What the VAT? The UK and The USA
Dealing with the USA when it comes to VAT starts to get difficult as the federal tax system does not compare to the UK’s VAT.
We go through the main scenarios you might come across when trading with the US, and what you should be doing.
Concerning the UK, for clarity, this is for England, Wales, Scotland, Northern Ireland and the Isle of Man for VAT purposes. The Channel Islands are not included.
VAT on Services
First of all, let’s start with VAT on services. UK VAT is charged sometimes, but this can depend on whom you are selling/providing the service to in the USA. This can depend if they are an individual or a business.
It isn’t the easiest area, and there are specific rules for the following services;
Intermediary services (i.e. agencies, brokers)
Restaurant and catering services
Training services supplied to overseas governments
Services relating to land or property
Services of short-term hire of means of transport
Supplies of admission to artistic, cultural, education and training, sporting entertainment events, exhibitions, conferences and meetings and services related to admissions
Ancillary transport, valuation of/work on goods
Services involving physical performance and events. For example artistic, cultural, education and training, sporting, entertainment services, exhibitions, conferences, meetings
However, the good news is that the general rule covers everything else outside of these services. Everything from advertising services to insurance and banking.
So what is the general rule?
The general rule applies VAT based on the customer's entity. So, if you’re supplying advertising services to an individual (consumer) in the USA, then it will be subject to UK VAT at the standard rate. This will need to be shown on your sales invoice and declared on your VAT Return in the usual way. This applies to all services regardless of the state of VAT. Insurance is exempt in the UK, so this would be the same for the USA customers too.
However, under the general rule, should the customer be a business then it falls outside the scope of VAT, and you do not need to charge VAT. It is advised that some evidence of being a business should be obtained for your records just in case.
If you happen to be on the Flat Rate Scheme for VAT in the UK then it also does not need to pay flat rate VAT on the value of services to the USA as these are still not subject to VAT as the customer is based in the USA, or the service is directly performed in the USA.
Property, including land and buildings, is different and is usually based on where the property resides. A UK property will incur UK VAT as, but a US-based property would be outside the scope of VAT and is therefore not subject to VAT. Property does include costs from property management services to estate agent fees and even hotel accommodation.
You need to consider where the business belongs when applying the general rule as well. If you are dealing with a USA based business only then it is outside the scope of VAT. If they have offices in USA, UK and Germany then you need to determine which branch you are dealing with (or is receiving the benefit of your service the most) and then apply or don’t apply VAT depending on your outcome.
Finally, even if your business in the UK is supplying services to companies in the USA, you are still able to reclaim VAT on any expenses incurred in the process of delivering that service, providing these would be subject to VAT if the service was in the UK. This falls back to the standard rules of reclaiming UK VAT.
Importing Goods from the USA
You’ve probably come across this as a consumer if you’ve ever ordered anything from the USA to be delivered in the UK. The same applies to businesses, and this is what happens. Exports from the USA to the UK should generally have no state tax attached. States in the USA can govern their own sales tax percentage which can vary from 1% or 2% to 15% and 16%. This should be removed when shipped to the UK, and upon arriving in the UK, the courier will usually apply 20% UK VAT on the item. If you’re a business, then you can claim this back like an ordinary expense, in your box 4 figure on the standard VAT return. Of course, this is subject to the standard rules of reclaiming VAT, so it does depend on what you are purchasing.
Exporting goods to the USA
Usually, most exports to the USA from the UK save you from having to add any VAT to the product, but also the freight, shipping, courier and so on. You still need to declare the net sale on your VAT return as zero-rated sales. It does not go on an EC Sales List either and usually requires no form of new declaration. This can prove tricky if you’re on the flat rate scheme for VAT, as generally, this will mean that flat rate VAT is worked out on the turnover of the export and could put you at a disadvantage if this is frequently happening.
Naturally, this does not substitute for tax advice relevant to the context of your business. If you are struggling with VAT and how to deal with it between the UK and a company in the USA then please seek expert advice. If you would like to book a call in to speak with someone then please get in touch with us via our website at https://coneaccounting.com
About the author
Ben Nacca is an accountant but is nothing like the stereotype you have visualised in your mind! He has worked in the accounting industry for almost a decade and is CEO here at Cone.
Ben loves travelling the world, playing video games and playing his acoustic guitar whenever he finds the time between spending time with his two chihuahuas, Hugo and Pablo!