VAT guide for exporters
Emily Coltman FCA, Chief Accountant with online accounting software provider FreeAgent and author of Very Awkward Tax, summarises the rules of handling VAT when buying and selling abroad.
This article is a modified extract from Emily’s book Very Awkward Tax: a bite-sized guide to VAT for small business.
If you sell goods to customers in the wider EU who are registered for their own local version of VAT, you can zero-rate those sales, so long as you have both of the following:
- evidence that the goods left the UK within three months of the sale
- a valid local VAT number for your customer’s business.
If you sell goods to non-VAT registered customers in the wider EU, then you must charge these customers UK VAT. These sales are called distance sales.
If your distance sales to a particular country go over that country’s limit, you must register for local VAT there, file VAT returns there, and charge any non-VAT registered customers in that country their local form of VAT, rather than UK VAT.
If you sell goods to customers outside the EU then these sales can be zero-rated for UK VAT, provided you have evidence of the export and that the goods leave the UK within three months of sale.
If you buy goods from another EU country, then your business will pay UK VAT at the time the goods come into the UK and at the same rate of UK VAT as you would have paid to a UK supplier.
You must convert the price you were charged for the goods into £ sterling, then work out the VAT that you would have paid on those goods if you had bought them in the UK.
If you’d bought goods from France for the equivalent of £450, for example, you would multiply that by 20 per cent to work out the UK VAT you would have paid (£90).
This is called your acquisition tax, and it increases the amount of VAT you pay to HMRC.
Unless you are using the VAT flat rate scheme, though, it also increases the VAT you reclaim from HMRC so, in effect, the extra amount you pay to HMRC is nil.
If you buy goods from outside the EU, you would pay VAT when the goods come into the UK and receive an import VAT certificate – form C79 – to say that you had paid this.
If you would have been able to reclaim input VAT on those goods had you bought them in the UK, then you can still do this, so long as you have your form C79.
If you sell services to businesses outside the UK, then it’s the customer who has to account for any VAT. For you, these sales count as outside the scope of UK VAT.
If you sell non-digital services to non-business customers outside the UK, you must account for UK VAT on these sales as if your customers were in the UK.
If you supply digital services to non-business customers in the EU and these services don’t need your intervention to be delivered, you have to charge your customers local VAT and give them VAT invoices that comply with local rules. You shouldn’t charge UK VAT on these services.
Be aware that the rate of VAT you apply does not necessarily depend on where your customer lives, but on where they receive the service. For example, a sale to a Belgian customer travelling on an international train from Spain to Portugal would be subject to Spanish VAT!
Nominally you would have to register for VAT in all the different countries where you have customers, and file local VAT returns – but you can use HMRC’s Mini One Stop Shop scheme to reduce your workload here.
You can also read Open to Export’s article on preparing to export services and software for more information.
If you buy services from outside the UK, you have to account for VAT using the reverse charge rule.
To do this you take the value of the services you’ve bought in £ sterling, and multiply that by the appropriate rate of VAT you’d have paid for those services if you had bought them from the UK.
Let’s say you bought services at a cost of £50 from a German business that would have been standard-rated in the UK, so the equivalent amount of VAT would have been £10.
Add the £10 to both the amounts of VAT you pay and reclaim on your VAT return, so that the net effect of extra VAT payable to HMRC is nil.
These rules operate in the same way, regardless of whether you are using the VAT flat rate scheme.
For further guidance, I’d recommend watching these HMRC videos on trading within the EU and outside of the EU.