new eu vat directive - web design services

[businesspete]

I am a UK-based webdesigner and I am registering for VAT from 1st January 2010. I have fully read up on the new EU tax rules that start on the same date. I've read the HMRC website and Notice 741 so many times I'm now confused.

I understand that I have to charge all UK customers the standard 17.5% VAT rate, but my main concern is about EU customers.

If they are an EU private consumer/individual then I also charge them at my supplier country rate (UK 17.5%).

If they are an EU business with a VAT registration number, then I can VAT-exempt them, put their details on my EC Sales List and they'll pay the VAT in their own state.

My main concern is with EU business customers that do not have a VAT registration number. Do I:
a) charge them UK VAT @ 17.5% ?
b) charge them local rate i.e. 26+ different VAT rates depending upon their EU state?
c) not charge them any VAT but inform them they have to pay their local authority?

I've interpreted the guidelines so many times and in different ways. I'm confused!

Thanks to anyone who can help!

[tom 7000]

a) is the answer

[RAL]

The answer could be "a" or "c" depending on the details.

There is a vat expert contributor on this site hopefully if he sees he will clariy the answer.

As the rules are changing from 01/01/2010 it would be advisable to speak to your accountant or speak to a vat expert who would go through the detail and advise you accordingly.

[Inovat]

Hi

I'm having a running battle with a Spaniard on this very issue. I think I'm winning the argument though - but do be aware that there are other views out there.

Firstly, HMRC expressly state that: "If you make a supply to a business which is not registered for VAT in their Member State because it is below the registration threshold, but which has provided you with evidence that it is in business ... you should not include these suppiles on your ESL ... However, in some casesreceipt of the supply will result in the business being required to register in their Member State." To my mind, it is clear that HMRC assume that the Reverse Charge is applied to the supply of services to an overseas EC business which is not registered for VAT.

The 2010 EC VAT law is, I believe, also clear. It is the "taxable person" receiving the service that must account for any VAT on the transaction. But the definition of "taxable person" does not entail VAT registration number, only economic activity (e.g. a business). Therefore, when a Reverse Chargeable service is supplied to an unregistered overseas EC business, the UK supplier charges no UK VAT, but instead indicates a Reverse Charge on the sales invoice and records the supply in Box 6 of the VAT return. There can be no entry in the EC Sales List.

Hope it helps?

[businesspete]

I'm relieved no one put B as the answer!

Going by everything I've read on the HMRC website I think that C is the answer (providing they are definitely 'in business', you don't charge any VAT, regardless of their VAT registration status).

I could basically inform EU businesses without a VAT number that I don't have to charge them VAT providing they sign something that says it's their responsibility to pay any taxes to their local authority?

However, to be on the safe side I'm probably going to go for A and charge 17.5% to all EU customers without a VAT number. I can't risk me having to foot the VAT bill later.

[Inovat]

The trouble is, of course, that you will be 17.5% more expensive (or less profitable, if you absorb the hit).

Wouldn't the content of the websites you design usually be clear evidence for the nature of the customer? For example, if they are promoting their business or even trading online, but have no EC VAT registration number, this would seem to clinch the Reverse Charge status. If you combine that with a question in your due diligence in which the customer confirms that the website is used for business purposes and acknowledge the Reverse Charge, would that provide sufficiently reasonable certainty?

Looking at it another way, you can charge the price the customer is willing to pay (whatever that is). If you put aside (in an interest-bearing account) the UK VAT element, at least you are not DEFINITELY paying over UK VAT to HMRC. If there is an error, you can pay over the UK VAT due for that particular error. Provided you have good evidence to show you acted reasonably, tried to do the right thing, and co-operated fully with HMRC, then there should be no penalty from HMRC either. But crucially, for those supplies which HMRC agree are Reverse Charged correctly, you get to keep the cash!

Hope it helps?

[businesspete]

Thanks for your help Inovat. I checked with my accountant etc. and will be following option C as you recommended.

[SeanJames]

Hello,

Just as a small point, you may want to avoid telling your customer that they will have to pay their local tax authorities. If the supply is received for business purposes and they are not VAT registered in their own member state then the value of the supply is incorporated into their taxable turnover. If their turnover is below their member states VAT threshold then they would not have to account for VAT on the transaction, but would need to be mindful of the fact that the have moved ever closer to potential VAT registration.

The best thing to do would be to mark on the invoice "VAT Reverse Charge Transaction - Liable in Recipient Country" and advise them that they need to speak to their authorities for more information.

Cheers
Sean

[temeculawebdesign]

thanks for use info

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