If you’re a UK-based business trading internationally, you could be liable to pay Value Added Tax (VAT) on overseas goods and services.
Understanding where and when you need to charge VAT is essential to make sure you don’t fall foul of VAT legislation and end up with costly penalties and late payment interest charges.
VAT liability abroad
VAT aims to make sure that goods and services are taxed fairly, regardless of where they originate from.
Importantly, your overseas VAT liability is determined by the location of your overseas clients and customers, rather than where your business is primarily located.
VAT is payable on most business goods and services, but different countries have different rules and regulations when it comes to VAT.
- Selling goods to the EU: If your EU customers are VAT registered, then you can apply a zero-rate of VAT. If not, you are liable for the appropriate UK rate of VAT.
- Selling goods outside the EU: Sales of goods outside the EU are usually zero-rated, so you do not have to charge VAT.
- Services: Services supplied overseas are not usually subject to UK VAT, but the rules are complex, and you may still need to charge UK VAT in some circumstances.
Knowing where VAT applies ensures you can accurately charge and account for VAT in your international transactions and remain compliant with each relevant jurisdiction.
International VAT compliance
Registering your business for VAT in the UK is compulsory if your business income exceeds £90,000.
You should then check the VAT status of your customer, so that the invoice contains the correct VAT rate and amount.
Remember to keep detailed records of all transactions (including proof of export for zero-rated goods) and regularly file your VAT returns with HM Revenue & Customs (HMRC).
Make sure you include details of international sales and information about the VAT you have paid or reclaimed.
Don’t be tempted to shirk your VAT responsibilities.
HMRC can impose penalties and fines for late VAT registration, late filing of VAT returns, or inaccuracies in VAT returns.
You could also face interest charges and increased scrutiny and audits by HMRC.
VAT advice with Reanda
Our cross-border accounting experts can advise you on your international VAT obligations and file VAT returns on your behalf.
We’ll make sure you are fully complaint with HMRC and keep you abreast of any important changes to regulations, giving you peace of mind and enabling you to focus on running and growing your business.
For further advice on managing your international VAT obligations, contact our international experts today.
Reanda UK is a subsidiary of leading independent accountancy firm Grunberg. Our aim is to help businesses and individuals to navigate the UK’s world-renowned business and tax infrastructure, and to support them with their international ambitions. To find out how we can help you, please get in touch.