How to process VAT charged by overseas suppliers on your UK VAT Return?

How to process VAT charged by EU or overseas suppliers on your UK VAT Return?

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When you are registered for UK VAT and you receive an invoice or receipt that shows VAT on it you automatically assume that you can reclaim that VAT. However, sadly that is not always the case.

You are only able to reclaim the VAT on your UK VAT return if the VAT is charged by a UK supplier with a UK VAT number.

What happens when you are charged VAT from an EU supplier or overseas supplier?

As noted above you can’t claim the VAT that you have been charged on EU or overseas suppliers back in your UK VAT return, this applies even though you can see the VAT%, the VAT amount of the VAT number on your invoice.

The invoice will likely look very similar to any other UK supplier invoice but the supplier is outside of the UK so you can’t process them the same way.

What should I do instead?

Instead, you need to set your account up with the supplier so that you don’t get charged VAT in the first place…

If you provide your VAT number to an EU or overseas supplier then they will zero rate your VAT and charge you 0% VAT. 

You can usually log into your online and account and check the settings to ensure that the account is in your business name and that your UK VAT number is provided.

Which suppliers does this commonly impact for our clients?

  • Google Adwords– Based in Dublin in the Republic of Ireland. If your account is set up properly with a UK VAT number included then they will charge you 0% VAT and their charges will be subject to reverse charge VAT. You can tell google your VAT status here.
  • Facebook– Also based in Dublin and will be zero-rated subject to the reverse charge. You can tell Facebook that you are a UK VAT registered business here by selecting add information to your invoice.
  • Hootsuite– Based in Canada, but they are registered for VAT in the EU, so also zero-rated subject to the reverse charge. You can tell Hootsuite that you are a UK VAT registered business here.
  • GoDaddy– Based in America, but they are registered for VAT in the EU, so zero rated and subject to the reverse charge. You can tell GoDaddy that you are a VAT-registered business by following these steps.
  • Mail Chimp – Based in America, but they are registered for VAT in the EU, so zero rated and subject to the reverse charge. You can tell Mailchimp that you are a VAT registered business by following these steps.

We will keep adding new suppliers and instructions as we identify them.

What is the reverse charge?

You must account for VAT in your business accounts under the reverse charge VAT mechanism where applicable.

The reverse charge is the amount of VAT you would have paid on that service if you had bought it in the UK.

Where it applies, you act as if you are both the supplier and the customer. You charge yourself the VAT and then you also claim it back. So the two taxes net each other out. Feels a bit pointless I know… but HMRC wants to measure the amount of tax under the reverse charge which is why we have to report it as part of our taxable sales.

Most accounting systems such as Xero have a VAT code for EC Reverse Charge that will take care of the entries on your VAT return for you when you select it.

If you would like support please do get in contact with The Orenda Collective.

 

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