The European Union provides a potentially huge customer base for UK businesses. Selling into Europe should be simple, but the VAT rules depend on precisely what and to whom you are selling.
Sale of goods
Let us look at the example of a UK-based retailer that sells goods to, say France. First of all, we need to determine who the customer in France is:
If they are a VAT registered business in France, then provided that the relevant administration rules are followed, our UK business should zero-rate the sale for UK VAT. The sale will be subject to French VAT, which will be dealt with by the customer.
If the French customer is not VAT registered, then the VAT treatment of our UK sale will depend on the total amount of sales the UK business has made to France in the year. If our total annual sales to France are below €100,000, then UK VAT is charged on the sale. If the UK business makes sales over this ‘distance selling’ threshold, then it has an obligation to register itself for VAT in France, and charge French VAT.
This distance selling threshold varies across memberstates (either €100,000 or €35,000), so care must be taken to ensure sales in each territory are monitored as appropriate.
Sale of services
There are different rules for the sale of services. If our UK based company makes sales of general consultancy services to France, then again we need to look at the status of our customer.
Sales of these services to a French business whether they are VAT registered or not are subject to the ‘reverse charge simplification’ measures, meaning no UK VAT is charged, and the French VAT is dealt with by the customer as appropriate.
If our French customer is not in business, then the sale of our services is subject to UK VAT, regardless of our level of sales in France.
Sale of e-services
If our UK company makes sales of digital downloads to consumers (who are not in business) in France, then since 1 January 2015 there is an obligation to charge French VAT, regardless of the amount of sales. The UK company must either register in France for VAT, or register for the new Mini One Stop Shop (MOSS) with HMRC.
These examples illustrate the basic rules for determining the VAT treatment of sales to other EU member states. Even in these seemingly straight forward situations, there can be several different VAT treatments depending on varying factors.
There are many more detailed rules for specific types of goods and services, as well as other practicalities such as overseas VAT registration to consider, so always ensure professional advice is taken.
Tom Blenkinsop - Tax Department at Cassons
For more information please contact Abigail Peake on 01254 356473 or [email protected]