VAT on services done in other countries of the EU

I think you've got the picture. It keeps the trade statistics straight.

Naturally, they would have difficulty reclaiming Hungarian VAT from the Hungarian Vatman. Sometimes it's possible but it's a lengthy process..

He's not out really out of pocket, but it might have adverse effects on his cash flow for a while if the original VAT period has ended.

He just needs to raise a credit note to cover the original invoice with VAT and then issue another invoice without VAT. The VAT then won't come in from the English company, so he'll have to pay it himself if the VAT period has already ended because he's invoiced it out. However at the end of the subsequent VAT period the same VAT amount will be corrected by the inclusion of an identical (but negative) VAT amount on the credit note.

If he's still in the same VAT period the original VAT invoice will simply be cancelled out altogether by the credit note.

They may not have noticed 'till now that his invoices included VAT. Also I suspect Hungary has not been in the VAT taxpayers fun club very long.

In general there's no real distinction between goods and services.

Collecting VAT and keeping it for himself? Sooner or later that would be bad news!

DG

The rules are fairly simple. If the client provides their VAT registration number and provided that the client's VAT registration number is quoted on the invoice then the supply can be made without charging VAT. If however the client does not provide their VAT registration number then they must pay the VAT at the rate that prevails in the country where the work originated.

Your friend should not be out of pocket whichever way the VAT is charged

- he cannot keep the VAT but must hand it to the tax authorities in his country. The only way he could be out of pocket is if he is trading illegally by charging VAT but keeping the money for himself.

If he has already paid the VAT to the local tax authority then he may reclaim it next time he submits a return. He won't be out of pocket for long.

Derek wrote: [Thanks for all snipped responses]

Well if you go to the HMCE site it seems to want to make a distinction. All the references I could find to VAT on purchases from the EC referred specifically to imports of goods and mostly went on about the storage etc. thereof. By implication at least they seemed to exclude services. My understanding until I went and searched around on the web site was the same as yours, that services and goods are treated the same from the VAT point of view.

Exactly, I quite agree. However when he explained the problem to me on the phone to me I couldn't really understand how he would lose money if he didn't get the VAT. My comment about charging VAT when you shouldn't was just a rather 'off the cuff' idea, I don't think he's (intentionally) dishonest.

[By 'client' I assume you mean my friend, the supplier of the services, in Hungary, or maybe you don't, see confusion below]

Ah, now I think I understand what may be going on.

Originally the UK business didn't show their VAT number or didn't realise that doing so meant the transaction could be VAT free. So they paid the full amount including VAT. They then realised that he had a VAT number and that Hungary is in the EC so, correctly, stopped paying VAT. I think maybe my friend doesn't realise he can reclaim his (local to Hungary) VAT. I'll get in touch and tell him.

Thanks all.

There's an oddity here though isn't there, the Hungarian VAT man gets nothing and the UK VAT man gets nothing if things work as you state above.

If I supply a service or goods to a UK business I add VAT to the invoice and they pay me. I pay the VAT amount on the invoice to HMCE, they collect some money. However, according to the above, if I sell something to somewhere else in the EC I raise an invoice without VAT on it and they pay me that amount. Therefore no money for the UK HMCE. The buyer (if they're VAT registered) puts the VAT amount on their return and claims it back as well so no net gain for the other VAT people either.

wrote

... but the UK business reclaim the VAT which they have paid, as an "input" on their tax return - hence no net VAT to HMC&E.

Just like with your international example!

What type of service? Some services are supplied where they are received. These are listed in Article 9(2)(e) of the Sixth VAT Directive.

The acquisitions boxes on the VAT return only refer to goods bought from other EU suppliers and brought into the UK. They aren't used for accounting for VAT on services.

Services also have to have UK output tax brought to account using what is called the reverse charge mechanism. There are no separate boxes on the VAT return for this.

I doubt they've changed their minds. Probably just realised that the services should be VAT free.

Not the best website in the world is it?

It could be that he can't correct errors on VAT returns until the end of the year, and then they may not be refunded promptly by the authorities. The UK's VAT regime is, in many ways, more relaxed than some of our EU counterparts.

Best wishes

Robert Killington Visit

for help with VAT matters Please contact me via my website.

True, but HMCE get the use of the money while the goods move around!

Why don't we do the same within the UK as is done with imports then, it's much simpler (for me anyway).

No, by client I mean your friend's customer.

Err no, they didn't "correctly" stop paying VAT if the invoice does not have their VAT number on it they are obliged to pay VAT and lose out because HMC&E will bever cooperate in refunding Hungarian VAT.

They can only avoid paying Hungarian VAT if, in advance of being invoiced they state that they wish to pay the VAT themselves in the UK and arrange for the invoice to be raised showing their (the customer's) VAT number *AND* the supplier's (your friends) VAT number.

If the invoice showed both the customers VAT number and the suppliers VAT number then your friedn should not have charged VAT, and in that circustance he can reclaim the overpaid VAT from the Hungarian tax authority. If they permit such a reclaim, that is. If they are following on with the rest of Europe they will allow the reclaim.

