Reply to: UK Limited company providing outside IR35 services to a European country based client

[jamesbrown]

Thanks again JB, yes I'm pretty cross about this mistake and spoke to my accountant this morning. But they reassured me there wouldn't be any penalties to pay (ironic I thought since they made the mistake) !!!

The compliance thing is the biggie now, this has the potential to throw a spanner in my works. Another issue is that the "compliance team" that sits between me and the end client are offshore with absolutely no clue about UK accounting practices or HMRC regs.

Have a great weekend!

If you can point to a disclosure and correction in progress, it may not be a big deal for that either, but IDK. Perhaps eek has a better idea.

You have a good weekend too

[Platypus]

Thanks again JB, yes I'm pretty cross about this mistake and spoke to my accountant this morning. But they reassured me there wouldn't be any penalties to pay (ironic I thought since they made the mistake) !!!

The compliance thing is the biggie now, this has the potential to throw a spanner in my works. Another issue is that the "compliance team" that sits between me and the end client are offshore with absolutely no clue about UK accounting practices or HMRC regs.

Have a great weekend!

[jamesbrown]

Thanks JB and LM.

Oh boy...

I can see that the figures used to be reported in Box 6, a couple of years ago, but not since I changed my accountant. The change was forced when my old accountant passed away very suddenly.

oh dear oh dear, here begins a big mess since I've been asked to show my VAT returns to comply with JSL, and zero value in Box 6 doesn't look good to that end.

Thanks again, now at least I know I have a problem.

OK. Speak to your accountant first. You are paying them to not make these basic errors (honestly, I would be pretty angry, although the ultimate responsibility rests with you), so they will need to fix the error.

Technically, you may still be able to correct this in your next VAT return, although I am not 100% sure about that and, in any case, I wouldn't recommend it based on what you've said.

At this point, you are more likely to receive a compliance check because the Box 6 figure is a point of verification against your CT return. Correcting this in the next return is even more likely to trigger a check. Regardless, it would be better to pre-empt this with a formal disclosure. You can make a formal disclosure via the HMRC portal. As I said, there should be no practical consequences, as you will not owe any VAT on supplies that are outside of the scope of UK VAT, but it is better to disclose the error transparently.

[ladymuck]

Thanks JB and LM.

Oh boy...

I can see that the figures used to be reported in Box 6, a couple of years ago, but not since I changed my accountant. The change was forced when my old accountant passed away very suddenly.

oh dear oh dear, here begins a big mess since I've been asked to show my VAT returns to comply with JSL, and zero value in Box 6 doesn't look good to that end.

Thanks again, now at least I know I have a problem.

Good luck!

[Platypus]

Thanks JB and LM.

Oh boy...

I can see that the figures used to be reported in Box 6, a couple of years ago, but not since I changed my accountant. The change was forced when my old accountant passed away very suddenly.

oh dear oh dear, here begins a big mess since I've been asked to show my VAT returns to comply with JSL, and zero value in Box 6 doesn't look good to that end.

Thanks again, now at least I know I have a problem.

[ladymuck]

Hi can I you ask a follow-up question on this point please? I have asked my accountant but I'm waiting for a reply.
I noticed yesterday that "Box 6" on my filed VAT returns is zero. I invoice a Swedish company in EUR. I use FreeAgent.

I did ask ChatGPT about this last night (no slagging me off for this please). It says that my supply is outside of scope of UK VAT, and therefore "some accounting packages may not include outside scope sales in Box 6". Hence the zero value. In FreeAgent I do classify my sales as " Out of scope of VAT".

I'm curious if you treat your VAT any differently from me? Which might explain why your Box 6 "Total value of sales and all other outputs excluding any VAT" includes your sales. Thanks!

What JB said.

You made me panic a bit in case I'd missed something so I checked my FA VAT returns and am happy to see my USD invoices to a Swiss client are being reported in Box 6.

They are NOT reported in Box 1, as I'd expect.

Also as JB says, there's a setting in the Contact under Invoicing Options where you set the 'Charge VAT' option to 'Only if contact is also based in the United Kingdom VAT area', and make sure the billing address is not in the UK.

It's also worth checking the Invoicing options - under More Options are three VAT options and this should be set to 'UK VAT Rates' unless you have good reason to change it to one of the other two.

These combined should ensure that your non-UK sales are reported in Box 6.

[jamesbrown]

( Oh, and to be clear, Box 6 is always correct when I file my VAT returns that contain supplies that are outside of the scope of UK VAT, so it is not a general problem with FA. )

[jamesbrown]

Hi can I you ask a follow-up question on this point please? I have asked my accountant but I'm waiting for a reply.
I noticed yesterday that "Box 6" on my filed VAT returns is zero. I invoice a Swedish company in EUR. I use FreeAgent.

