Readers’ forum: VAT challenge with past invoices

Germany-based business

One of my clients H is based in Germany and hires plant and equipment to an associated company incorporated in the UK (S). Our original view was that S was also established in Germany because it has no business or fixed establishment in the UK so this produced the strange outcome of H having to register for UK VAT and charge 20% VAT to S. This is because all hiring takes place in the UK so the ‘use and enjoyment’ rules are relevant for the place of supply.

S could not register for UK VAT because its only customer is VAT registered in the UK ie the reverse charge is applied by the customer to invoices issue by S. To claim the VAT charged by H a 13th directive claim was submitted by S to HMRC but rejected.

Following liaison with HMRC...