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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4416
Experience:  FCCA FCMA CGMA ACIS
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I have set up as a sole trader and are buying software

Customer Question

I have set up as a sole trader and are buying software services (developed code) from Latvia in the EU - and selling them and my own consultancy services to a customer in the Netherlands. They are both complaining because I do not have a VAT number - however my revenue doesn't exceed the VAT threshold hence am not convinced I need it. However I don't want to pay VAT on me invoicing the Netherlands customer - or the Latvian supplier invoicing me. How is it best to do this - do I need to apply for VAT?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Sales within the EU are standard rated unless the reverse charge system applies. Some countries do not even have a VAT threshold at all, Germany used to be like this, but I understand has since changed. Your not having a VAT number may be causing confusion to your business contacts.

If you register voluntarily for VAT you will have to charge the output tax on your sales and recover the input tax on any purchases. If you have the VAT number of the EU trader then the reverse charge can be applied. Here you charge the customer VAT at 20% and immediately enter the same amount as an input in your books thus effectively making the sale for you zero rated. You then have to complete a periodic EU Sales List for HMRC. Please don't blame me, I did not invent this convoluted system!

I do hope that I have been able to shed some light on your position.