Reverse Charge Supply VAT and Brexit

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I currently work as an IT freelancer based in Germany. My primary client is a UK company who I have been invoicing with under VAT reverse charge supply for the last 8 months or so. From what I have read - even if there is a no-deal Brexit - this would still apply. However, I wondered if anyone could confirm that.

 

Cheers

 

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@evildudette so this is probably a stupid follow-up question, but does that mean that @nsuffield should simply start adding German VAT on his invoices to his UK client then? I'm in a similar situation with two UK clients, and haven't seen any guidance re the end of the reverse VAT scheme yet.

 

 

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On 14/11/2020, 15:48:53, nsuffield said:

I currently work as an IT freelancer based in Germany. My primary client is a UK company who I have been invoicing with under VAT reverse charge supply for the last 8 months or so. From what I have read - even if there is a no-deal Brexit - this would still apply.

I think you mean if there is no trade agreement for the future relationship between the UK and the EU. Brexit already happened and there was a deal - it was the Withdrawal Agreement. ;) The W.A. stays in place whatever happens trade-wise. 

But the UK is leaving the EU VAT area in any case at the end of the transition period, so my guess is that supplies to the UK from the EU from 1.1.21 should be zero-rated - pretty much the same as if you were supplying to any other non-EU VAT area destination such as Norway, Iceland, Switzerland, Liechtenstein, Canada etc.

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On 18/11/2020, 10:41:03, dstanners said:

@evildudette so this is probably a stupid follow-up question, but does that mean that @nsuffield should simply start adding German VAT on his invoices to his UK client then? I'm in a similar situation with two UK clients, and haven't seen any guidance re the end of the reverse VAT scheme yet.

 

 

No, you would not charge any VAT at all. He would be providing services to non-EU businesses, which means no VAT.

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Sorry @evildudette, @dstanners, @snowingagain, @lunaCH ... I ddn't get any notification on this for whatever reason and didn't see the conversation. Just coming back to it now. Thanks for the comments.
I have some friends in a similar position who have are suggesting that it might be necessary to get some form of proof of where the company is located. I'll let you know.

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You don’t need to charge VAT anymore. It isn’t necessary to provide anything, but If they are the same clients then their locations have already been verified in order to use reverse charge anyway. Many invoicing software Programmes (such as Lexware) automatically updated their systems so that VAT isn’t charged for British clients. I’ve been helping a lot of companies with brexit as part of my business. :)

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On 27/01/2021, 10:03:10, evildudette said:

You don’t need to charge VAT anymore.

@evildudette If you don't mind clarifying, does that mean invoices previously sent to the UK from a German freelancer that previously had a reverse charge statement, no longer need that statement, because VAT isn't being charged?

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On 15/02/2021, 13:25:10, stephfremont said:

 

@evildudette If you don't mind clarifying, does that mean invoices previously sent to the UK from a German freelancer that previously had a reverse charge statement, no longer need that statement, because VAT isn't being charged?

 

You seem to think that just because VAT isn't charged in a reverse charge invoice, no VAT is due.

There has always been VAT due, the VAT of your business client's country.

Through the reverse charge mechanism, you just put the burden of paying that VAT on your business client.

 

Without the reverse charge mechanism, you would need to charge the business client's country's VAT rate in your invoice, register for VAT in that country and as soon as your client pays your invoice, forward that VAT to that country's tax department.

So be grateful that the reverse charge mechanism exists.

 

 

********************************************************************************************************

 

Client is a UK business:

 

Now to get to the UK, nothing has changed with Brexit, as long as you have proof that your UK client is a UK business, you still have to write reverse charge invoices, i.e. invoices that do not show VAT.

 

Please see here: https://www.avalara.com/vatlive/en/vat-news/brexit-vat-on-services-to-eu-or-uk.html

  • The same applies for EU service suppliers to UK business customers – reverse charge still.

 

Please also see here on the HMRC website: https://www.gov.uk/guidance/vat-imports-acquisitions-and-purchases-from-abroad

They write it from the view of the UK recipient of your services:

  • For supplies of services from outside the UK you must account for VAT under the reverse charge procedure.

 

You, as the German supplier of these services, still need to check whether that UK company's VAT-ID number (it starts with GB) is valid, the only difference to before is that you now do that on the UK website: https://www.tax.service.gov.uk/check-vat-number/enter-vat-details

Only if it is valid, do you have proof that this is a UK company and are therefore allowed not to charge German VAT in your invoice (if you are VAT charging).

Please print this proof to a pdf file, you will need it in case of an audit by the Finanzamt, as proof that your client really was a business.

Do this check every time before you write a reverse charge invoice!

 

You should then also draw the attention of your UK client to the fact that they owe the UK VAT on your invoiced amount, e.g. with this sentence:

  • "Since you are a UK business, you, as the recipient of the services, owe UK VAT on the above net amount (reverse charge)."

