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How do I prove a service is business to business when invoicing non VAT registered companies outside of the EC in order to benefit from the service being VAT exempt?
I currently invoice for services in the EC to VAT registered companies by adding their VAT number to the invoice. This proves it is business to business for it to be VAT exempt. I am providing the same services to companies outside the EC who will not be VAT registered. How do I prove on the invoice it is a business to business transaction for VAT exemption?
I’m confused
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Inappropriate?Hello Nick,
I think that if this is outside the scope of VAT (and don't forget the place of supply rules for services have recently changed - see http://customs.hmrc.gov.uk/channelsPo...) then the services would be zero-rated rather than exempt.
The above link might help you find out what proof you would need to keep in case you get a VAT inspection - but I don't think you need to put anything on your invoices.
Does that help, please?
Kind regards,
Emily -
Inappropriate?Actually, shouldn't invoices that are outside of the scope of VAT not mention VAT on them at all? Zero-rated would be different (for example, if you were on the flat-rate scheme, VAT-exempt and zero-rated supplies would still be part of your flat-rate turnover but outside of scope supplies would not). -
Inappropriate?Hello Luke,
This is a very confusing area!
HM Revenue's website puts it that you can "zero-rate the services" if your customer is outside the EC and the place of supply rules apply, at least that's how I understand it.
But you're quite right that these services count as outside the scope of UK VAT, which is why these supplies aren't part of your flat rate turnover.
So in a sense, both zero-rated and outside the scope apply here!
But I still think Nick doesn't need to put anything on his invoices to do with VAT, and it sounds like you agree with me on that?
Kind regards,
Emily -
Inappropriate?You're right, HMRC are being confusing as ever. I do agree with you, that if you've determined your supply is "outside the scope of UK VAT" that your invoice shouldn't need to mention VAT at all. This would seem to trump any notion of it being "zero-rated".
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Inappropriate?Hi Luke,
This is why VAT inspectors carry casesful of fat tomes with them :-)
I'm glad you agree that the invoices shouldn't need to mention VAT. Thanks for that.
Kind regards,
Emily -
Inappropriate?Thanks for your replies. Makes sense. the only confusing area for me is how to prove it falls outside the scope of UK VAT. Business to business services outside the EC are outside the scope of UK VAT, but you need to be able to prove from your invoice that it is business to business, but there is no mention anywhere easy to find on HRMC web site about what you put down to prove this....which is v helpful!1 Comment
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In addition to my comments below, could you not ask your clients for a purchase order on headed paper, or failing that, simply a letter confirming that they are business and require your services for business purposes?
They could lie of course, but I think as long as you've shown due diligence and its clear that you could not have known that they were lying you wouldn't be held responsible. -
Inappropriate?Nick, as Emily says, its a very confusing area. I am not an accountant, but here is my experience...
I spent a long time researching how to treat the income from my iPhone app sales for VAT purposes. Long story short, as Apple act as an undisclosed agent, there is considered to be two supplies, a B2B supply from me to Apple and a B2C supply from Apple to the end customer. Apple charge VAT on their app sales, but the supply from me to Apple falls outside the scope of UK VAT (Apple's cut of my sales is also considered a markup in the cost price from me rather than commission too).
Now, despite me doing a lot of due diligence, I, like you had the issue of how to prove this. In the end, I simply rang HMRC's VAT helpline and talked it through with them. They were helpful and agreed with my interpretation. I got a reference number for this call should I ever need to refer back to it.
At the end of the day, should you ever make an error with your VAT, you are unlikely to get in trouble as long as you have made an honest mistake and can prove that you have gone to every length to do things properly. If you have an accountant, it is also worth getting their opinion on the subject too. -
Inappropriate?Many thanks, Luke, for your reply - it's great to get feedback from another user who's "been there, done that".
Nick, I agree with Luke's suggestions that you should talk to your accountant if you have one, and also get a letter from your client as a "belt and braces" backup.
Kind regards to you both,
Emily -
Inappropriate?@ Luke, I'm an accountant so I'm bound to ask boring and irrelevant questions!
Are you dealing with Apple UK or Apple US?
I presume they collect the money from the customer and send you your share of the App sale proceeds.
The only reason I'm asking is to extend my knowledge in what is an horrifically complicated area.
I’m puzzled.
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Hi Stuart, I'll do my best to explain my conclusions and I'd be interested in hearing your opinion.
I deal with Apple in various guises. For the UK and EU, I deal with Apple SARL (Luxembourg). For the US and South America, its Apple Inc. (US), Apple Canada for Canada, Apple Pty for Australia.
My contract states that the relationship between my company and Apple SARL is one of principle/commissionaire (which I understand to be a fancy EU term for undisclosed agent) and for all other Apples, principle/agent.
In all cases, Apple simply remit to me 70% of the price paid by the customer net of any sales taxes.
Treating software as an electronically-supplied service, all supplies to outside of the EU/UK are simply outside the scope of UK VAT and the place of supply rules are quite clear on that.
The tricky thing is with the EU sales. The closest thing to anything useful I have on this is the revised UK VAT law for intermediaries from 2000 which from what I can tell aimed to bring the UK rules for undisclosed agents in line with the EU rules for commissionaires.
It would seem that even though the fundamental supply is between me and the customer, for VAT purposes it is seen that there are two supplies, one from me to Apple and one from Apple to the end customer. Because Apple's supply to the customer is a B2C supply, its liable to VAT where the customer belongs and as such Apple charge the appropriate VAT in the app store.
In addition, there is not considered to be a supply of intermediary services from Apple to me (i.e. they do not invoice me for their commission). Instead, their "commission" is simply treated as a markup in the cost of the supply from me to them and it is this marked up price that they charge the customer (plus any VAT). Apple deal with the VAT, keep the difference and remit the rest to me.
The question then, is how to deal with the supply from me to Apple. It seems reasonably clear that there is no VAT on this transaction although its not clear whether the supply is outside the scope of UK VAT (treating it as a B2B supply of electronically-supplied services) or zero-rated. If it was the latter, then that would be a problem for me as the supply from me to Apple would have to be added to my flat-rate turnover. I'm treating it as the former and the closest thing to confirmation I have on that is my phone call with HMRC. Would you agree with my interpretation? -
Inappropriate?Thanks Luke. Once I've read the 96 page booklet HMRC have referred me to since querying supply of electronic services I'll reply!
Flat rate seems so simple but there are some hidden nasties.
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