If your purpose driven entity engages in transactions that involve parties outside the UK, understanding how VAT applies is essential. This guide outlines key VAT rules for international goods and services, including how to record them in your bookkeeping. Please note that this report is intentionally shortened to provide an overview of information. Many circumstances will be beyond the scope of this report.
Selling goods outside of the UK
- The sale is treated as an export
- You can apply zero rate VAT, provided the goods are physically exported
- On your VAT return, include the net value of the sale in Box 6
- For retail sales, treat the transaction as a UK sale initially. If the customer later provides proof of export, you can zero-rate the sale and refund the VAT
In all cases, you must retain evidence of the goods leaving the UK to support the zero rating.
Buying goods from a business outside of the UK
- The transaction is classified as an import.
- The purchase invoice will not show VAT
- UK import VAT is charged at the point of entry
- On your VAT return:
- Include the VAT paid in Box 4 (if reclaimable)
- Include the net value of the goods in Box 7
Place of supply for services
For goods, the VAT treatment depends on whether the goods physically cross international borders. In contrast, for services, VAT is determined by the ‘place of supply’, This is the location where the service is deemed to be provided for VAT purposes.
When determining the place of supply for services, a business customer is defined as either VAT registered or capable of being VAT registered. This can include businesses that are below the VAT threshold in their country. To support this classification, you must retain the customer’s VAT number or other reliable evidence that they are operating as a business.
Basic Rule for the Place of Supply of Services
- Business to business (B2B): place of supply is the country in which the customer belongs
- Business to consumer (B2C): place of supply in the country in which the supplier belongs.
The main exception to this basic rule is that supplies directly relating to land (including hotel accommodation, restaurants, catering, architects, building work) and admission fees to events. These have a place of supply at the location of the land or event.
A further exception relates to sales of certain services to an individual or non-business organisation. Under the basic rules these normally have a UK place of supply as the customers are not businesses. However, such sales are deemed to have a place of supply of the customer under Schedule 4A paragraph 16 VATA 1994. The main services this relates to are:
- Advertising services
- Services of consultants, engineers, consultancy bureaux, lawyers, accountants, and similar services, data processing and provision of information, other than any services relating to land
- The supply of staff
- The letting on hire of goods other than means of transport
- Electronically supplied services (as to the meaning of which see paragraph 9(3) and (4)).
Electronically supplied services
The VAT treatment of electronically supplied services in the UK is governed by specific rules that differ from the general place of supply rules. These rules are designed to ensure that VAT is applied where the consumer is located.
These are services delivered over the internet or an electronic network, where the nature of the service makes it essentially automated and involves minimal human intervention. Examples include:
- Website hosting
- Software downloads and updates
- Online gaming
- Streaming music or video
- E-learning platforms (if automated)
- Cloud services
- Online advertising services
B2C (Business to Consumer)
- The place of supply is where the consumer is located
- If the consumer is in the UK charge UK VAT
- If the consumer is outside the UK there is no UK VAT, but local VAT may apply
B2B (Business to Business)
- The place of supply is where the customer belongs
- Reverse charge may apply if the customer is outside the UK
If you’re supplying digital services to consumers in the EU, you must either:
- Use the Non-Union OSS (One Stop Shop) scheme to simplify compliance
- Register for VAT in each EU country where you have customers
If you are supplying digital services to consumers outside the EU, you must seek local advice on if there any reporting obligations.
If you would like to discuss this in more detail relating to your business, please feel free to book a free online meeting.
