VAT Issue

We have a client in America. We have invoiced them for printing a personalised letter, and have added VAT, as we normally do for our UK clients. The client is saying that he understands Advertising is deemed to be outside the scope of UK VAT under schedule 5 of the VAT act of 1994.

As this is not an emergency appeal letter, and they are not a charity, I do not think this should be exempt from VAT, whether they are in the UK or America.

What do you say?

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The complete Direct Mail Company service

Hi, your customer is probably right if you have provided an advertising service outside of the EU and the customer is based outside of the EU. Sch 5 deals with services that are deemed to be supplied where they are received and if that is USA then the supply is not specifically "Exempt" but is "Outside the Scope of UK VAT".

In the January 2010 changes more emphasis is placed on "where the customer belongs". If for example your US customer has a branch in the UK and your service was effectively delivered in the UK then the supply is not outside the scope, but if the customer does not have a UK branch and truly belongs in the US then Outside the Scope would apply.

Having supplies treated as outside the scope does not normally affect ability to reclaim input tax on direct and overhead costs and this is an important distinction from an "exempt" supply for which restriction on input tax claims can and do apply.

Lastly, consider if you have supplied a service as opposed to export of goods (printed material) where there are detailed regs relating to establishing that a zero rated supply has been made.

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Web: http://barrynudds.co.uk

Email: enquiries@barrynudds.co.uk

Thank you for your reply.

We are fulfilling a direct mailing campaign to addresses in the UK. The US client has emailed us the letter document, which we shall merge, print, enclose and post.

Therefore, we are not exporting any printed materials.

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The complete Direct Mail Company service

hmmm, this is interesting.

We have had an ongoing question mark over VAT on adsense and adwords for years, as we have had different opinions from different people, but basically, we dont receive VAT (adsense) or charge VAT (adwords).

Adwords is managed in the US and Adsense (Europe) is managed in Ireland (ie in the EU).

Both products are used by us for a UK audience, so technically I would see this as importing, but VAT isn't applied

Sorry hdm, doesn't answer your question, but does highlight some of the complexities of the VAT system...

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cheers Steve
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Yes, why does it have to be so complicated?

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Perhaps current complexities are related to all the various attempts at simplification over the last several years or maybe the link with Brussels on VAT since 1986!

HMRC leaflet 741A (January 2010) headed "Place of Supply of Services" is a useful document to keep handy when you need to address issues like how to establish where a business customer belongs and evidence it for those involved in "B2B" business to business supplies as opposed to "B2C" business to customer supplies.

On the Adwords and Adsense issue bear in mind that although referred to as products no "goods" are involved for VAT purposes since no title passes and that anything that does not amount to goods is a service. The issues here are very similar.

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Web: http://barrynudds.co.uk

Email: enquiries@barrynudds.co.uk