Buying goods from within the EU (excluding the UK)
If you buy goods from another EU country, then your business will pay UK VAT at the time the goods came into the UK, at the same rate of UK VAT as you would have paid if you’d bought the goods from a UK supplier in £ sterling.
The VAT you would have paid is called acquisition tax and it goes into box 2 of your VAT return.
Unless this is VAT that you wouldn’t be able to reclaim under UK rules, you would then also put the acquisition tax into box 4 of your VAT return, so you don’t actually pay anything extra to HMRC.
Your supplier’s bill may well have 0% VAT on it, but this is for their own country’s VAT. You still need to work out acquisition tax.
So if you receive a bill from your supplier for £240, you would divide that by 6 to get the amount of acquisition tax - £40.
You divide by 6 rather than by 5 (the UK’s standard VAT rate is 20%) because you’re starting with the amount including VAT.
So you’d put £40 into box 2 and also box 4 of your VAT return. You’d also put £200 into boxes 7 and 9.
Buying goods from outside the EU
If you buy goods from outside the EU, then you would pay UK VAT at the time the goods came into the UK, at the same rate as if the goods had been supplied in the UK. This is called import VAT and your supplier will give you a certificate to show you’ve paid it.
You can then reclaim this on your VAT return – so effectively it’s just like paying a VAT-registered supplier in the UK.
The cost of the goods excluding import VAT goes into box 7 of your VAT return, but not box 9 because this is for goods bought within the EU only.
Selling goods in the EU (but outside the UK)
If you’re selling goods to customers in the wider EU who are also registered for VAT in their own country, and you have evidence that they are registered, then provided the goods actually leave the UK and you have evidence of this too, you can zero-rate this supply in the UK.
You need to put these sales into boxes 6 and 8 of your VAT return, and fill them in on your EC Sales List. More information about EC Sales Lists shortly.
If you’re selling goods to customers who aren’t registered for VAT, then you have to charge UK VAT on the sale as if the customer were based in the UK. These sales are called distance sales.
You could also find that you have to register for local VAT where your customer is based, if you make enough distance sales there.
The limits for distance sales are different for each country in the EU. They are, as of October 2011, and with annual figures in the local currency:
● Austria €35,000
● Belgium €35,000
● Bulgaria 70,000 BGN
● Cyprus €35,000
● Czech Republic 1,140,000 CZK
● Denmark 280,000 DKK
● Estonia €35,000
● Finland €35,000
● France €100,000
● Germany €100,000
● Greece €35,000
● Hungary HUF 8,800,000
● Ireland €35,000
● Italy €35,000
● Latvia 24,000 LVL
● Lithuania 125,000 LTL
● Luxembourg €100,000
● Malta €35,000
● Netherlands €100,000
● Poland 160,000 PLN
● Portugal €35,000
● Romania RON 118,000
● Slovak Republic €35,000
● Slovenia €35,000
● Spain €35,000
● Sweden 320,000 SEK
● United Kingdom GBP 70,000
So that means that if your business sells more than €35,000 worth of goods to Ireland each year, you’ll need to register for Irish VAT, charge Irish VAT – not UK VAT – to your Irish customers, and complete an Irish VAT return every 2 months as well as your quarterly UK VAT returns.
Selling goods outside the EU
If you sell goods to customers outside the EU then these sales can be zero-rated for UK VAT, provided the goods actually leave the UK within 3 months of the sale and there is proof that they did so.
The sale value of these goods goes into box 6 of your VAT return but not box 8, because box 8 is just for goods sold into the EU.
Buying services from outside the UK
If your business belongs in the UK, any services that you buy from outside the UK are treated as supplied here under the place of supply rule.
That means that you need to account for the VAT using the reverse charge calculation.
So if you buy a service from overseas (such as web hosting from an American provider like GoDaddy), you need to take the amount you paid to that supplier, translate it into £ sterling, then multiply that by 20% to get the VAT amount you would have paid had the service been bought from a UK supplier.
Put that figure into box 1 of your VAT return along with your output VAT.
