Umbrella demanding VAT for contract being worked abroad

[Matwilk]

Hi,

I am doing a 6 month contract in Sweden. My agent is a UK Ltd company, as is my Umbrella company.

After my first month my Umbrella has invoiced my agent. They added VAT to the invoice, but my agent has refused to pay the VAT part, citing the fact that the end client is a Swedish company and so they don't need to pay VAT.

As a result, the Umbrella are taking the VAT out of my own pay until the matter is resolved.

Who is right? Should the Umbrella be forced to not charge the VAT (given that it's for work done for an overseas client), or can/should the Agent just pay the VAT and claim it back?

Any helpful advice gratefully received, including what to do in the event that neither party are prepared to back down.

Cheers

[Fred Bloggs]

Wow, name and shame the brolly. I reckon that's exceptionally harsh taking it out on you. Will the agency agree to changing brollies?

[Brussels Slumdog]

Hi,

I am doing a 6 month contract in Sweden. My agent is a UK Ltd company, as is my Umbrella company.

After my first month my Umbrella has invoiced my agent. They added VAT to the invoice, but my agent has refused to pay the VAT part, citing the fact that the end client is a Swedish company and so they don't need to pay VAT.

As a result, the Umbrella are taking the VAT out of my own pay until the matter is resolved.

Who is right? Should the Umbrella be forced to not charge the VAT (given that it's for work done for an overseas client), or can/should the Agent just pay the VAT and claim it back?

Any helpful advice gratefully received, including what to do in the event that neither party are prepared to back down.

Cheers

Why don't you write to /phone the VAT authorities in the UK to clear up the issue as normally a UK company charges another UK company VAT. There may be triangular agreements whereby if the goods/services are supplied from a 3rd country VAT is non chargeable. As a SAP consultant I have come across this scenario relating to Goods on a Dutch project.
I assume that you will be in Sweden less than 180 days this year so you will not become a Swedish tax resident.

[BlasterBates]

Difficult one this you are billing a UK agency so yes you need to deduct VAT, and this should have been agreed with the agency. The Swedish client doesn't pay it. That's how I understand. If you can bill in Sweden, then no problem, you wouldn't have to pay it. However....you are working in Sweden so maybe you can claim an exemption. Check through an accountant.

[expat]

Hi,

I am doing a 6 month contract in Sweden. My agent is a UK Ltd company, as is my Umbrella company.

After my first month my Umbrella has invoiced my agent. They added VAT to the invoice, but my agent has refused to pay the VAT part, citing the fact that the end client is a Swedish company and so they don't need to pay VAT.

As a result, the Umbrella are taking the VAT out of my own pay until the matter is resolved.

Who is right? Should the Umbrella be forced to not charge the VAT (given that it's for work done for an overseas client), or can/should the Agent just pay the VAT and claim it back?

Any helpful advice gratefully received, including what to do in the event that neither party are prepared to back down.

Cheers

In principle you have to look at each stage of the billing and determine the place of supply of the services that are being billed.

1. You to umbrella.
This is not billing, this is employment, so it doesn't apply to this stage.

2. Umbrella to agency.
What precisely are the umbrella billing the agency for? Where is that supplied? This might be arguable. The umbrella are covering themselves against the risk that it is supplying you to the agency, and that supply might well be seen as being in the UK, regardless of what the agency then go on to do with these services (i.e. send you to Sweden).

3. Agency to client.
Most likely (but not certainly) the agency are billing the client for your services in Sweden. If so, it is probably a cross-border supply of services, and so not within the scope of VAT.

If No. 2 is the case, then strictly speaking the agency are required to pay VAT to the umbrella. As someone suggested, an opinion from the VATman might help them to see straight. I wouldn't bet on it though, I've had different VAT offices disagree.

[BlasterBates]

Crossborder VAT is not nice. It is made worse if you bill in the UK. It is much harder to exempt yourself from the VAT. Normally VAT would be paid on UK-UK invoice.

[Brussels Slumdog]

Crossborder VAT is not nice. It is made worse if you bill in the UK. It is much harder to exempt yourself from the VAT. Normally VAT would be paid on UK-UK invoice.

I am sure that my umbrella company that I use in the UK would ask the agency to prove that this crossborder transaction was not VAT chargeable or Exempt. Your umbrella company should take up the non payment of VAT issue with their auditors and not deduct it from your remittance.
Good umbrella companies use auditors like Price Waterhouse Coopers/Earnest & young to establish legal/tax/accounting matters.
This justifies umbrella companies charging you a monthly fee. The cheaper ones may not have access to expert advice as they can't afford to pay for
the advice.

[Beefy198]

As I understand it, and as someone who will freely admit that he is not an expert in VAT and therefore could be wrong, they are sending an invoice to a UK company, and therefore are right to add VAT.

The agency are billing a foreign company, so it's up to them to worry about the VAT implications.

Think of it like this - if Tesco order something from a UK distributor who imports some products from China, they would still add VAT. The fact that the products were made in China and shipped over to this distributor doesn't make an iota of difference.

[BlasterBates]

I am sure that my umbrella company that I use in the UK would ask the agency to prove that this crossborder transaction was not VAT chargeable or Exempt. Your umbrella company should take up the non payment of VAT issue with their auditors and not deduct it from your remittance.
Good umbrella companies use auditors like Price Waterhouse Coopers/Earnest & young to establish legal/tax/accounting matters.
This justifies umbrella companies charging you a monthly fee. The cheaper ones may not have access to expert advice as they can't afford to pay for
the advice.

My experience is that in Europe you normally bill through a locally registered subsiduary of a management co. Then crossborder VAT isn't an issue. This is a rather unusual situation, and I think that VAT is payable. I had a similar situation where I considered billing from Germany for a Lux. contract. I might have actually been liable for German VAT even though the agency woulldn't pay it. The law on this could have been interpreted in two ways depending on whether I was providing software or consultancy services.

[original PM]

am am 99.99999% sure that as your brolly is a uk company and the agency is a uk company then vat applies.

there is no relationship between the brolly and the end client

i dealt with a similar issue where by the contractors client was a UK charity adn therefore exempt from VAT - however the invoice from brolly to agency has VAT added because neither of these are VAT exempt.

I used to work in a bonded warehouse and we bought in goods from outside the EU (Japn in fact) - so no VAT or duty was paid on the goods until we sold them and the rules went like this

1) Goods sold to customer outside of UE - no VAT or Duty to be paid.
2) Goods sold to customer inside EU but not in UK - Duty needed to be paid.
3) Goods sold to UK customer both VAT and Duty need to be paid.

So applying the same rules Umbrella (UK based) are sellling services to Agency (UK based) as such VAT needs to be paid.

but i am no expert