Freelancers' Questions: Do I need a VAT number for EU clients?
Apparently, there have been changes in the cross-border VAT rules at the beginning of the year, which means that the Spanish production company I have carried out work for cannot pay me without my company being VAT registered and having a VAT number. This has led the company to send back my invoice. However, I don't have a VAT number as I am not VAT-registered so I have not faced this issue before.
With that being said, I'm not very sure about the new regulations, that came into place in January 2010, and how it will affect me and my work. So, do I need to be VAT Registered (in order to have a VAT number) to provide my services in Europe and consequently invoice in the continent? I have worked and intend to take on lots more project in the EU. Therefore, I need to know difinitively if I need a VAT number?
You do not have to provide a VAT Number when you are working for clients within the EU, there is no legal requirement to do so. The rule that came in from 1st of January 2010 put in place that the place you provide your services in is where it is received, so for this particular scenario, it's in Spain. Therefore, it is outside the scope of UK VAT when supplied to a client in another EU country in the course of that client's business.
Your Spanish client will have to apply the Reverse Charge procedure in Spain which really means that he/she is supplying the service to themselves, therefore, it's their responsibility to account for VAT - 'IVA' for them.
As an example, we can assume that the value of your work supplied to the company is £1500, and the IVA rate in Spain is 20%. So, this means that your Spanish client would state the output for the IVA to be £300 on their IVA (equivalent of VAT) return. In doing that, they could then claim that amount (£300) back. Therefore, this transaction would work out the same. It would make no difference, as they would charge the IVA and then claim it back.
So, there is no need for you to register for VAT unless you have to according to the UK law (where you have to register for VAT if your annual turnover exceeds the VAT threshold of £85,000 as of tax year 2019/20). Due to the service you provided being supplied and received outside the UK, it means that there is no requirement for you to have a VAT registered business/VAT number for invoicing your client in Spain.
The Spanish client is liable to account for IVA on his IVA returns and recover the same as input tax. If the Spanish client believes he is not able to recover the IVA accounted for under the Reverse Charge procedure as input tax, then they should get in contact with their own Tax authority (thier version of the HMRC) or an accountant in Spain to seek advice.
The expert for this particular Ask the Experts is Nick Stevenson. He is a compliance advisor at Freelance World, a tax and accountancy firm which specialises in freelancer matters.
13th May 2010