But you also put it into box 4 of your VAT return with the input VAT, so that means that the extra amount of VAT you pay is £nil.
You would also need to put the value of the supply into boxes 6 and 7 of your VAT return.
Selling services to customers overseas
Because of the place of supply rule, if you sell services to customers who are in business outside the UK, they have to account for VAT, so for you these sales count as outside the scope of VAT and don’t go on your VAT return at all.
If you sell services to non-business customers outside the UK then you must charge UK VAT on these sales in the normal way and enter them on your VAT return as for UK sales.
Because of this distinction, you need to carry out checks to prove whether or not your customers are in business, especially if you sell services online and don’t meet your customers face to face.
If your customer is in the wider EU, then HMRC recommend that you do this by checking that they are registered for VAT in their own country, by collecting their VAT number and checking that this is a valid VAT number for your customer’s country. Once you’ve collected the VAT number you can check its validity at tinyurl.com/3cgaa7
If your customer is not registered for VAT, or is based outside the EU, then HMRC say:
“If a customer claims to be in business but not to be VAT registered then alternative evidence should be obtained to support the claim. This can be in the form of other reasonable commercial evidence or records that should normally be available. Examples include contracts, business letterheads, a commercial website address, publicity material, certificates from fiscal authorities. A digital certificate from a reputable organisation can also be used for this purpose.”
EC Sales List
If you make sales of goods or services to VAT-registered customers in other EU countries, then no matter how little you sell there, you must regularly complete a form called the EC Sales List.
This lists all your EU customers who are registered for VAT in their own countries, their VAT numbers including the country code, and the £ sterling value of how much you sold them in that period.
My business is really small, do I have to file a full EC Sales List?
You can apply to HMRC for permission to file a simplified EC Sales List if all of these apply to your business:
● Your total taxable sales in a year come to less than £93,500.
● You don’t make EU sales amounting to more than £11,000 a year.
● Your sales don’t include new means of transport, i.e. you don’t sell new cars, boats or aeroplanes.
How often do I have to file an EC Sales List?
If HMRC accept your application to file a simplified EC Sales List, it’ll be once a year, and you agree with HMRC when you’d send that form in.
You can also file your EC Sales List annually if you meet the second two conditions for filing a simplified EC Sales List and file your UK VAT returns annually. In this case your total annual taxable sales must not exceed £145,000.
Otherwise, EC Sales Lists are usually submitted quarterly, but if you supply goods worth more than £70,000 a year to EU customers, you must file the list monthly.
Quarterly EC Sales Lists are always prepared for the quarters ending 31 March, 30 June, 30 September and 31 December, even if you prepare your UK VAT returns to different quarters, so watch out for that.
Completing the form
HMRC will check the validity of your customers’ VAT numbers. If these are not valid you won’t be able to zero-rate any sales of goods to those customers – you’ll have to charge the normal rate of UK VAT for those goods.
Use the VIES site (ec.europa.eu/taxation_customs/vies/vieshome.do) to check that your customers’ VAT numbers are valid in their country. Do this for every new EU customer to whom you sell.
You’ll also need to make a note of what you sold to that customer. The final column of the EC Sales List asks you for a code for these sales. The codes are:
● 0 – sales of goods, and services relating to those goods such as delivery charges
● 2 – sales of triangular goods, where your supplier delivers the goods directly to your customer
● 3 – sales of services that are subject to the reverse charge in another EU country.
Once you’ve compiled your sales list, you can submit it to HMRC either online or on paper.
If you choose to submit your list online, and you make a lot of sales, then you can upload either a .xml or a .csv file with the list, rather than having to key them in on HMRC’s online site.
HMRC provide more information and layouts for these formats:
● XML: tinyurl.com/73bxvnh
● CSV: tinyurl.com/yzj8l69
You have 21 days from the end of the period that your EC Sales List covers to submit the list if you file it electronically, and 14 days if you file your list on paper. If you submit your EC Sales List late then HMRC can penalise you. They don’t specify how much that penalty might be.
More and more businesses are buying and selling goods and services overseas, so it’s important to make sure you stay in line with the rules not only in the UK but also in the countries where you sell.