VAT on global sales

I am about to start a new business (this could be a new UK Ltd Co). I will

be selling subscriptions to a specialist newsletter which will be published and distributed digitally and globally, to individuals (as apposed to companies). As this is digital rather than printed I understand (and accept?) the it will be VAT applicable. BUT, would I charge VAT on just UK sales, or all EU, or on all sales regardless of where my subscriber resides? I expect a large percentage of my subscribers to be outside of the EU and I am hoping I don't have to charge them VAT. If I have no option but to charge and collect VAT on all sales, should I consider setting the company up in a 'sales tax friendly' offshore base?

VAT on global sales

Hi Mikecrom
Sorry it's taken me a while to answer your query - I hope to do it by the end of the week.
Marie

VAT on global sales

Hi Mikecrom

I wouldn’t speculate about how you set up your business or whether you set up companies in different countries etc – you really need to speak to a good accountant for proper advice about that sort of thing. But I can comment on the specific VAT issue and point you in the direction of where to find information on that subject.

You are correct in that the sale of online publications can’t be zero-rated because it’s not printed material. The VAT liability will depend on a number of factors, including what the customer receives in return for his subscription and in your case where the customer belongs.

The supply of online publications would probably fall within the heading of “electronically supplied services” but I’ll come back to that later on.

I don’t know how much you know about VAT so I’ve explained the main issue below and given you some links to the HMRC publications that contain further information on the subjects. There is some terminology involved that really has to be explained but once you’ve got your head around this, the principles are relatively straightforward.

EU VAT

VAT is a tax on supplies and all member countries of the EU are required to implement a VAT system based on certain EU Directives to ensure that there is a fair and equal system for all businesses operating throught the EU. There are different rules for goods and services but businesses in all countries are required to follow certain “place of supply” rules to establish whether they need to register for VAT in other EU countries and/or charge VAT to customers in other countries. So in principle the VAT rules would be the same regardless of which country you are based in. Also there is a scheme for non-EU businesses which requires them to charge VAT on certain “electronically supplied services” so there probably wouldn’t be any VAT benefit to setting up your business outside the EU.

The supply of many types of services – including electronically supplied services - falls within what is called the “general rule”, where you charge VAT at 17.5% for supplies to UK customers and non-business customers in other EU countries. That means that you wouldn’t charge VAT on sales to EU business customers and any customer outside the EU.

The technical term is that the services are “supplied where received”. You don’t need to know much more about the EU rules as such, but it’s important to be familiar with the terminology as this is used throughout the HMRC publication that you need to read.

The principle is therefore pretty straightforward. If you are based in the UK and want to run your business from the UK, then you would register for VAT and charge VAT to all UK customers and non-business customers in other EU countries.

Practical issues

What you need to do is first, to be certain that your services would fall within the “supplied where received” category and second, how to identify whether your EU customers are businesses or non-business customers.

You can find guidance on these issues on VAT Notice 741A "Place of Supply of Services" which is on the HMRC website here http://tinyurl.com/y5wyuoq. You really should read through the first 5 sections which explain the place of supply issues in more detail so you understand more about the subject.

• Services supplied where received – “electronically supplied services”

I’d suggest considering whether your supplies fall within the definition of “electronically supplied services” which is explained in section 15.12 of the Notice. The supply of an online publication probably falls within the list at 15.2.2 which includes “supplies of images, text and information” but you need to satisfy yourself whether or not your business activity would fall within this section. I can only give definitive advice on this sort of thing on a formal basis so at this stage I wouldn't speculate any futher about whether or not your business would fall within this category. But it seems like a logical place to start. If you don't agree, then have a look through the rest of section 15 to see if it would fall within any of the other business categories listed.

• Establish where your customer belongs

If you think that your business would fall within the “supplied where received” category, then you need to establish where your customer belongs in order to work out whether to charge VAT. The general guidance about this is explained in section 3.6, but there are some additional requirements for suppliers of electronically supplied services at section 19 which you should also read.

Other issues

As you’ll realise when you start to look at the HMRC guidance, the subject of VAT and international supplies can be complicated so you need to spend a bit of time making sure that you understand the issues that apply to your business. Whether you decide to set up overseas companies or not wouldn't really make any difference because of the special scheme whereby businesses belonging outside the EU are required to register for VAT if they make certain supplies of electronically supplied services to EU customers (see section 20 of the Notice for information about this) so there wouldn’t be any benefit to setting up your business outside the EU to minimise the VAT issues. Businesses in other EU countries would have exactly the same issues that would apply here in the UK.

The other issue that you need to consider is that you would probably be required to submit EC sales lists if you are selling to EU VAT registered business customers – see VAT Notice 725: The Single Market for more information about this.

I hope this helps you to understand a bit more about VAT, although of course I can only cover the main principles here and this advice is for general information purposes only. I’d recommend that you find a good accountant who can help you decide how to organise your business for both tax and VAT purposes and ensure that you've got the VAT issues properly sorted out. I’d be happy to help on the VAT side through my consultancy business if you want more detailed advice.

Marie

VAT on global sales, Reverse Charge Sales List?

Hello Marie,

I am in a similar situation to mikecrom, about to start a company in the UK selling electronically supplied services. Your article was very helpful. In reponse to your article, I have a related question:
Would the sale of electronically supplied services to a business in another EU country need to be reported on the Reserve Charge Sales List also (assuming invoice amount exceeds the de minimus amount)?

Thanks in advance,
elec

Reverse Charges List

Hi elec

Yes in principle - see HMRC VAT Notice 725, The Single Market. Section 17 explains when ESLs are required here http://tinyurl.com/6evmwas and subsection– 17.3 lists supplies to be included and includes: supplies of services subject to the reverse charge in your customer’s Member State.

Electronically supplied services are normally subject to the reverse charge. So have a look at the notice and I think you'll conclude that your sales should be included on ESLs.

Marie

Reverse Charge Sales List vs EC Sales List

Hi Marie,

Thank you for your reply. I'm a bit confused. Is the Reverse Charge Sales List and the EC Sales List the same thing?

Thanks for your help,
elec

Reverse Charge & EC sales list

Well there's no such thing as a "Reverse Charge sales list" as such - but yes you include the supply of services which are liable to the reverse charge made to business customers in other member states on your EC sales list (or "ESL"), so yes in practice it's the same document.
Marie

Google+