VATExchange.co.uk

Hi Lizz28

Your question raises a number of potentially complex points so to avoid writing a long and tedious answer, can you give me a little bit more information?

Expenses
You probably know that the registration limit is currently £67,000 so the issue is how much of your £90k turnover you have to count.

To begin with,expenses are generally treated as turnover for VAT purposes. So if you are referring to expenses such as travel, accommodation, telephone etc then you would count the £40k towards turnover as far as the VAT registration limit is concerned.

Consultancy?

What sort of consultancy services do you provide? For example design services, marketing, anything land related, such as architecture, accountancy or legal advice? You don't have to give me a detailed explanation just a bit more than "consultancy" as this can include several different services.

Split of income: EC/non-EC and business/non-business customers

The next point is how much of your income from Scandanavian customers do you have to count? This is where I need more information.

First, are all of the Scandanavian customers in EC countries? That is everywhere but Norway, so if you have some in EC countries and some in Norway, I will need to know the split of income from EC/non-EC customers.

Second, the position will be different depending on whether your EC customers are business customers or non-business customers, so I will need to know the split of income from EC business and EC non-business customers.

If you can give me this information, I should be able to give you a definitive answer.

Finally, you mentioned that your income has been £90k so if you do have to count all of this towards your registration limit it is possible that you are late notifying HMRC that you need to register. There are penalties for late registration so if you do need to register, you will want to get your application in without delay to avoid penalties building up.

Kind regards
Marie

Hi Liz

Yes those issues make a difference. From what you've said it's possible you won't have to register but you might want to consider doing so. Let me explain why.

You have to register for VAT if the value of your taxable supplies exceeds the registration limit, which is currently £67k. It works on the basis that if your turnover at the end of any 12 month period or 30 day period exceeds the limit, then you have to register. And as you know you have to submit the application within 30 days of the end of that period.

There is an issue about the nature of your consultancy services which could add a further complication, which I'll cover later.

Taxable Supplies in the UK

The issue is what is counted towards your taxable supplies. The registration limit is based on the value of your taxable supplies in the UK. If you are providing certain types of services (including consultancy services) to customers outside the EC or business customers within the EC, these services are not treated as being made within the UK. They are treated as being supplies "where the customer belongs".

For the minute, I'm assuming that your services can be treated as consultancy services, but see below for my comments about land related services.

So in your case, as the overseas business is for commercial customers in Sweden with some for a customer in Norway, you wouldn't have to count the value of this income as the services are regarded as taking place where teh customer belongs, ie Sweden and Norway. The fact that the Swedish business customer is moving to Norway won't make any difference as the income is already regarded as outside the UK.

You would however have to include the value of services provided to non-business customers in the EC as these services are treated as being made in the UK. If you are registered for VAT then you would have to charge UK VAT on your invoices for these customers, as well as all UK customers.

Based on the information you've provided, it sounds as though your UK turnover including expenses would be around £45k and the value of services to EC non-business customers is less than £5k. The total is less than the £67k registration limit so on the basis of this information, you don't have to register.

This issue, ie the "place of supply" concept, is a difficult one and that's why people get confused about whether they have to count such income for VAT registration purposes or charge VAT on such income if they are registered.

I can't actually find anywhere in the HMRC notices any specific paragraph or phrase that says you don't count the value of such services towards your VAT registration limit. However the information is there by default as the registration limit only applies to taxable supplies made in the UK and certain supplies to overseas customers are treated as made where the customer belongs.

HMRC Notices

For reference purposes, there are 2 VAT publications that cover these subjects. The first is Leaflet 701/1 "Should I be registered for VAT", here's the link
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.por....
The other is Notice 741 Place of Supply of Services which is here
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.por...

I will admit to being link-challenged so if these links don't work, go to the HMRC homepage and type in the notice number with the title in the search box and it should take you to the notice directly.

If you look at section 1 of "Should I be registered for VAT" it explains which income counts for VAT registration limits. Notice 741, sections 12 and 13 explain which services are deemed as supplied where the customer belongs. You should have a look at these just to make sure that you have covered all of the relevant issues as far as your business is concerned.

Architectural design services

There is one other issue I should mention, about the treatment of architectural services. If your services relate to specific buildings, ie designing a particular building, your service would be defined as a "land related" service rather than "consultancy". The reason that the distinction is important is that land related services are deemed to take place in the country where the land or building is located, rather than where the customer belongs. Section 6 of Notice 741 explains the distinction in more detail.

Now if the services for your overseas customers related to property in those countries, the place of supply is deemed to be in the country concerned. This doesn't affect your UK VAT registration position, but it is possible that you could be liable to register for VAT in the countries concerned, ie Sweden or Norway and charge local VAT for the services concerned. You might want to check this out with your customers in those countries - in many countries, the customers are allowed to account for local VAT on the supplier's behalf to avoid overseas businesses having to register for VAT there.

If, however, your services relate to land or property in the UK your services would be regarded as taking place in the UK even if your customer is based overseas. If, for example, your contract is to design a UK property for an overseas company, your service would be regarded as being in teh UK. In this situation, the income would count towards the VAT registration limits and you would have to charge UK VAT on your invoices.

So you need to consider this aspect of your income just in case you have to take this income into account for VAT registration purposes.

Voluntary VAT registration

Finally, even if you aren't required to register as your turnover is below the registration limit, you might still want to register on a voluntary basis. This would enable you to recover VAT on your UK expenses and also a lot of businesses prefer to work with VAT registered businesses, so there might be a commercial angle.

The downsides are that you would have to charge VAT on your UK supplies which might be a disadvantage if your clients can't claim the VAT back, also you have the ongoing hassle of doing VAT returns and keeping certain records for VAT purposes.

I hope this helps Liz, I wouldn't normally give such a long answer to a query but the issue of place of supply is really difficult and it's rarely possible to give a yes or no answer to these questions. I'm writing a reference article about this very subject which will cover these points for the website but this reply covers the main issues as far as your situation is concerned. Do look at the HMRC notices I've mentioned and read the sections I've suggested, especially the one about land related services, as there may be other issues that apply to your business.

Kind regards
Marie