Contractors' Questions: Do I add VAT to my overseas invoice?
Contractor’s Question: Do I need to add VAT to an invoice I’m preparing for a new client of mine, a law firm based in Budapest? As I am supplying services (Computing/IT) outside the UK, my tax advisor insists I must charge VAT, which he says is payable locally in Hungary at 20%; is he right on both counts? My client keeps claiming that this is not the case, and is expecting me not to add any VAT whatsoever. Please advise me.
Expert’s Answer: The conflict here may have arisen because VAT rules covering the place of supply of services changed not so long ago. From January 1st 2010, the place of supply of your services is dependent on the location of your client and whether it is in business. The indication of being a business, in this area, is the production of a VAT number, typically.
Assuming the client you mention is a business entity within the EU, the place of supply of your services is Hungary. It follows that the recipient of the service has to account for Hungarian VAT on its own VAT return. This is what is known as a ‘reverse charge.’
By contrast, if you were supplying a non-business client, the place of supply is where you are based - in your case the UK, and your services would attract UK VAT.
And if you were supplying services that relate to land or property, the place of supply of those services is where the land itself is located, irrespective of where you or your customer belong.
But in your case, the client - a law firm - would qualify as a business customer, meaning you would not need to charge or show VAT on your invoice, as your services are outside the scope of UK VAT.
Still, you do need the Budapest business’s VAT number, which you must include on their invoice, and should explain in an accompanying note to them that it is a reverse charge supply.
The expert was Adrian Houstoun, VAT partner at chartered accountancy firm Kingston Smith LLP.