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If you’re covering the whole journey, not just the part in France, I don’t think it makes a difference.
The “general rule” for B2B cross-border services is that the place of supply is where the customer belongs. Suppliers based abroad invoice without VAT, and customers account for VAT using the “reverse charge”.
If your service was considered to be related to the shipping, HMRC’s Notice 744B, section 3.2, says that the place of supply follows the “general rule” unless the shipping was entirely outside the UK:
https://www.gov.uk/guidance/vat-on-freight-transport-and-associated-services-notice-744b#place-of-supply
But if your service was not considered to be related to the shipping, it would still fall under the “general rule”, as none of the other exceptions seem relevant.Something to consider – presumably Snugglebundl didn’t get a clearance. If they had, HMRC would have told them to charge VAT. So although they had to go through the tribunal process, they’ve ended up with a better result than they would have got from a clearance. For your product, being the designer should enable you to demonstrate what it has been “designed as”. If it has been designed as clothing, looks like clothing and is marketed primarily as clothing, you may have a strong case for zero rating anyway.
The clearance route would be most appropriate if you still have real doubt over the correct VAT treatment. I believe that to get a clearance you do need to explain how you’ve considered existing guidance and that still leaves the correct treatment in doubt. If you don’t hear from anyone with experience in children’s clothing clearances on this forum, your accountant might have contacts who could recommend someone.
For completeness, there is a third option – HMRC have a Written Enquiries Team that you could contact. But I suspect they may just refer you to the two pieces of guidance that I already have, leaving you to decide for yourself how they applied to your product – if so, that won’t really help.
First question – are you buying these from a UK VAT registered supplier? If so, I would follow the same VAT treatment as your supplier has.
But if you’re either the manufacturer or importer, you’ll need to determine the liability. I would start with the law – which is even vaguer than the guidance! Item 1, group 16, schedule 8 of the VAT Act simply zero rates “Articles designed as clothing or footwear for young children and not suitable for older persons.”. The strict test is whether your product would be considered to be “designed as clothing”.
HMRC have guidance in paragraph 2.2.1 of public Notice 714 (https://www.gov.uk/guidance/vat-on-young-childrens-clothing-and-footwear-notice-714#section2) and in their internal manual VCLOTHING2400 (https://www.gov.uk/hmrc-internal-manuals/vat-clothing/vclothing2400). The internal manual focusses on two cases from the 1970’s which considered the function of the item to be the important factor.
You mention the Snugglebundl tribunal (https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j8188/TC04209.pdf). Although as a first tier tribunal case it doesn’t set a precedent, it’s useful as it’s far more recent while still considering the earlier decisions in the analysis.
Obviously you’re best placed to know the product itsef, and may have other relevant material (e.g. how it is marketed, what brief was given to the designer, etc.). If having considered both pieces of HMRC guidance you’re still unclear of how they’d view it, you’ve got two options:
- You could reach a view by applying the principles set out in the Snugglebundl decision. If you believe that zero rating does apply, make sure that you fully document your reasoning – as this will help protect against a penalty should HMRC later disagree with your view.
- You could request a “non-statutory clearance” from HMRC (https://www.gov.uk/guidance/non-statutory-clearance-service-guidance). This will take much longer, but will give you a formal ruling that you can rely on.
In my opinion, the option to take depends on the significance of the amounts involved and degree of uncertainty after considering the HMRC guidance.
Bear in mind that although the impact of VAT to you is generally a percentage on your profit, its calculation must be on transaction level. Your sales and purchases must be treated separately. VAT isn’t like income/corporation tax, where you calculate a profit and work out the tax on that.
So your first set of detailed calculations are correct. But actually, the reason why your second set don’t give the same answer is because you’re calculating your profit as being VAT-inclusive sales minus VAT-exclusive costs. For a true profit calculation, both figures should be on a VAT-exclusive basis, as these are your true income and expenditure figures after you’ve submitted your VAT return.
On the membership scheme, do you make any charge for joining? If you do, you need to consider the VAT treatment of membership income. If in reality the benefits of membership are little more than being entitled to a discount on future purchases, membership fees are likely to be VATable – because they’re seen as further (advance) payments for the items that will be bought.
There are a number of factors that could potentially impact the VAT treatment of transactions, including:
• the status of the buyers – are they businesses or public?
• are the sellers VAT registered?
• where the buyers/sellers are located
• your role – are you a principal or agent in the sale?
• the extent of the services you would provide. E.g. would you collect payment for works? Would you be responsible for arranging shipping?
• the route taken by goods – would they actually enter the UK?
• if any of the artwork is digital, would you be treated by HMRC as an online marketplace?
…and there will be others!Also, you mention that your online gallery will “mostly offer free services”. Free services aren’t regarded by HMRC as business activities, potentially preventing the recovery of VAT on related expenditure. You may well need to arrive at some way of apportioning the VAT on your general costs, to allow you to reclaim an amount in respect of your business activity.
