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bigduckontax, Accountant
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Hi, I have just set up a limited business in the UK. The purpose

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Hi, I have just set up a limited business in the UK. The purpose of the business is to rent out equipment in Ibiza, where I am located for just under 6 months a year. I will have my Spanish NIE but will not be classed as a fiscal resident in Spain as I am there for less than 6 months a year.

Customers will be both private individuals and companies. Customers will need to place a security deposit and a booking advance via credit card into my PayPal account. The security deposit is refundable as and when the equipment is returned in good order. The booking advance is 25% of the actual rental fee with the balance payable in cash upon delivery of the equipment.

My question is do I have to be VAT registered and add VAT to my bills and invoices? If so, should I charge VAT on the security deposit and the booking advance or just the booking advance? If I am collecting VAT as a UK company operating in an EU state, do I also have an obligation to collect local taxes such as Spain's VAT equivalent "IVA"?

Many thanks,
Hello Dan, I'm Keith and happy to help you with your question.

UK VAT registration is only mandatory if the annual turnover reaches or approaches 81K. Where you registered for VAT then it should be accounted for in all transactions. There is a commonly held misconception that payments in advance are not subject to VAT until the final bill is settled or the invoice presented. This is not the case. If you receive say GBP 120 payment in advance then you should post 20 quid to VAT Output Tax and the 100 to say payments in advance. You should account for VAT in both the security deposit both in and out in a similar way, but in this case the refunded VAT element also goes through the VAT Output Tax account, it is not an input.

Your exposure to IVA and other local Spanish taxes is a matter about which you should consult in Ibiza. This is a UK tax taxation site. My gut feeling is that your company will not get involved in IVA. After all, take eBay, they operate in the UK, but their bills reflect the Luxembourg VAT at 15%.

I do hope I have been able to help you.
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