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Correct VAT Codes for European VAT-Registered Customers...confirmation of some common situations & advice on an unusual situation.

Correct VAT Codes for Trading with Europe

Most of our suppliers are European based and most of our customers are in the UK and Republic of Ireland.  However, we also have an unusual situation where I need some help please.

First, can you please confirm the following assumptions are correct:

Purchases:

When we purchase goods from a UK VAT-registered supplier, the VAT code that we should use is S (Standard VAT).  This is reclaimed from HMRC.

When we purchase goods from a European VAT-registered supplier, the VAT code that we should use is EGZ (European Goods Zero rated).  No VAT is charged / reclaimed.

When we purchase goods from a non-European supplier (i.e. China, Thailand, etc.) the code we use is O (Outside the scope of VAT).

Sales:

When we supply goods to a UK based, VAT-registered customer, the VAT code we should use is S (Standard).  The customer will claim the VAT back in their VAT return, and we pay the VAT portion to HMRC.

When we sell goods to a European based VAT-registered customer, the VAT code we should use is EGZ (European Goods Zero).  No VAT is charged.

If we export outside the EU, we should use the O code (Outside the Scope of VAT)

Unusual Situation:

We have a Spanish VAT-registered client, for whom we purchase a product in the UK and then ship that product to their UK customer base, as a welcome gift.  Our customer is a content provider, so doesn't want to be involved in physical products.

We are charged VAT by the UK supplier of that gift and we recharge the cost of the gift to our Spanish client at cost (no profit is made).  We also charge our Spanish client for the fulfilment service, where we do make a profit.

Having consulted HMRC, we were advised that there is both a goods and services element to this business arrangement.  For the "goods" element, we should charge our Spanish customer UK VAT, since the goods are not exported to Spain.  However, for the service element, we should not charge VAT, as the service is performed for a European VAT-registered customer.

On our initial "goods" invoices, I charged VAT at the standard rate (using the S code). However, this appears to have messed up our EC Sales & VAT returns.  Therefore, should I use another code...for example, ESS (European Sales Standard)?  

If so, when one opens the setup details of this VAT code, which "VAT Item for Sales" should be used?  Currently, under ESS, the "VAT Item for Sales" is blank, and the "VAT Item for Purchases" is set to EC Purch Services 20.0% Group.  That Group appears to have two items charged: Standard Sales @20% and EC Purch Services Standard @-20%.

Thanks!

R

Solved