Discussion:UK Vat Tax

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Discussion Forum Index --> Advanced Tax Questions --> UK Vat Tax

Discussion Forum Index --> Tax Questions --> UK Vat Tax

Jossiecpa (talk|edits) said:

10 July 2012
Client is a US-based company. He installs media systems in hotels. He has his first overseas client in the UK, and is using a UK-based subcontractor to do the work. The client hotel will be transferring British pounds to the sub for downpayment, and the sub will purchase the media equipment and install it. My client believes that he must charge the hotel 20% VAT tax on the equipment. I have never dealt with this before, and am more confused after looking at the British government website on VAT. Anyone familiar with this?

Lizzit (talk|edits) said:

10 July 2012
Yes, because they are using a UK based subcontractor. If it were being done by Americans on assignment of fewer than 182 days, he could would not have any VAT. But he's using a UK subcontractor. That technique (hiring an offshore entity to do onshore work) used to be a common way to weasle out of VAT. As a result, they passed a bunch of legislation forcing VAT in cases where the majority of the work is done by UK businesses but the actual entity you are paying is outside Europe.

There are lots of exceptions to every tax law here in the UK. I am not a VAT expert, so I don't know for sure. I highly recommend you call VAT and get from them in writing the answer to your question. If it's in writing, your client has 100% defense in the event that everything goes pear-shaped. Here's the contact info for the VAT division - http://search2.hmrc.gov.uk/kb5/hmrc/contactus/view.page?record=dMVkEC6liWE - or ask me offline (not via TaxAlmanac) for the email address of one of the top HMRC VAT auditers. I became freinds with one.

On the plus side, the hotel won't have to "pay" any VAT so it's not as much of a problem as you think it is. Sure, the hotel will pay the US company 20%. It then deducts the amount of VAT it paid from the VAT it owes the HMRC at the end of the day. So the net cost to the hotel of the VAT your client has to collect is zero.

Last note: The UK subcontractor should NOT be charging VAT to the US entity. If it does, have the subcontractor call me to fix it.

Jossiecpa (talk|edits) said:

10 July 2012
Thanks so much - very helpful! I just sent you an email.

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