Eu vat

olakah

Dear Members,
I am glad I found your website.
I have a situation and I would really appreciate if you can help with advice, as my situation is quite unusual I believe and I could not find any law about it.

I have a UK based company which supplies digital services to other businesses (b2b). My company still does not have a VAT number. We haven`t yet reached our 85000 GBP threshold of taxable turnover but recently we applied for VAT (we still don't have the number).
However, we have a partner from other EU member state with whom we have been working for almost a year, quite lately they asked us to give them our VAT number so they can get audited properly, (in the beginning of our interconnection I told them that we don`t have VAT number and that we don`t have to have it now, it was fine for them) , (in our case if we had one, the reverse charge would apply and the % would be 0).
Our EU supplier is now saying that they have to charge us with their local VAT % for all their invoices starting from day 1 till now which we have already paid, as their tax office wants to charge them for working with EU company without VAT. Our VAT number will be available in a month or 2 which is not up to me.

I want to know the following. Do they have the right to charge us any VAT tax for already invoiced and paid invoices?
Do we have to pay anything to them for that?
Did I break any law thus far?
Please if you can answer and show the law stating the answer, I would be so grateful.
Thank you in advance.

00ec25

so they are selling digital services to you?

that comes under the VAT MOSS rules and applies to them as much as it will to you.

https://www.gov.uk/government/collections/vat-moss-vat-on-sales-of-digital-services-in-the-eu

TheCyclingProgrammer

00ec25 wrote: »

so they are selling digital services to you?

that comes under the VAT MOSS rules and applies to them as much as it will to you.

https://www.gov.uk/government/collections/vat-moss-vat-on-sales-of-digital-services-in-the-eu

Only if it's a B2C transaction, which it isn't.

The problem here is this: a B2B transaction does not require you to be VAT registered. You just need some alternative evidence that you are a business and that the purchase is being made for business purposes. But suppliers in many other EU countries will not accept this.

If you are the one supplying services to a business in another EU country, HMRC guidance is quite clear that you do not require the customer's VAT number to treat it as a B2B sale (which would be outside the scope of UK VAT and subject to the reverse charge at the customer's end) so long as you collect some alternative form of evidence that your customer is a business.

The problem arises when the supply is in the other direction. Many EU countries do not have VAT registration thresholds or they are set very low. They do not recognise the concept of a business that isn't also registered for VAT. Hence when they supply you as a business, whilst it should be taxed under the reverse charge here in the UK, if you can't supply them with a VAT number they will often refuse to do so and treat it as a B2C transaction (which would in this case probably come under the VAT MOSS rules as mentioned above).

If they have not charged you local VAT, because you're a business, then they will probably need to fill out some form somewhere with your VAT number to prove to their local tax authority that you are a valid business and that is why they have not charged VAT.

I do not know why HMRC guidance differs from other countries in this respect and which interpretation is the correct one when it comes to EU VAT law.

My advice would be to contact your supplier and inform them that you are a business and supply some evidence of this. Explain to them that UK VAT rules do not require you to be registered for VAT and that they should still treat the transaction as a B2B transaction. You may wish to state that you will refuse to pay any further invoices for VAT.

One final note: I hope you're aware that all supplies you have received from countries outside the UK, which would be liable to the reverse charge if you were VAT registered, count towards your turnover for the purposes of the VAT registration threshold.

TheCyclingProgrammer

Just to add, if you look at the EC VAT rules page, I believe that HMRC guidance is the correct interpretation and you may wish to point this out to your supplier:

https://ec.europa.eu/taxation_customs/business/vat/eu-vat-rules-topic/where-tax_en#supply_services

Specifically, this outlines firstly that VAT must be accounted for where the services are supplied, which may depend on the nature of the service and the entity receiving it:

The place of taxation is determined by where the services are supplied. This depends not only on the nature of the service supplied but also on the status of the customer receiving the service. A distinction must be made between a taxable person acting as such (a business acting in its business capacity) and a non-taxable person (a private individual who is the final consumer).

Note that it describes a business (as in, a B2B supply) as a "taxable person acting as such". What is a "taxable person"?

The concept of a taxable person covers anyone who independently carries out an economic activity, even if that person is not identified for VAT purposes, but it also includes a non-taxable legal person identified for VAT purposes [Article 43 of the VAT Directive].

What the above is describing is what is known as the "general rule" for the place of supply for VAT purposes. In other words, the general rule is that in a B2B transaction VAT is chargeable where the customer belongs and as such, the supplier should not charge local VAT. The customer should account for the supply under the reverse charge if they are VAT registered, or it should count towards their turnover for the purposes of the registration threshold if they are not.

This is clarified on this page:
https://www.vatlive.com/eu-vat-rules/eu-vat-returns/reverse-charge-on-eu-vat/

Non-VAT registered recipients under the Reverse Charge

One area that may cause a VAT registration obligation is where EU businesses are not VAT registered (because they do not have taxable supplies) and they receive services from outside of Europe.

The services under the reverse charge will count towards their own VAT registration threshold. This means companies such as holding companies are now being forced the VAT register for the first time, and are incurring input VAT which cannot be recovered as they have no taxable supplies for output VAT.

The existence of this rule shows clearly that it is acceptable for a business to receive supplies under the reverse charge rule, even if they aren't VAT registered.

If your business is incorporated then I would provide them with a copy of your certificate of incorporation and tell them that this is sufficient evidence that you are a business and that you are not liable to pay any VAT other than what may be due under the reverse charge in the UK once you become registered.