Do I charge VAT when exporting my services to Europe?
Charging vat to EU
The UK officially left the EU on the 1st of January 2021 and since then the vat rules for charging vat on goods and services to EU countries has changed slightly. The EU is now treated as being outside of the UK vat system.
When you are supplying services to companies and customers outside of the UK the place of the supply of the service is the place that the customer resides. If the customer is in mainland Europe the place of supply is outside of the UK and the supply is ‘outside the scope’ of the UK vat system.
This rule would be true when you are supplying any professional service outside of Great Britain to customers in the eu. If that is design or any creative service or legal, accounting or any financial services the place of supply is where the customer resides and not where you are based.
What is the place of supply?
When we look at the place of supply for vat purposes we are looking at where your customer resides. If you are supplying professional services the place of supply is where the customer is based. If you are supplying services to a company in Spain, the place of supply will be Spain.It is in the member state that the company resides in.
Now that the place of supply is in Europe we no longer need to apply the reverse charge and ask for the vat number of the company that we are supplying services to, we just need to know the location of the company and that the supply is outside the scope of UK VAT. .
Supplying services to EU
The supply of services to EU member states are now treated the same as for sales outside the EU. That vat is not added to the invoice and there is no need to add the notice on the invoice stating that the ‘reverse charge applies to this invoice’. The sale is now treated the same for VAT as would a sale to America.
No vat is applied and there is no need to make reference to the reverse charge mechanism for not applying vat to the invoice.
This change would therefore align the sales by UK businesses to the EU to sales made outside of the EU from January 1st 2021.
What is the reverse charge?
The reverse charge is a mechanism that was made to make the transfer of goods and services between each EU member state easier to manage. Rather than accounting for vat in the country that you were supplying to you can add the notice to your invoice that this supply is subject to the reverse charge and you and your customer could self service the vat yourself by making adjustments to the vat return.
The reverse charge helped to combat fraud in abusing the vat reporting between member states and also made EU trade easier by simplifying the vat rules between countries.
The adjustment would involve you adding the vat to the invoice that you would have paid if it were paid to a UK company and then a refund would also be added into the vat return so that you were not actually paying the vat, it was just accounted for on your vat return.
In effect this meant that when you invoiced companies outside the UK you did not charge vat on those invoices and you could just add the reverse charge vat notice on the invoice.
Receiving supplies from the EU?
If you are now receiving services from the eu post brexit you will now need to use the reverse charge to account for the vat on the invoices. If you are hiring a designer in Spain to outsource some work to and her invoice was for £1000 you will need to account for the £200 vat. £1000 x 20% = £200.
If you are using an online bookkeeping software such as Xero, Quickbooks or Freeagent they will normally do all the calculations and the entries for you so all you need to do is to say that it is a purchase from an EU country that it will be subject to the reverse charge and it will make all the entries for you in the invoice and also the vat return as well.
Next Steps
If you need help with any of your vat issues with the EU or are struggling to understand how to invoice a client based in the EU please reach out to ud to arrange a call to see how we can help you.