International Finance in Plain English


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  • Aimed at UK business owners who don’t plan to leave the UK themselves, permanently or semi-permanently, or to set up a base overseas – this is what’s involved when you sell internationally from the UK Quick review of two terms often used in UK VAT: zero-rated and outside the scope of VAT
  • Zero-rated – goods / services do have UK VAT on them but at a rate of 0% - because they still have UK VAT, must still create a VAT invoice - classic example is travel
  • Outside the scope – no UK VAT on them and they don’t appear on your UK VAT return – classic examples are staff wages and taxes paid Going to cover, for UK VAT-registered businesses: selling goods overseas, buying goods from overseas, selling services overseas, buying services from overseas
  • Selling goods to another VAT-registered business in the EU: o Provided the conditions are met, the supply can be zero-rated for VAT o Conditions: ♣ Goods are sent out of the UK to somewhere in another EU country ♣ The customer is genuinely VAT-registered – you must check their number and include it on your VAT invoice ♣ ( ) lets you check whether a VAT number given by a customer is valid (but won’t tell you whether it actually is their VAT number, just whether it’s valid for that country) ♣ You have paperwork showing that the goods have left the UK (“evidence of removal”) ♣ You dispatch the goods and get evidence of removal within a set time, usually 3 months o The sale must go into box 8 of your VAT return and be listed on an EC Sales List
  • Selling goods to an EU business that’s not VAT-registered, or a non-business customer: o You must charge UK VAT in the normal way These are called distance sales
  • o If you go over the limit for VAT in the country where your customer is based, you’d have to register for VAT in their country and file local VAT returns etc - for example the limit for Irish distance sales is €35,000 a year - if you make more than that you have to register for and pay Irish VAT o These sales do not go on an EC Sales List
  • Selling goods outside the EU: o Sale can be zero-rated provided there is evidence of the export and that the goods are exported within 3 months of sale (can be longer for goods that need processing, and for thoroughbred racehorses) o These sales do not go on an EC Sales List
  • Buying goods from within the EU: o UK business would pay VAT at the time the goods come into the UK - the rate of VAT payable would be the same rate that the business would have paid to a UK supplier. This is called “acquisition tax” and can be reclaimed by VAT-registered UK businesses. It’s what goes into box 2 of the VAT return o The net value of the goods also goes into boxes 7 and 9 of the VAT return o Don’t get confused – the supplier can zero-rate your purchase in their own country if you give them your VAT number, just like you can when you supply goods to other EU countries, but this is for foreign VAT – you must still pay UK acquisition tax
  • Buying goods from outside the EU: o UK business would pay VAT at the time the goods come into the UK, charged at the same rate as if the goods had been supplied in the UK - this can be reclaimed as normal input tax if the UK business is VAT-registered Need import VAT certificate form C79 as proof that you’ve paid import VAT
  • Sell services to overseas customers o Since 1st January 2010, the “place of supply” rules have changed o A supply of services to another business is now deemed to have taken place in the country where the customer belongs and the customer then has to account for VAT - not the supplier - so if you have a customer in France, the “place of supply” is France o If the customer is not a business, then the place of supply is where the supplier belongs
  • o If the supplier is in the UK and the business customer belongs in another EU country, the supply is outside the scope of UK VAT, but you might have to register for local VAT in your customer’s country, and you would have to record that sale on the EC Sales List
  • o If the supplier is in the UK and the business customer belongs outside the EU, the supply is outside the scope of UK VAT and doesn’t have to be reported on the VAT return
  • o If the supplier is in the UK and the customer is non-business, UK VAT is chargeable o There are some services to which “special rules” apply, e.g. short-term hire of a means of transport overseas
  • o For services sold electronically (e.g. over the Internet), you need to check your customer’s business status – this is usually done by obtaining their VAT number o The VAT Information Exchange System ( VIES ) can support your decision-making process by providing an online verification system for EU VAT numbers
  • Buy services from overseas o Because the place of supply basic rule means that these services are treated as supplied in the UK, the UK business must account for the VAT under the “reverse charge” rule o Calculate the VAT output tax on the full value of the services supplied to you, in £ sterling (which would be total x 1/6 if the services would be standard-rated in the UK - so for example if you bought services from Ireland worth £600 then your output tax is £100), then: ♣ Put that figure (£100) into box 1 with the rest of your output VAT ♣ Also put it into box 4 with your input VAT - so the net amount of VAT you have to pay over = £nil ♣ Put the full value of the supply into boxes 6 and 7 - so £600
  • Foreign currency - invoicing, taking and making payment, and a little about foreign exchange Invoicing in a foreign currency ♣ Packages help ♣ Just one currency or more?
