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VAT Liability of Supplies

There are some specific rules for supplies made outside of the UK

Once VAT registration is achieved, VAT will become chargeable at 20% on all vatable business supplies made in the UK. 

There are, however, some specific rules for supplies made outside of the UK. 

Services — live performances

Fees for live performance are treated as supplied where the customer belongs, when that customer is a business (B2B services), rather than treated as supplied where the performance takes place. For business to private customer (B2C services) supplies, the place of supply is where the performance takes place and, unless you have a business establishment in an EU country, the VAT registration thresholds are nil and you will have to register for VAT in that EU country and account for VAT on your fee. 

Services — recorded performances:

Where a musician’s performance is recorded and a fee and/or royalties are received for the supply of this service, the supply is deemed to take place where it is received or, in other words, where the customer belongs. Accordingly, if fees or royalties are received from outside of the UK, these will not attract UK VAT. 

However, there is an additional rule for fees or royalties received from elsewhere in the EU (European Union). In order for UK VAT not to apply on EU royalties, the person paying the fee or royalty must be in business themselves and the proof of that status is their VAT number in their EU country of belonging. Accordingly, for fees or royalties received from inside the EU, an EU VAT number should be obtained by the musician. 

Brexit changes 

The UK left the EU on 31 January 2020. As this is part of a managed withdrawal, by agreement, there will be a transitional period until the end of 2020 during which the current VAT procedures will remain largely unchanged. Broadly speaking, the VAT place of supply rules for supplies of goods and services to EU customers will remain the same and it is the reporting requirements that may change. At this stage, the final details are not known.

However, following Brexit it is very likely that UK VAT registered businesses will no longer be required to complete EC Sales Lists and that the UK VAT MOSS will be closed down. In theory, UK businesses digital services to B2B customers in EU countries will either have to register for VAT in those countries or join another EU Member States’ VAT MOSS, but it is difficult to see how this will work in practice. Further guidance will be provided in due course. 


Services — EC Sales Lists

The scope of EC Sales Lists was extended with effect from 1 January 2010. Previously, they only had to be completed to record all goods sold to EU business customers on a calendar quarterly basis. All services supplied to EU business customers, such as royalties, must also be included on an EC Sales List. 

Goods

Goods, for example CDs, exported outside of the EU are zero-rated for VAT purposes, provided that valid export evidence is retained.

For goods sold to persons in other EU countries, the following rules apply: 

1. Goods sold to private individuals in other EU countries are subject to UK VAT at 20%

2. Goods sold to businesses in other EU countries are not subject to UK VAT, provided the business has a VAT number in its EU country and that the number is obtained by the musician for inclusion on the sales invoice.

Purchases

VAT is recoverable on business expenditure, subject to various rules.

In order to be able to recover VAT on purchases and expenses via your VAT Returns, the purchase should relate directly to your business activity and a full VAT receipt will need to be retained as evidence.

A credit card slip is not sufficient evidence for VAT recovery. Items that may not be considered a business expense by HMRC include purchases of clothing, household goods and leisure services. Some items may be used for both business and non-business purposes (e.g. the cost of home telephone calls) and therefore an apportionment to account for business and non-business use should be made and only a proportion of the VAT recovered. 

Some of the common applicable areas are detailed below:

Fuel

In order to be able to recover VAT incurred on fuel, a VAT scale charge should be applied. The scale charge is based on the CO2 emissions of the car and this is added to the VAT payable to HMRC, which enables you to recover VAT on all fuel purchases in respect of your car, whether used for business purposes or private motoring.

If the amount of VAT you incurred on fuel is minimal, it is advisable to recover no VAT on fuel and then, by concession, you do not have to pay any scale charge. 

Motor vehicles

The VAT incurred on the purchase of a car is not recoverable at all. However, if a car is leased, the VAT incurred on the leasing charge is 50% recoverable. VAT on servicing and repairs is recoverable in full, even if the car is also used privately.

VAT incurred on the purchase of a van for business purposes, i.e. moving musical equipment between different venues, is recoverable in full as a business expense, even if there is an element of private use. 

Subsistence

VAT is recoverable on hotel and restaurant bills for subsistence. The VAT incurred on such expenditure is only recoverable in relation to the business and not third party individuals.

For these costs to be viewed as subsistence, the meals and hotel accommodation usually need to have been incurred when you are away from your normal place of work on a business trip/tour. 

Travel

Most forms of transport, e.g. air, train, bus, coach, are zero-rated for VAT purposes so no VAT is incurred on these expenses. However, some taxis or chauffeur-driven cars charge VAT at 20% for this service. The VAT is recoverable, provided that the journey was made for business purposes and a valid VAT invoice is held.

Business entertaining

VAT incurred on business entertaining is not recoverable. Although following a recent VAT case, HMRC now accept that some VAT incurred on essential entertaining of overseas clients can be recovered.

Non-UK expenditure

Only VAT incurred on business expenditure in the UK is recoverable via a UK VAT Return.

Domicile

From 6 April 2008, the benefits from being domiciled outside the UK, while resident here, reduced considerably for most people. Only people with very substantial overseas income or gains, or those with overseas income of less than £2,000 per annum now benefit and there are limits for longer term residents. HW Fisher can offer advice as necessary. 

Foreign Tax Credits

If you work abroad, you may be taxed on that income in both the UK and the country where it is earned. Therefore, you will effectively be taxed twice on the same income.

However, when you prepare your UK tax return, you can usually claim relief for some or all of the foreign tax suffered, depending on the rate at which you were taxed. The treatment of the foreign tax is usually subject to the Double Tax Treaty the UK has in place with the country you were taxed in. 

Generally, the tax treaties are such that your combined tax bill should be no more than the amount you would have to pay in the country where the higher tax is charged. If there is no treaty in place, then unilateral relief is available, where the rule is that you can claim relief on the lower of the foreign tax suffered or the UK tax due on that income. In order to claim the Double Tax credit, you must get a certificate of tax deducted. Claiming the correct foreign tax credit can be complicated, so we advise that you obtain professional advice. 

Incorporation

Incorporating your trade into a company can be useful at saving tax, through the use of lower corporation tax rates and dividends. However, this generally depends on how much you earn, and professional advice should be sought. Again, the costs incurred can eliminate many of the benefits.

HMRC has recently been attacking some incorporations, especially arrangements where the shareholders are husband and wife or there are regular long-term engagements. 

Partnerships

If you are a member of a group, you may be taxed as being a member of a partnership and need to file a partnership return between you, as well as your individual tax returns. Husband and wife partnerships could also help to save tax, through making use of a spouse’s personal allowance and their basic rate band. 

HMRC has recently been attacking husband and wife partnership agreements if it feels that the profit share is not representative of the level of work done. Professional advice should be sought before entering into any partnership arrangement. 

Tax Credits

If your income is low, it may be possible to claim Tax Credits to supplement it