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Sales of services abroad

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The information in this section is for guidance only and should not be taken as definitive VAT advice, since individual circumstances may vary. For details of your obligations for services sold abroad, please refer to HMRC VAT Notice 741a.

Introduction

If you sell a service to an overseas customer, you need to determine the place of supply to know whether or not it is outside the scope of UK VAT, regardless of where the customer is located.

Place of supply is the UK: UK VAT is due

If you determine that the place of supply of the sale is the UK, it is subject to UK VAT and VAT should be charged in the normal way for a domestic UK sale.

Place of supply is outside the UK: Outside the scope of UK VAT

If you determine that the place of supply is outside the UK, it is outside the scope of UK VAT (however you may have obligations for sales tax in the country where the supply is determined to take place - if so, the foreign sales tax can be accounted for in the same way as described in VAT or sales tax due in other countries).

Therefore, you do not charge the customer UK VAT on your sale. However, the net value of this type of sale needs to be included in Box 6 of your VAT return, according to HMRC VAT Notice 700/12, in which they require sales that are 'outside the scope of UK VAT as described in Place of Supply of Services', to be included in Box 6.

To enter sales of services to overseas customers outside the scope of UK VAT:

1.If you have already generated a sales invoice elsewhere, use the SIN (not underscored) function, do not enter any VAT in the Output VAT field, and leave the Type of sale (for VAT purposes) setting as Normal (this also applies if you enter sales using the REC function); or

2.Raise a sales invoice using the SIN function and set up a service with the VAT rate as Zero Rate* by selecting Set up>Invoices>Products and Services

If the customer is to account for reverse charge VAT/sales tax of their country, and that country's tax authority requires you to have certain wording on the sales invoice referring to reverse charge, you can create an invoice template with the required wording in the same way as described in Creating an invoice template for DRC services (while this guidance is for UK domestic reverse charge services, the same principles apply in creating a template for foreign reverse charge services).

*This is not actually a zero-rated sale for VAT purposes, however the zero rate option will serve the purpose of including the sale in Box 6 of the VAT return. Although it may seem counter-intuitive, do not select the Outside scope option, otherwise the sale will not be included in Box 6 of the VAT return.  

Completing your VAT return

As you will not be charging output VAT on the supply, no output VAT on the sale will be included in Box 1 when you run the VAT return. However, the net value of the sale should be included in Box 6. This is because HMRC require this type of sale to be included in Box. 6 even though it is outside the scope of VAT,

Therefore, although it seems counter-intuitive, you should not change the transaction or the analysis account for the sale, to be outside the scope of VAT, otherwise it will not appear in Box 6.