Hi Guys,

I need some advice, AGAIN!

I am a soletrader working as a graphic designer, my services are supplied electronically in the UK and abroad (In both EC and non-EC countries). I am not VAT registered and do not anticipate reaching the threshold this year. As a lot of my clients are VAT registered I always include an ex-vat price on my invoices for their ease.

What are my obligations with regards to VAT outside the UK? I am fairly optimistic I wont need to pay it, but will investigate the VAT threshold in each country as and when I need to (to see if I need to register there). The main reason I ask is I want to know the best way to display the VAT on my invoices for overseas clients, mainly for their ease. If I determine that I dont meet the VAT threshold in their country then I can just ask them what VAT rate they pay and include that on my invoice, is this correct?

Thanks,

Matt
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You would register for vat in this country as you trade here not in each country where your client is.

Register when you reach ?7k and read this on overseas trade:

http://www.hmrc.gov.uk/vat/vat-international.htm
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If you are in the UK and the place of supply is in another EU country, you can zero rate the supply if the customer is a business. However, you must charge and account for UK VAT if the customer is not a business, and you may need to register for VAT in the country of supply.

I found that on the HMRC site, suggesting that if my turnover for sales in that country exceeds the VAT registration threshold then I would need to register in that country?

I'm still fairly confident my earnings wont break the thresholds, but I will check as and when needed. I just need to know the best way for me to display the VAT on my invoices for overseas clients. Do I still include an ex-vat total but at the rate that the country of supply dictates?
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Oh right - so are your customers non business then. I maybe wrongly assumed as a graphic designer they would be businesses
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If you are in the UK and the place of supply is in another EU country, you can zero rate the supply if the customer is a business. However, you must charge and account for UK VAT if the customer is not a business, and you may need to register for VAT in the country of supply.


I'm still fairly confident my earnings wont break the thresholds, but I will check as and when needed. I just need to know the best way for me to display the VAT on my invoices for overseas clients. Do I still include an ex-vat total but at the rate that the country of supply dictates?

If you are not registered for VAT you do not show any vat on your invoice, nor do you mention vat
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If you are not registered for VAT you do not show any vat on your invoice, nor do you mention vat

You beat me to it. I was just re-reading the first post to make sure I read it right!.
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But if I exceed the VAT registration threshold for that country, I will need to register and account for VAT in my invoices, is this correct? Sorry about the confusion, that was the main point I was getting at.
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The "basic rule" is that your services are supplied (and taxed for VAT) in the country where you belong.

However, your services are listed in Schedule 5, VAT Act 1994. This means that the place of supply (and taxation for VAT) might be shifted from the UK to where your customers belong, depending on numerous circumstances. Broadly (though this is a simplification and you should check the VAT rules for your precise circumstances with a professional or with HMRC) you should note the following:

For UK customers, I would expect you to charge no UK VAT until you register for UK VAT. For clarity, you might state on your sales invoice "No VAT: not UK VAT registered", but this is not compulsory and you might not want to attract attention to the fact you are a small business.

For non-EC customers, I would expect you to charge no VAT. For clarity, you might want to state on your sales invoice "No VAT: Services supplied outside the EC".

For EC customers, if they are "in business" (e.g. if they are registered for VAT in another EC country), I would still expect you to charge no VAT and the business customer accounts for all the VAT on their own VAT return in their own country. This is called the "Reverse Charge". Ideally you would state on your sales invoice both their overseas VAT registration number and the wording "No VAT: Reverse Charge supply".

For EC customers who are not "in business" (or not using your designs for business purposes), I would usually expect you to revert to the "basic rule" (see above). In other words, you should treat these customers as if they were UK customers (see above). Note, however, that these sales also count towards your UK annual VAT registration threshold, whereas the overseas sales do not.

Finally, be careful when describing your services as "electronically supplied". Design services are relatively simple for VAT. Your services might or might not qualify as "electronically supplied" (it is only partially dependent on the means by which you deliver the services to the customers) and would require an ADDITIONAL set of rules to follow (known as use and enjoyment rules). Broadly, if the design services are supplied electronically to a UK customer, but are used outside the EC, then treat the services as supplied outside the EC. Similarly, if the customer is non-EC, but the services are used inside the EC, then your place of supply is where the services are used.

This last part is important, because your supplies in this EC country will count towards their local VAT registration threshold and might result in your having to register for (and charge) VAT in that EC country. To find VAT registration thresholds it might be easier to look on the EC website (called Europa), for example: ec.europa.eu/taxation_customs/taxation/vat/traders/vat_community/index_en.htm.

Cross-border services do get very complex. You might consider paying for one-off VAT advice from a specialist. For example, I usually receive Excel lists from my clients detailing the different kinds of supply that my clients make and I then comment next to each type of supply as to what the VAT rules are for that supply. Meanwhile, you might want to contact HMRC for advice. For complex cases, they will insist that you write in with a full description of all circumstances and will (usually) respond within a few weeks.

Hope it helps & good luck!!
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Note, however, that these sales also count towards your UK annual VAT registration threshold, whereas the overseas sales do not.


That's useful to know.

This can get awfully confusing. I think I'll obviously need to treat each case seperately and investigate the legal implications behind it with regards to country of supply.

How do I find out what my services are classed as? (with regards to how it's treated i.e. electronic supply, etc...)

What happens if I sell a logo design to someone and ten years later the company goes global and it's used in 130 countries?

What if I designed a CD album cover that is sold with MP3 downloads from itunes (worldwide)? Or if it's on a hard copy CD album that is sold immediately in 30 countries? How are these situations treated?
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How do I find out what my services are classed as? (with regards to how it's treated i.e. electronic supply, etc...)?

Read the VAT Notices on HMRC's website (start with numbers 700 & 741). But these are long and complex, so perhaps call HMRC's National Advice Service. Otherwise, you will need an experienced professional.

What happens if I sell a logo design to someone and ten years later the company goes global and it's used in 130 countries?

What if I designed a CD album cover that is sold with MP3 downloads from itunes (worldwide)? Or if it's on a hard copy CD album that is sold immediately in 30 countries? How are these situations treated?

If you sell a design (logo or CD cover) to a customer, it is no concern to you what they do with it 10 years later. Your contract is with the customer, not with your customer's customers.

But if you lease the logo to you customer, that could well be different. It will depend on whether use and enjoyment rules apply, and (if so) how they apply to the particular circumstances of the transaction.

We would need to see a copy of the agreement between you and your customer, understand where the customer belongs, whether they have a valid EC VAT number, etc. It really is a highly complex area, which needs sorting out in stages.

The first stage (whether via HMRC ir using a professional) is to determine whether your service qualifies as "electronically supplied", so you know whether use and enjoyment rules apply.
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Thanks for that, I think I'll need to speak to a professional if I have any more worries about my overseas clients.
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