Particularly as you imply the gallery is still in a development phase, I really think it would be beneficial for you to discuss the whole project (not just the art sales element) with a VAT advisor experienced in this area. It’s an ideal time to ensure that everything is set up in the most tax efficient way, and you can get a set of processes agreed and documented. Having gained knowledge of the gallery, the advisor might also be able to help keep you informed of any future changes in VAT rules which may impact.
Income – You are required to account for VAT on your sales since the effective date of registration. This VAT is 1/6th of the sale price (i.e. 20% of what’s left after declaring the VAT). However, consider who your customers are. If they are VAT registered businesses, they may be prepared to pay a VAT-only invoice from you, as they would be entitled to reclaim the cost from HMRC. If you are able to raise VAT-only invoices, they would be for 20% of the original sale price, as it’s VAT on top of what you had already charged. If you are raising VAT only invoices, you need to include on your VAT return the amount of VAT shown on them instead of just the 1/6th – but you’d still be keeping the full amount that you’d previously charged.
You can do a combination of these – e.g. raise VAT only invoices to VAT registered customers and calculate the 1/6th for others. All VAT on your income goes in box 1 (outputs)
Expenditure – suggest that you see HMRC’s guidance here for time limits:
https://www.gov.uk/vat-registration/purchases-made-before-registration
Where this guidance allows you to reclaim VAT, it goes in box 4 of your return (inputs).You do need to use individual invoices here – you can’t just take 1/6th of your VAT inclusive cost of sales. Unfortunately there aren’t any shortcuts to the process. HMRC do have some discretion to allow VAT recovery where VAT invoices aren’t held (you would need to contact them with full details for them to consider) – but they’re unlikely to allow you to estimate a claim simply due to the amount of work involved in establishing the correct figure.
You would complete VAT returns periodically (normally quarterly, although some smaller businesses can apply for annual). VAT amounts (in either direction) must be included on the VAT return covering the tax point of the transaction – this is usually the date of supply of the goods. So if your purchase and resale took place in the same return period, both amounts would be included on the same return, and you would just pay the difference to HMRC.
I’ve only previously encountered triangulation with goods, not services.
For B2B, there’s probably no change. You wouldn’t charge UK VAT, and your customer would be liable to account for VAT using the reverse charge.
For B2C, you’ve got a choice between registering for VAT in each of your customer’s member states, or registering with a “non-union MOSS” scheme in a single member state. Although if you’re selling via a digital platform/marketplace, the responsibility to account for VAT on B2C transactions may lie with them.
Very generally speaking, VAT is charged on every transaction in a supply chain (there are exceptions). When a VAT registered business makes a purchase in relation to their business activities, they are entitled to recover from HMRC the VAT they have incurred. So although VAT is collected at every step in the chain, the true cost of VAT should fall on the final customer.
Taking your figures, and assuming that they include VAT, if you were VAT registered:
• you pay your supplier £17.50, but
• you can reclaim £2.92 VAT from HMRC
• you charge your customer £24.38, but
• you must pay £4.06 VAT to HMRC.
In addition, you would be able to reclaim the VAT incurred on other costs directly relating to the business.Something to consider – who are your customers? If they are VAT registered businesses, when you register you may be able to increase your prices to £24.38+VAT=£29.26, as it’s likely that they could reclaim the £4.88 VAT from HMRC.
Bear in mind that this is a very brief and simplified overview of the general principles of VAT. Much more information about your business would be needed to be able to fully assess the impact of VAT registration.
If the goods concerned never leave the EU / enter the UK, it’s hard to see how the supply could be subject to UK VAT. However it could still be subject to VAT in the EU.
If the goods remain within the same member state it’s likely that you may need to register for VAT there. If the goods cross a border, the position may be dependant on whether the transaction is B2B or B2C – as with B2B it’s possible that the customer may be required to account for the VAT as acquisition tax. But I would suggest that you need to check guidance issued by the tax administrations of the member state(s) concerned, as rates, thresholds, etc. vary between countries.
As an example, section 8 onwards of HMRC’s notice 700/1 deals with NETP (Non-Established Taxable Persons) based outside the UK selling goods within the UK. I suggest you need to see the equivalent guidance for the member state(s) concerned.
It depends on whether you were previously living in France, or just had a second home there.
If you were previously resident in France, you may be eligible to apply for Transfer Of Residence relief – details are in HMRC guidance here:
https://www.gov.uk/guidance/transfer-of-residence-to-great-britain
Otherwise you will be liable to pay import VAT and duties on the goods you bring into the UK (on the basis that the value would exceed “duty free” limits).Hi,
HMRC’s guidance on reclaiming VAT on pre-registration expenses is here: https://www.gov.uk/vat-registration/purchases-made-before-registration
Provided that the criteria are met, the reclaimable VAT is the amount shown on the suppliers’ VAT invoices, and should be claimed in box 4 of the VAT return. I can’t see why Corporation Tax would restrict any ability to claim VAT.I have no involvement in Corporation Tax though, so don’t know what impact any retrospectively reclaimed VAT may have on CT returns. It might be that the VAT claimed would be regarded as a reduction in expenses for the year in which it was claimed? But you’d need someone with CT knowledge to confirm.