No, the client (customer) has to declare to HMC&E that they purchased the services in an EU country and they will still have to pay the UK VAT on the services. The client shoudl understand how to do this it's covered by making a declaration to HMC&E on the VAt return for the appropriate quarter. Box 2 of the form should show the VAT due on acquisitions from EU Member States, Box 9 of the form should show the total value of those acquisitions. They will also receive a second form from HMC&E asking them to detail those purchases and your friend will ahve to make a declaration about supplies to other EU Member States and will also complete a form detailing those supplies.

Eventually someone from each country will reconcile both parts of the transaction and may, if there is a mismatch decide to come down like a tonne of hand made paviors on one or both parties.

Ah, OK, I think I had realised by the time I got to the end.

OK, that's clear now, thank you.

OK, thanks for being patient and explaining so fully. I'll try and pass it on to my friend (I'll basically just forward these messages to him).

In general there's a huge difference between goods and services for VAT purposes. That's why there's a VAT (Place of Supply of Services) Order 1992, but nothing similar for goods.

The reason for this is that goods are usually supplied where they are physically. So if you sold goods that are on a ship on the high-seas to another UK based business, there'd be no VAT to charge because the goods aren't in the UK at the time of supply.

The place of supply of services, however, depends on different factors. First they may be supplied where the supplier belongs, but in some circumstances they are supplied where they are received, and some services are always supplied where performed.

Best wishes

Robert Killington Visit

for help with VAT matters Please contact me via my website.

Notice 700 The VAT Guide

5.4 Services received from outside the UK

If you receive from outside the UK for business purposes, any of the services listed in Section 31, the services are treated as if you supply them, and you must account for output tax on them.

If you have read Section 31 and you think that you might receive services of this kind from outside the UK, please read Notice 741 Place of supply of services.

Notice 741 Place of supply of services

This notice explains how to determine the place of supply of your services and who must account for any VAT. If you supply services which are liable to VAT, it will tell you in which country the tax (if any) is due to be paid. It also explains how to deal with supplies of services which you receive from outside the UK (United Kingdom).

Notice 744D International services: zero-rating

This notice explains when zero-rating can apply to certain international services. It does not cover services which are supplied outside the UK and are therefore outside the scope of UK VAT

Rubbish. Acquisition tax has got nothing to do with trade statistics.

Not everyone can recover acquisition tax as input tax. The usual input tax rules apply. It can be recovered to the extent that it relates to the making of taxable supplies. Partly exempt traders, for example, might not be able to recover it in full...

OK, but it makes no mention at all of EC or non-EC suppliers, surely there must be *some* difference between EC and non-EC suppliers of services. What I searched for on the HMCE web site was "EC Services" and it turned up nothing of any use.

If the C&E Notices don't distinguish, I think you can take it that there is no distinction. When they say UK, they mean UK. When they say outside UK, they mean EC and non-EC.

Ah... search engine (and new C&E site) indeed useless...

Use

(while it lasts) rather than the new site Start with the VAT Guide contents and follow your nose from there.

keep up there, its the EU not the EC. Over 500 hits on "EU services" on

(vat notice 741)

goes on at length about the rules for determining where the supplier belongs, where the user belongs, where the services are enjoyed etc etc.

is all about electronically supplied services etc

Phil

A VAT-registered business should have up to 4 month's worth of output tax collected at any one time, ready to be paid over to HMC&E. For instance, assuming that your VAT quarter runs April-June (say), then at the end of July (just before you pay the instalment due to HMC&E 31/7) you should have collected output VAT for all of April, May, June and July (4 months).

It is probably likely that for any purchases, the input VAT does not exceed the output VAT which you have already collected, waiting to be passed to HMC&E (even immediately after paying the instalment due 31/7, you will have a whole month's worth of output VAT from July). Hence after a purchase you simply allocate less in your account for the next instalment of VAT to HMC&E (because this will be reduced by the input VAT), and transfer the "input VAT" from the account you keep your output VAT in, to use as you wish - as soon as the purchase is made!

Moral: HMC&E do *not* "get the use of the money" !!

I've just realised that what I'm talking about may not actually be 'services' of course. It's a supply of bespoke software, i.e. my friend in Hungary is writing software and selling it to a UK company. It's not a maintenance contract or anything like that, so I suppose what he's selling may be goods in a sense. But if you then go and read all the VAT rules about goods from the EC they don't make much sense either because they talk about physical objects being moved around, the the rules follow from where the goods are.

I was misled by the site itself then.

If you go to the 'front' page at

and click on 'Import and Export' then all the references on that page are to 'EC'.

> (vat notice 741) >

Having looked at these I suspect (as I said in my previous posting) that I'm not talking about 'services' after all. I'm talking about software which seems to be in a sort of grey area between services and goods,

yes, I'm in services and wouldn't look at "imports / exports".

If you ship software on a CD its goods, I get software that is imported and the value is $15 for the media, there is than a license of $x00 for the service of providing the software.

If you mate in Hungary provides a service (writing bespoke software is IMO a service) to a UK company then if he has the UK companies VAT number in international format (GB prefix) he should not charge VAT on the invoice and the UK company will account for it under the reverse charge principle. This is the way I have worked with Ireland, Sweden, Finland.

If he was a sort of mini-microsoft in Hungary despatching boxed software it would be goods.

I think goods are effectively the same as services, as I buy books from Germany where they attract VAT normally but as an export to a UK VAT registered entity (me) none is charged and, as books, none is due here anyway.

Phil