Taxation logo taxation mission text

Since 1927 the leading authority on tax law, practice and administration

Replies to Queries - 2 - VAT's confusing

13 February 2002
Issue: 3844 / Categories:

A well-established public relations and marketing client (VAT registered) needs some assistance with regard to the following supply issues as they relate to United Kingdom, European Community and international VAT.

A well-established public relations and marketing client (VAT registered) needs some assistance with regard to the following supply issues as they relate to United Kingdom, European Community and international VAT.

* The firm does public relations work for the United Kingdom office of an American firm. All invoices are sent to the States, but the service is provided to the United Kingdom office and performed here. No physical goods are involved. Should the invoice sent to the United States include VAT or not? Would it alter the situation if goods were involved (United Kingdom delivery)?

* The firm also does public relations work as above, but directly for an American client, and invoices the client direct in the United States. Again, should the invoice include VAT, and would there be any difference if goods are involved?

* The Paris office of our client company does public relations work for a French client. The Paris office is classed as a liaison office, although it handles all the work for the client, and invoices are issued from the United Kingdom to the French client. How should these be handled for VAT/TVA?

* Finally, the United Kingdom client does work for a French client, producing marketing brochures. A range of United Kingdom/French suppliers are involved, the work is handled mainly from the Paris liaison office, and goods are delivered to the client in France and Germany. What is the VAT position here?

(Query T15,953) - PRMan.


The quick answer to the first question of whether VAT should be on the invoice to the United States of America is 'of course it should!'. One cannot get out of charging VAT simply by sending an invoice to a foreign address. Taking what the querist says at face value, the United States company belongs in the United Kingdom in the capacity in which it receives the services, through its United Kingdom office, since this is the establishment of his at which, or for the purposes of which, the services are most directly used or to be used (section 9(4)(b), VAT Act 1994).

The rules for goods are different but, if you deliver them in the United Kingdom, you must charge VAT. Zero rating only applies if they leave the United Kingdom and, with limited exceptions in specialist circumstances, this means under the supplier's control. It is not enough for the customer to promise to export them.

Public relations work is likely either to be advertising or consultancy, both of which are covered by Schedule 5 to the VAT Act 1994 and are outside the scope of VAT when supplied to a customer who belongs in the United States of America (Article 16, Place of Supply of Services Order SI 1992 No 3121). Goods would be eligible for zero rating if exported subject to obtaining the official evidence of clearance through Customs.

It is irrelevant what label the client puts on its Paris office. If the work is being done in France, that office, which is presumably registered for TVA there in order to recover input tax on its costs, must charge VAT on its supplies because it is the establishment of his which is most directly concerned with the supply (section 9(2)(c), VAT Act 1994). That the invoice may be produced in the United Kingdom matters not. It is routine to produce an invoice in the United Kingdom relating to supplies made in another country, but that invoice must comply with the rules of that country and be available for inspection by the fiscal authorities there.

The same answer applies to the fourth question to the extent that it relates to services, although the situation is more complex because of the United Kingdom suppliers. You first have to clarify what is being supplied (services and goods, or just goods) - a complex subject in the United Kingdom. Goodness knows what the French think of it! Services from United Kingdom suppliers may or may not qualify as outside the scope of VAT if supplied to the Paris office, depending on their nature. My experience of the advertising industry suggests that the statement that the work is to produce brochures is unlikely to be the full story.

For goods, the treatment will depend on where they are when they are finished. Presumably, one means the brochures. Although zero rated if supplied from the United Kingdom, they will be subject to VAT in France if supplied in France from the French office and eligible for zero rating if removed from France to Germany, subject to whatever rules the French have about removals within the European Union. Presumably, they have similar requirements for the obtaining of commercial evidence, such as invoices from transport contractors, delivery notes, etc.

Do not confuse a removal with an export. The rules are fundamentally different. The evidence to justify zero rating a removal often requires a detailed understanding of how the business operates. Some care is needed in getting it into the heads of those involved that, if they just pack something like a box of brochures into the boot of a car and drive across the border without getting that evidence, the profit margin on the job will disappear as VAT, which cannot be collected from the customer.

The above answers may or may not be correct; it is very dangerous to give authoritative replies on the VAT rules applicable to situations without the full facts. Time and again, the story alters when one starts to probe beyond the superficial outline into the real commercial situation. To see why, try dipping into my book in the Tolley's Tax Essentials series! - A St John Price.


The answers to the questions raised are as follows:

(1) The client is supplying consultancy services to the United Kingdom branch of a United States company. In order to decide if VAT is due on the client's supplies, one must first consider both the place of supply, and the place of receipt, of those services. The next step is to consider where the parties are established for VAT purposes. Your client is established in the United Kingdom, and supplies services from that establishment. The customer is established in both the United Kingdom and the United States of America. As the customer has two establishments, one has to consider which one receives the services. Although the invoice is sent to the United States, this is only an administrative detail, because the services themselves are actually supplied to the United Kingdom establishment.

Where the establishments most concerned with the making and receiving of the supply are both in the United Kingdom, the services are taxable here. Therefore, VAT should be charged at 17.5 per cent (section 7(10) and (11), VAT Act 1994).

If goods are also supplied to the United Kingdom branch in addition to the services, VAT would also have to be charged, as the goods would be a domestic supply, and not an export.

(2) Where the client is established and receiving the services in the United States, and the supplier is in the United Kingdom, Schedule 5 to the VAT Act comes into play. This allows the supplier to shift the place of supply to the place where the customer is established (the United States of America). The supply therefore falls outside the scope of United Kingdom VAT. However, because the supply would have been taxable had it taken place in the United Kingdom, the VAT on any associated costs can still be recovered. In effect, it is treated like a zero-rated supply. In this particular case, VAT need not be charged.

Where goods are also supplied to the United States customer, they may be zero rated as an export, providing they are removed from the United Kingdom within three months of the time of supply, and the appropriate export evidence is retained.

(3) In this instance, the office most concerned with making the supply is located in France although, for administrative reasons, the invoice is produced in the United Kingdom. The customer is also established in France. This means that the services are therefore supplied in France and subject to TVA, providing, that is, that the French office is already registered for VAT in France, or becomes registrable as a result of supplying these services. The current turnover limit for VAT registration in France is just over 15,000 Euros.

(4) In the final example, the French office does most of the work for a French client, producing marketing brochures that are delivered to France and Germany. The office most responsible for providing the services appears to be the French office. Therefore TVA should be charged on the supplies within France. Please note, however, that it is not clear whether the delivery in Germany is to the French client's German office, or whether they are being delivered to the French client's German customer. A more specific response is possible if this point can be clarified.

In either case, I believe that TVA is due on the supply, as I am not aware of any concessionary treatment for this type of supply in France (i.e. similar to the old United Kingdom rules on 'export houses'). - Andrew Needham.

Issue: 3844 / Categories:
back to top icon