 

If you are a Kleinunternehmer, you still need to check the UK client's VAT-ID number and issue a reverse charge invoice (with the above UK reverse charge sentence), since your Kleinunternehmer status ends at the German border, internationally, you are treated as a "normal" business: https://www.toytowngermany.com/forum/topic/386473-vat-question-for-freelancer/?do=findComment&comment=3800251

Only if your client's VAT-ID number is not valid, would you then treat that UK client like a private person, in which case the "VAT location" of your service is Germany which means that you have to write a normal invoice, i.e. one with the §19 UStG Kleinunternehmer sentence (but then that turnover "counts" towards your yearly Kleinunternehmer turnover limit!).

 

********************************************************************************************************

 

Client is an EU business (not relevant to this thread, which is about UK business clients):

 

For EU VAT-ID numbers, you can use the VIES VAT database to get the proof that your client's VAT-ID number is valid and that you are therefore allowed to issue a reverse charge invoice to this EU business client: https://ec.europa.eu/taxation_customs/vies/

 

Again: print the result to a pdf file and save it together with the reverse charge invoice.

There is nothing worse than being audited by an Umsatzsteuer-Sonderprüfer and not having that proof on hand and maybe no longer being able to get it because in the meantime, your client closed down, so his VAT-ID number no longer exists.

So do your homework, every time before writing a reverse charge invoice, get proof that your client is still a business with a valid VAT-ID number.

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The different timings between Brexit and the expansion of the EU OSS means that once you think you’ve got your head around everything it’s going to change all over again. It’ll be a fun year for accountants. 

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@PandaMunich Thank you very much for the useful information! what should a client do in the reverse charge mechanism? Do I have to pay 20% VAT on behalf of my supplier from UK? Do I aslo need to check the validity of my supplier VAT-ID?

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No, because if you are the recipient of the services, then the VAT location is Germany which means that you have to pay 19% German VAT (the default is 19%, but only 7% if it is a service listed in §12 (2) UStG or no VAT at all if it is a VAT-free service listed in §4 UStG) through your German VAT announcement.

 

If you are VAT-registered (and your own activity is not VAT-free) then you immediately get back that VAT as Vorsteuer within the same VAT announcement.

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On 14/11/2020, 15:48:53, nsuffield said:

I currently work as an IT freelancer based in Germany. My primary client is a UK company who I have been invoicing with under VAT reverse charge supply for the last 8 months or so. From what I have read - even if there is a no-deal Brexit - this would still apply. However, I wondered if anyone could confirm that.

 

Cheers

 

So to put together all of the info so far, and to bring it back around to this example, this is my understanding:

If you’re selling to somebody B2C in the UK you no longer need to apply German MwSt and can’t reverse charge, but you need to register for a VAT number in the UK and apply their 20% VAT tax rate.
https://www.gov.uk/government/publications/vat-notice-7001-should-i-be-registered-for-vat/vat-notice-7001-should-i-be-registered-for-vat#Taxable-supplies

 

B2B reverse charge - it’s still the customer’s duty to pay their local VAT rate. So the wording may be different, but the above example would be correct, assuming the UK company is VAT registered. 

 

Once the OSS comes online in the summer then it’ll work the other way around as well - British companies selling B2C to the EU will need an EU VAT number and will need to apply the appropriate rate for the country to which they’re selling. 


 

 

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On 17/02/2021, 11:01:55, PandaMunich said:

Client is a UK business:

 

Now to get to the UK, nothing has changed with Brexit, as long as you have proof that your UK client is a UK business, you still have to write reverse charge invoices, i.e. invoices that do not show VAT.

 

I don't want to sidetrack from the original post but I think this is relevant when it comes to advance VAT notices - according to the Brexit Bot (https://www.bzst.de/SharedDocs/Kurzmeldungen/DE/2021_Kurmeldungen/20210215_brexitbot_newsmeldung.html) Zusammenfassende Meldung statements are no longer to be submitted for B2B clients in Great Britain (except Northern Ireland), so in this case should the total invoice amounts be entered in line 51 instead of line 50 in the Umsatzsteuer-Voranmeldung?

 

6068a5f51694c_Screenshot2021-04-03at18.0

 

Quote

 

You, as the German supplier of these services, still need to check whether that UK company's VAT-ID number (it starts with GB) is valid, the only difference to before is that you now do that on the UK website: https://www.tax.service.gov.uk/check-vat-number/enter-vat-details

 

Only if it is valid, do you have proof that this is a UK company and are therefore allowed not to charge German VAT in your invoice (if you are VAT charging).

Please print this proof to a pdf file, you will need it in case of an audit by the Finanzamt, as proof that your client really was a business.

Do this check every time before you write a reverse charge invoice!

 

 

Thank you @PandaMunich for the VAT check records advice!

 

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