Freelancers’ Questions: Why will a Spanish client want an EORI number, and VAT waived?

Freelancer’s Question: I'm UK-based, and registered as a self-employed individual. But I'm also currently on the books of a company in the UK as an employee, so the freelance work I wish to do would be purely for additional income.

Freelancers’ Questions: Why will a Spanish client want an EORI number, and VAT waived?

This self-employed work will be done for a Spanish company which asked me to invoice them without any VAT. They have also asked me for an EORI number. What is this number, please?!

I’m worried that I don’t have such a number as I'm not registered as a limited company, and don’t think I’m officially a sole trader either; I'm just self-employed. As a result, I fear I don't have a VAT number to be able to invoice the Spanish company without any VAT. 

So should I register as a sole trader or limited company? Or is it possible to have a VAT number in my current situation, i.e. as a self-employed individual? What's the best option for me, taking in to consideration that I've also got a full-time, 9-to-5 job and will just be freelancing 'on the side'?

Expert’s Answer: You need an EORI number for moving goods between the EU and the UK.

EORI: an explainer

This number is required in the said-circumstance unless you are moving goods between Northern Ireland and Ireland.

It does not apply, meaning you do not need an EORI number, if you are trading services, including only digital services, with other EU countries. Businesses that only trade digital services as defined under the Mini One Stop Shop (MOSS) rules for VAT, do not require an EORI. 

To reiterate, a business needs an EORI only if it imports goods from outside the EU Customs Union into the EU or exports from the EU Customs Union to abroad. In short, if you do not deal in goods and if the transactions are all within the EU, then no EORI is needed. So, to need an EORI, there must be goods and transactions into, or out of, the EU Customs Union.

Importer? Then apply the Reverse Charge rules

However, if you import services, then you need to be aware of and apply the so-called ‘Reverse Charge’ rules.

To reassure you however, in the UK, a self-employed individual is the same as a sole trader, so in this regard, you need do nothing, as if you are a sole trader you are self-employed and if you are self-employed you are a sole trader!

Please note, you can be self-employed and run a limited company, which is an incorporated business registered with Companies House, but you have an unincorporated business (a sole trader outfit).  


Back to your tax situation. Bear in mind, you must register in the UK for VAT if your VAT taxable turnover goes over £85,000 (the 'threshold'). You must also register for VAT If you know that your VAT taxable turnover will exceed this threshold.

Your VAT taxable turnover is the total of everything sold that is not VAT exempt. You can also register voluntarily for VAT, should you perceive that there are benefits to being VAT-registered.

It makes no difference if you were to become a limited company ('Ltd') instead of a sole trader – the VAT threshold would still be £85,000.

What may explain their request

In your circumstances, if you do not need to register for VAT, when you invoice your client in Spain, you will not charge VAT. They have asked you to not charge VAT and it may be because the Spanish business is not registered for VAT and it would not easily be able to recover the input VAT from their supplier --you.

On the other hand, if you are VAT registered, then you will record your Spanish client's VAT number on your invoice, but you will not charge them VAT. They will instead record the notional VAT in their Spanish VAT returns. These are the requirements set out under the ‘Reverse Charges’ provisions which I referred to earlier. 

As to the question of sole trader or limited company for your future freelance work, this largely depends on the level of your profits; if limited liability is vital to you or not, and the cost of maintaining a company versus being a sole trader.

A tax test to take...

The test I recommend that you ought to consider as a sole trader is whether you are entering the hefty 40% tax band, which occurs at income levels of £50,000, which means that your profits would have to be £62,500 per annum to take account of the standard personal tax allowance of £12,500.

If less than this, then it is very likely that you are better off as a sole trader. 

This taxable income includes what you earn from your permanent job, so remember to factor in your full-time salary too! Once you reach the 40% tax bracket, you will find that the limited company route becomes more attractive. Good luck with the freelance work, or as your Spanish client would say, ‘buena suerte’!

The expert was Kevin Austin, chief executive of accounting firm and overseas compliance advisory Access Financial.