  • ♣ Must quote UK £ for net and VAT on your invoices, if you are VAT registered in the UK ♣ Exchange rate fluctuation
  • ♣ Forex bank account ♣ PayPal - can do 28 different currencies ♣ Charges - PayPal charges commission on translation and uses its own exchange rates ♣ Can your accounting package cope? UK businesses’ accounts must be in £ sterling only ♣ How to chase customers who pay slowly or not at all? - Local agent? Local solicitor? Payment by credit card?
  • ♣ Charges – who pays? You or your supplier? If you’re making a payment from a UK bank to a foreign supplier, both the issuing bank and the receiving bank will levy a charge, be careful or you could end up paying both sets!
  • If invoice a customer on 30th September, and they don’t pay till 31st October, you get a bit extra
  • Any questions?
  • International Finance in Plain English

    1. 1. International finance in plain English!Copyright © FreeAgent Central Ltd, 2012
    2. 2. Who am I?Copyright © FreeAgent Central Ltd, 2012
    3. 3. Who are you?Copyright © FreeAgent Central Ltd, 2012
    4. 4. Zero-ratedRate of UK VAT = 0% Copyright © FreeAgent Central Ltd, 2012
    5. 5. Out of scope UK VATdoes not apply Copyright © FreeAgent Central Ltd, 2012
    6. 6. Sell goods to EUZero-rated if: VAT number Copyright © FreeAgent Central Ltd, 2012
    7. 7. Sell goods to EUUK VAT if: I’m not a business or My business is not VAT- registered Copyright © FreeAgent Central Ltd, 2012
    8. 8. Sell goods to EU EU VAT? Distance sales limits at e.g. Ireland €35,000 Copyright © FreeAgent Central Ltd, 2012
    9. 9. Sell goods outside EUZero-rated if: < 3 months Copyright © FreeAgent Central Ltd, 2012
    10. 10. Buy goods from EU - Boxes 2 (and 4) - Boxes 7 and 9Copyright © FreeAgent Central Ltd, 2012
    11. 11. Buy goods outside EU - Box 4 - Box 7Copyright © FreeAgent Central Ltd, 2012
    12. 12. Sell services overseas = =Copyright © FreeAgent Central Ltd, 2012
    13. 13. Sell services overseas =Out of scope of Local VAT may UK VAT apply Copyright © FreeAgent Central Ltd, 2012
    14. 14. Sell services overseasOut of scope of = x Local VAT may UK VAT apply Copyright © FreeAgent Central Ltd, 2012
    15. 15. Sell services overseas = UK VATCopyright © FreeAgent Central Ltd, 2012
    16. 16. Sell services overseas =Check business status if supplied electronically Copyright © FreeAgent Central Ltd, 2012
    17. 17. Buy services overseas ?1) VAT output tax: full value x 1/62) Boxes 1 and 43) Full value into boxes 6 and 7 Copyright © FreeAgent Central Ltd, 2012
    18. 18. Foreign currencyCopyright © FreeAgent Central Ltd, 2012
    19. 19. Currency invoices Net and VATCopyright © FreeAgent Central Ltd, 2012 = ?
    20. 20. Taking paymentCopyright © FreeAgent Central Ltd, 2012
    21. 21. Making payment ?Copyright © FreeAgent Central Ltd, 2012
    22. 22. Currency example €1 = £0.870 30/09/2012 €1,000 = £870 €1 = £0.876 31/10/2012 €1,000 = £876Copyright © FreeAgent Central Ltd, 2012
    23. 23. Useful tools www.oanda.comCopyright © FreeAgent Central Ltd, 2012
    24. 24. International finance in plain English. Thank you!Copyright © FreeAgent Central Ltd, 2012