Enter Your E-mail

VAT Voice by Andrew Needham

Andrew Needham, Director of VAT Solutions(UK) Ltd, outlines a potential problem with sales to EU customers, and offers some possible solutions

Scenario

Your business is doing really well and your sales to the EU have increased rapidly over the past few years. You now think its time to improve the way you are doing business by speeding up deliveries and reducing costs.

One way that seems a good idea is to store goods nearer to the market, i.e. have a warehouse on mainland Europe.

Problem

If you store goods in another EU country, that have not been assigned to a customer (consignment stock), you will be treated as supplying those goods in that Member State. The VAT registration limits in the other Member States are much lower than in the UK, this will mean that you will almost certainly have to register for VAT in that Member State and charge and account for local VAT. If you fail to do this you could be open to penalties for not registering for VAT.

Registering for VAT in another Member State can pose considerable administrative problems. You will have to complete the registration forms and VAT returns in a foreign language and the VAT rules differ quite considerably from the UK. Most business opt to appoint a fiscal representative to deal with it all for them, but this can be costly.

Registration Thresholds

The following VAT registration thresholds apply in the EU Member States:

Austria – 7,300 Euro
Belgium – 5, Euro
Denmark – 10,300Euro
Finland – 8,500 Euro
France – 15,300 Euro
Germany – 16,700 Euro
Greece – Nil
Ireland – Goods 51,000 Euro, Services 25,500 Euro
Italy – Nil
Luxembourg – 10,000 Euro
Netherlands - Nil
Portugal – Nil
Spain – Nil
Sweden – Nil (for overseas businesses)

Tip

If you have a few major customers it may be possible to avoid registering for VAT by allocating specific goods to them and storing them, either at their premises or elsewhere until they are actually required. This is known as “call-off” stock. If you can take advantage of these rules the customer has to account for acquisition tax as if it were a normal intra-EU supply.

The following Member States do not require registration for call-off stock:

• Austria – but only for intra-community goods;
• Belgium;
• Finland;
• France – provided title passes within three months (stock must be held by the final customer, not an agent);
• Ireland – title must pass within three months;
• Italy - title must pass within three months;
• Luxembourg; and
• Netherlands.

Alternative

In order to avoid the costs and complication of registering for VAT in another EU Member State you could consider appointing a sales agent to arrange the sales on your behalf. Even though the agent does not take legal title to the goods, for VAT purposes, he is treated as if the supply is both by and to him. The agent accounts for any tax due on his VAT return and all you have to do is quote his EU VAT number on your invoice to zero-rate the sale.

Example

Your sales in Germany are growing fast. You sell a lot of goods to a wholesaler in Germany. You negotiate with him to be your sole agent in Germany. He is pleased because he gets to sell your products exclusively to the German market and he makes a commission on each sale.

From your point of view you can send bulk deliveries to the same address every time where they are stored until the agents finds a customer. You don’t have to register for VAT in Germany or send in any VAT returns. Your only cost is the commission you pay him.

Andrew Needham
Director, VAT Solutions (UK) Ltd
Email: andrewneedham@vatsolutions-uk.com

VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc