European Union VAT

Invoicing to other EU customers is fairly simple; however there are items that must be put on European invoices.  If this is done correctly it will save time and money trying to reclaim VAT from other European authorities.  Firstly an overview of how VAT works intra-community – i.e. between European Union member states:

When one company in one member state provides goods or services to another company in a different member state, the seller does not add VAT to the invoice but instead zero rates it and registers £0.00 for VAT.  It is the job of the buyer to pay the correct local VAT rate for the purchase directly to the authority which handles VAT in their country and this is done through their VAT declaration.  For example:

You sell something to someone in Germany for €1,000. On the invoice, the figures would be as follows:

• Sub total: €1,000.0
• VAT (at 0%): €0.00
• Total: €1,000.00

The client declares this to their local VAT authority and, in Germany for example, they would pay the local rate of VAT to them.  They would then pay the VAT €160.  At the end of the quarter or year, this figure is balanced against a credit for the same amount (and their other inputs and outputs) and they would receive it back, essentially meaning that they never paid it.  The way this is done is probably different in each member state, but this does not affect the seller.  Buying is another matter.

You need to do the following:

*       Make the invoice from Your Company Ltd at the company’s registered address (in the country of origin).

*       Below the address, include your company’s registration number and prefix it with a two digit country code (for the UK, this is ‘GB’, i.e. For a company with a UK company number of 01234567 this would be GB-01234567).  In Germany these numbers are known as CIF (Company Fiscal Identity) numbers.

*       Put the client’s address in and also include their CIF number (this could be the buyer’s national insurance / social security number if they’re an individual or their company’s registration or fiscal number, if they represent a company).

*       Itemise the invoice in pounds or Euro, whatever is agreed.  It is easier to use Euro for all countries that use this currency and pounds or Euro for any others.

*       Include sub-total, then VAT at 0.00 Euro/pounds and the total.

*       Your bank details for making the payment (try to avoid cheques if possible as they are often extremely slow to process; and rules on a cheque’s acceptability can vary between countries greatly).  For the bank details you should include at least the account name, the name of the bank and an IBAN (International Bank Account Number); see below for bank details. If the client does pay by cheque, make sure it’s in either pounds or Euro and also sign the back of the cheque before sending it to the bank to be paid in.  Cheques can take a long time (around 4 weeks) to clear between two EU states.

Bank details for receipt of payments

Theoretically, to make life easier, it is a good idea to have a current accounts in both pounds and Euro.  Give the euro account details if the billing and payment is in Euro and the sterling ones if it is in pounds.  That way all the figures correspond and accounting is made easier.  There are, however, drawbacks of so-called currency accounts, such as not having on-line or telephone banking facilities with them.

To receive the payment you need give your customer your IBAN (International Bank Account Number).  The IBAN number is formed by prefixing a international code to your bank sort code and account number. The format is CC-NN-BBBB-XXXXXX-YYYYYYYY, where CC is a country code (in this case GB), NN  is a number identifying the bank, BBBB also identifies the bank, XXXXXX is your sort code and YYYYYYYY is your bank account number.  Here’s an example:

We phone our bank, Big Banking Corporation, and they give us the IBAN prefix of GB-31-BIGC, meaning.

• Our sort code: 12-34-56
• Our account #: 12345678
• Our IBAN: GR-31-BIGC-123456-12345678

You are obliged to declare to HM Revenue & Customs any monies you receive for payment against EU invoices.  This is added to the VAT Return in box 8 – purchases made from other states go in box 9.  If you complete this box, HM Revenue & Customs will then send us an EU Sales List, which you will need to complete and send back to them.

Purchases

You should be eligible to pay no VAT in member states, giving your VAT number, but only if the final destination of the goods is the UK. In this case, we would then let HMRC know.

However, the final destination means that if I buy myself a new computer while living in Germany, where it will be used, I cannot claim a zero VAT rating as the final point of sale is Germany and German VAT applies, even though my company is a UK company.  I then have no way of getting this money back unless I become self-employed in Germany, in which instance I have to pay social security and even then, it won’t be my company that pays for it, but myself, or rather me as fiscal entity in Germany.  To get the money out of my company, I’d have to invoice them for it, which means I’d have to charge German VAT.

For more information on European VAT and how to make a VAT Reclaim of European VAT contact Global Tax Reclaim.

Wet Rooms in the UK

I was having a conversation with someone last week and they were telling me about the wet room they have planned for their house.  I was stumped, I had no idea what a wet room was.

Well now I know.  A wet room is just like a walk in shower, or really it is a walk in shower.  Now I know and it can be added to my 43 things.  I have just come back from holiday, and we liked staying in Holiday Inns – their bathrooms are like this.  They have tiled under-floor heating, a drain in the floor – so that water can run anywhere while you are using the bath or shower.

Wonder if my landlord would spring for this?