I did ask ChatGPT about this last night (no slagging me off for this please). It says that my supply is outside of scope of UK VAT, and therefore "some accounting packages may not include outside scope sales in Box 6". Hence the zero value. In FreeAgent I do classify my sales as " Out of scope of VAT".

I'm curious if you treat your VAT any differently from me? Which might explain why your Box 6 "Total value of sales and all other outputs excluding any VAT" includes your sales. Thanks!

You must enter the total value of all sales in Box 6 of your VAT return, including all supplies that are outside of the scope of UK VAT:

https://www.gov.uk/guidance/how-to-f...70012#section3

I think there are various ways to set the VAT options for a supply in FA, notably via the bank transaction or the invoice. Personally, I find the easiest way is to set this in relation to a Contact. Create or edit a Contact and then select an appropriate option to "never" charge VAT or "only charge VAT if they are based in the UK VAT area" (ensuring the contact address is outside), something like that.

Either way, Box 6 must include the total value of sales. That being said, I think you can correct this on your next return because it has zero impact on the amount of VAT due, which is £0. Had there been a non-zero and non-trivial (I think >1% of total value, but I forget) impact, you would need to file an amended return, but no bother in this case, I think. Confirm with your accountant.

[Platypus]

No VAT charged. The sales still get reported on your VAT returns but if the proper treatment is applied by your accounting software it will all be fine. My accountant didn't raise any issues or concerns when doing my year end accounts.

Hi can I you ask a follow-up question on this point please? I have asked my accountant but I'm waiting for a reply.
I noticed yesterday that "Box 6" on my filed VAT returns is zero. I invoice a Swedish company in EUR. I use FreeAgent.

I did ask ChatGPT about this last night (no slagging me off for this please). It says that my supply is outside of scope of UK VAT, and therefore "some accounting packages may not include outside scope sales in Box 6". Hence the zero value. In FreeAgent I do classify my sales as " Out of scope of VAT".

I'm curious if you treat your VAT any differently from me? Which might explain why your Box 6 "Total value of sales and all other outputs excluding any VAT" includes your sales. Thanks!

[Eirikur]

Yes I'm providing these services now and have done it before

[northernladuk]

Have you asked your accountant?

[WTFH]

Things that make a difference:
1. What country is the contract from (I did quite a bit of work in Europe on Swiss contracts)
2. What country is the work going to be done? (You may say it’s WFH, but is there any on-site expected?)
3. What currency will you be raising the invoices in?
4. Does your current business bank account include multi-currency at reasonable rates?
5. Is there an agency or other party involved between you and the client?

[jamesbrown]

Ps. Please do not reply with a talk to an accountant response

P.S. Good luck with that, NLUK doesn't discriminate.

[jamesbrown]

Thank you. It's not a firm offer yet, so I am just trying to understand if I am getting into my anything unusual I need to further consider outside of the usual UK client consideration. That's why I sound vague as I have no real knowledge or details to focus on. Trying to find out what issues I need to watch out for and ask and address with the EU client to address to make my life easier prior to signing contract.

From what I gather, EU customer invoices are zero UK Vat, other than that as you say, invoice can be in GBP, EUR as per contract and I do the currency conversion if needed.

In your experience, are there any complications to consider and anything unusual with HMRC and reporting?

Thanks

It depends on the place of supply rules (feel free to read them), but B2B supplies will generally be outside of the scope of UK VAT (i.e., UK VAT does not apply) and this is not a pedantic difference. If you want, you can mention the customer's reverse charge obligation on your invoices (e.g., "reverse charge applies"), but the reverse charge narrative isn't mandatory. You will need to include the sale in Box 6 (total value of sales) of your VAT return, as normal.

Make sure your business (PI) insurance covers you for this work. Make sure you understand your contract before you sign it, including any clauses related to governing law and jurisdiction and what this means for you if the work goes tits up and the client refuses to pay.

You will need to be careful w/r to IR35, notably whether the client has a UK branch or PE, i.e., a physical presence in the UK. In that case, the Ch. 10 rules apply, which will be all sorts of confusing for your client.

[ladymuck]

Nothing untoward discovered yet.

No VAT charged. The sales still get reported on your VAT returns but if the proper treatment is applied by your accounting software it will all be fine. My accountant didn't raise any issues or concerns when doing my year end accounts.

Be mindful of which country has legal jurisdiction over the contract and make sure you understand what the process would be in that country in the event of non payment. Check your PI insurance is valid.

If you invoice in something other than GBP you'll have to do regular invoice revaluations. FreeAgent handles that and automatically does the conversions and realised gain/loss journals.