Millward, May & Co - Wokingham Accountants
Wokingham Accountants

Supplying services abroad

VAT implications

VAT implications on supplying services abroad (note - different rules apply for supplying goods)

A question we get asked a lot is: as a VAT registered contractor working through a UK Limited Company, do I need to charge VAT on my invoice when I supply my services to an overseas company? The answer is that it depends!

It depends on the “place of supply” of your services.

  • If your place of supply is in the UK then you need to charge and report UK VAT.

  • If your place of supply is in another EU country, you do not need to charge UK VAT.

    • However, you need to check with your customer if they can apply the “reverse charge”. The reverse charge is a simplification measure whereby your customer accounts for VAT in their country on your behalf. This avoids the need for suppliers to register in the member state where they supply their services.

    • If the reverse charge is not available, you may need to account for VAT in that member country.

  • If your place of supply is in a country other than the EU then you do not need to charge VAT as it is outside the scope of VAT.


How to determine the place of supply

The general rule for working this out is if you supply services to a:

  • Business customer: the place of supply is normally the place where the customer belongs

  • Non business customer: the place of supply is normally the place where the supplier belongs

Therefore, for most contractors, the place of supply will be where the customer belongs.

The customer will belong in the UK if:

  • their business establishment (the head office or only office) is in the UK, and they have no fixed establishments (subsidiary offices or agencies) in other countries

  • their business establishment is in the UK and they have fixed establishments in other countries, but the UK office is the one mainly concerned with supplying services

  • their business establishment is not in the UK but they have a fixed establishment in the UK which is the one where you supply services from

  • they do not have either a business or fixed establishment in the UK or elsewhere, but their business is a corporate body (for example, a limited company) which is registered in the UK

  • they do not have a business or a fixed establishment in the UK, or anywhere else, but the UK is their usual place of residence

If none of these apply, then it is likely that the customer belongs outside of the UK and therefore the place of supply will be in the country the customer is based in.

For Example:

If the customer has a head office in the UK but you are contracting to the French subsidiary which has a fixed office based in France then it is likely that the place of supply is France not the UK.


Accounting for the VAT

If your place of supply is in the UK

You need to add VAT (currently 20%) to your sales invoices and pay this over to HMRC in your VAT returns.

The codes to use for your software are:

  • Quickbooks: 20.0% S

  • Xero: 20% (VAT on Income)

  • FreeAgent: UK/Non-EC


If your place of supply is in another EU country

You will need to zero rate these services. No VAT will be charged but the sales will need to go on the EC sales list. You need to state on your invoice “Subject to reverse charge in the country of receipt” and you also need to include the customer’s VAT number.

The codes to use for your software are:

  • Quickbooks: 0.0% ECS

  • Xero: Zero Rated EC Services

  • FreeAgent: EC Services


If your place of supply is outside the EU

You should select VAT code no VAT on the sales invoices as the services are outside the scope of VAT.

The codes to use for your software are:

  • Quickbooks: No VAT (0%)

  • Xero: No VAT

  • FreeAgent: UK/Non-EC