VAT registration if no UK supplies
Q: My client is UK-based and operates through a UK incorporated limited company. It provides strategy consultancy services to USA and Canadian based businesses only. I understand this income is all outside the scope of UK VAT because the place of supply is where the USA and Canadian based customers belong (i.e. USA or Canada). It does, however, incur significant amounts of UK VAT on general business costs and sub-contracted services. Is there any way of avoiding this VAT or claiming it back from HMRC?
A: You are correct that under the B2B basic rule the place of supply of these services is where the customer belongs; as long as the customers do not have a UK establishment more closely connected to your client's services, then this income would be outside the scope of UK VAT. Only taxable supplies with a UK place of supply count towards the UK compulsory VAT registration limit. However, even though your client has no income with a UK place of supply, it does make the kind of sales that would be taxable if the PoS was the UK (called foreign supplies). As a result, your client can voluntarily VAT register in order to claim back UK VAT on costs associated with these outside the scope (taxable) supplies under VATA 1994 s.26(2)(b). This is subject to the normal VAT recovery rules (e.g. valid VAT invoice in the client's name, VAT correctly charged etc.).