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bigduckontax, Accountant
Category: Tax
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If a UK VAT registered consulting company services a US based

Customer Question

If a UK VAT registered consulting company services a US based firm (and bills them) but uses EU and UK registered sub-contractors to work on the report, what are the requirements to account for VAT on the inputs? The output is outside the scope of VAT as the place of supply is the US but can the consulting company claim the input tax back?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

No, you have it slightly wrong. The outputs are not outside the scope of VAT, they are exports and accordingly zero rated for VAT. Thus all input VAT can be reclaimed. Some organisations, eg travel, have so much input tax to reclaim that they render monthly VAT returns instead of the usual quarterly.

The only items outside the scope of VAT I came across was a in a club receiving donations and sometimes legacies. These were outside the scope of VAT and HM Customs and Excise, as they were then, confirmed it in writing.

I do hope I have been able to shed some light on your question.
Customer: replied 3 years ago.

The attached link states that:


"If the place of supply of your service is not in the EU, then your supply of services is outside the scope of VAT. You don't have to charge EU VAT or include the sale on your VAT Return."


Which is why I am unclear. If the export of service is outside the scope, then it seems to me that the related inputs are not reclaimable. The consulting company does make taxable supplied in the UK as well. Do the "matching" inputs on the non-taxble projects get lost because of the non-taxable output?

Expert:  bigduckontax replied 3 years ago.
The companies who are doing outsourced business are making supplies in the EU, indeed in the UK, so their invoices should be zero rated as exports. Were they, for example, operating from a base not in the EU then the 'place of supply' would indeed be outside the EU and thus the output outside the scope of VAT.

I agree the wording of the HMRC advice appears a trifle confusing, but what I have explained is the reality of the situation. Zero rating makes the UK a more competitive environment within which to operate.
Customer: replied 3 years ago.
Not really satisfied Keith. There is a blanket zero rate for goods but not services. My answer must reference the place of supply rules that came into effect in in January.
Expert:  bigduckontax replied 3 years ago.
You have told me that the place of supply is the UK. It is UK companies who are taking the outsourcing. Assuming that those companies are performing their tasks within the EU then the supply is being made within the EU and a zero rate is applicable.

I have given you the answer which you originally requested.
Customer: replied 3 years ago.

I didn't say the place of supply is the UK - that is one of the things I am unclear about. The company is VAT registered in the UK but is providing management consultancy services to a US bank (with global operations). The company is using sub-contractors to compile a report for the US company on the jurisdictions the bank operates in. The sub-contractors bill the UK based company.


Where is the place of supply and why? Where is it stated that services provided are at zero rate? The manuals I read are saying that services provided to business customers are outside of the scope of VAT. If that is true, can the inputs be reclaimed because again the manuals even when talking about exemptions (not outside scope) talk about calculating the proportion of VAT that may be reclaimed.


Expert:  bigduckontax replied 3 years ago.
The nub of the question is not to whom the supply is being made, but where it is being made. As I understood it the sub-contractors are based in the UK, do their work in the UK and would therefore bill an overseas organisation as a zero rated supply. If the sub-contractors were billing an UK based company then naturally VAT at the standard rate would be invoiced. My original answer was on the assumption that the company being billed was located outwith the EU.

HMRC advice is:

'The place of supply is the place where a supply is made and where VAT may be charged and paid.'

If the work is, for example, done in the UK, put in an envelope or transmitted by other means etc and sent to the organisation requesting same then the supply is being made in the UK although such supply may well be zero rated.
Customer: replied 3 years ago.
Relist: Answer quality.
Expert:  bigduckontax replied 3 years ago.
I will opt out of this question.