Tax Insights

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VAT responsibility for U.S. companies selling to U.K.

VAT, international taxThe U.S. is one of few countries without a VAT system. By way of background, and in overly simplistic terms, it’s assessed on all goods and services. In most European countries the rate hovers around 18-20%. Generally speaking, U.K. companies will collect it on sales, pay it on purchases and submit the difference to the VAT authorities.

The summary below provides a mere overview – anyone contemplating dabbing their toe in a country with a VAT regime needs to reach out to a local VAT specialist before undergoing any transactions.

Questions for your radar

Are United States companies required to register for VAT if they are receiving or giving services to U.K. clients?

The answer is not a simple yes or no, but depends on many factors, such as:

  • Whether the U.S. company has a physical presence in the U.K.
  • Location of the recipient of services
  • Does the U.S. company have an office or warehouse in the U.K.?
  • Is the U.S. company supplying services to the U.K.? If so, will the services be performed in the U.K.?

One new and ever changing area of VAT regime is the taxation of internet services. Some countries have imposed it and others are considering imposing it when there is not a presence as outlined above, but there are cloud services or internet commerce.

Let’s look at an example of a U.S. company that sells software to a U.K. business. In the U.K., granting software usage rights through a licensing agreement is generally considered supplying services for purposes of VAT.

If the U.S. company does not have any presence in the U.K., then the U.K. company will most likely be held responsible for VAT. What if the U.S. company has an office in the U.K., or sells to an individual in the U.K. instead of a company? In this case, the U.S. company may be held responsible for registering for VAT.

There are many determining factors as to who holds the reporting responsibility. To add to the confusion, the rules can vary in different countries. Please note: this information is general in nature and should not be relied upon. Please be sure to consult with your tax advisor for specific advice.

Jill A. Helm, CPA