certainly all are. The agent never gives me any of their details. So it's fine just to assume B2B I hope.


              Re commission, I never accounted for any of these on my accounts. Should I?
              I always just wrote the 1000 down... Do I need to record 200 commission expense too? Not sure if this makes any difference on Ltd co accounts.

              Thank you again, I owe you big time!

              Comment


                #8
                NEVER NET OFF EXPENSES.

                Please get an accountant.

                Comment


                  #9
                  Originally posted by TheCyclingProgrammer View Post
                  NEVER NET OFF EXPENSES.

                  Please get an accountant.
                  Yes, I will ask them to help do it from now on.

                  Comment


                    #10
                    Just to be clear, based on what you've said so far:

                    1. You've made a sale to a customer via an agent for 1200.
                    2. You've incurred an expense of agent commission of 200, giving you a gross profit of 1000.
                    3. You should record both the sale and expense for accounting purposes.
                    4. You have made a sale of 1200 for VAT purposes and this is what should appear on your return and EC sales list.
                    5. The commission that you have been invoiced by the agent is subject to the reverse charge and needs to be recorded as such on your VAT return.

                    However one thing that still isn't crystal clear and I recommend you get advice on is whether or not the agent is acting as an undisclosed agent (acting in their own name when selling to the end customer) or a disclosed agent.

                    On the face of it they are acting as a disclosed agent (based on the fact they are invoicing you for their commission) rather than an undisclosed agent (where they would simply add a markup onto the price and remit you the difference). But you talk about the end customer not having any knowledge of who you are which suggests an undisclosed agent relationship. So I guess its possible for them to still be acting as an undisclosed agent but invoicing you for their commission instead, but I don't know this for certain.

                    It's *really* important you determine this with professional help because it affects a) The value of your sale and b) Whether or not you need to account for VAT on the sale to the end customer.

                    If agent is acting as an undisclosed agent then you have made a supply to the agent with a value of 1000 and they have made an onwards supply to the end customer of 1200 (with the extra 200 being their commission). As I said this seems unlikely if they've invoiced you for the commission. In this scenario the supply from you to the agent is a B2B supply outside the scope of UK VAT and you need not concern yourself with the supply to the end customer.

                    However, if the agent is acting as a disclosed agent, then what I outlined at the beginning of this post applies (sale of 1200, expense of 200 subject to reverse charge) but more importantly, that sale of 1200 may still be subject to UK VAT if the end customer is a consumer, not a business. You can't just assume the end customer is a business. If you are acting as the principal in the sale between you and the end customer it is vital you establish whether or not they are a business or a consumer and have evidence of this status. If they are a business then the supply is still outside the scope of UK VAT. If they are a consumer, and no special place of supply rules apply, then you may need to account for UK VAT on the supply. Even worse, if the supply is an electronically supplied service you may have a liability to account for VAT in the end customer's country under the VAT MOSS rules.

                    I repeat: get professional advice as you may end up owing a lot of VAT if you get this wrong.

                    Comment

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