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bigduckontax, Accountant
Category: Tax
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A company is about to invoice its parent company in the US

Customer Question

A company is about to invoice its parent company in the US for the time of it's employees in a limited company in the UK.

The US company has contact all over the world and the UK employees work on these projects.

This is the sole source of income for the UK company.

Can or does the the UK company become VAT registered?
Submitted: 4 years ago.
Category: Tax
Expert:  bigduckontax replied 4 years ago.
Hello, I'm Keith and happy to help you with your question.

If the company has a turnover of 79K or approaching that it must register for VAT even though its sole source of income is an export, a zero rated supply. Of course, any input tax suffered in the course of trading, eg buying stationery, telephone, computing etc, can be reclaimed. For this reason its often useful to register even if the turnover is below the compulsory registration level. Voluntary registration of lower turnover organisations can be a trifle tricky, but an exclusive zero supply business should do the trick and convince the authorities that it is necessary.

Once registered VAT returns must be rendered quarterly on line, but this is a very quick and easy process. Any net tax due to the company is automatically paid to the notified company bank account.
Customer: replied 4 years ago.

The question is whether the supply was "outside the scope of VAT" rather than "zero rated" being to the US and therefore the company was not making taxable supplies and therefore HMRC would not register the company for VAT.


The amount is above the £79,000 registration threshold





Expert:  bigduckontax replied 4 years ago.

Because it is being invoiced to an US company it is an export and thus a zero rated supply. It is taxable, but the rate of VAT is zero. A bit pedantic, but that is how it works. It is not outside the scope of VAT. An example of an outside scope item might be a club registered for VAT which receives a donation or a legacy. Those are outside the scope of VAT. I have this in black and white from the relevant tax authorities.

In any event there might be considerable cash flow mileage in the reclaim of input taxes. I gave you some examples in my original answer.

From the information you are now giving me registration is necessary. the company is over the registration limit on turnover. If you are in any doubt enquire of HMRC when making the registration.