VAT between the UK and the USA


American flagThe United States of America is an important trading partner and export market for the UK, but its federal system of taxation and lack of a comparable system of VAT to the UK can cause confusion for business carried out between the 2 countries. Do you need to charge VAT when selling to the States? This post outlines the main issues as they apply to a small UK business.

The UK comprises England, Wales, Scotland, Northern Ireland, and (generally for VAT purposes) the Isle of Man but not the Channel Islands.

Exporting goods to the USA

Most goods exported to the States can be zero-rated for UK VAT purposes (that is, VAT does not need to be added), as long as documentary evidence of the export is kept. Any extra charges made for freight, shipping, postage or delivery are also zero-rated.

Even where VAT is not being charged, the net value of the sale must still be reported on the UK VAT return, in box 6. It should not be included on the EC Sales List, nor on an Intrastat return if the business is required to make one.

If the UK business accounts for VAT on the Flat Rate Scheme, it must include the value of the export in the turnover on which the Flat Rate VAT is paid. This may mean that the business is better off not being on the Flat Rate Scheme.

Importing goods from the USA

There is no requirement for a VAT-registered business to account for VAT on imports into the UK from the USA in the same way as from other EC states.

The United States has a system of sales tax that is charged at the state level rather than at the federal level. Most states choose to charge it, and the rate varies considerably, from 1% to 16%. However, this should not be added on goods that are exported from the USA into the UK. Instead, UK VAT at 20% is normally paid on import, and a UK VAT-registered business can reclaim that same amount from HMRC by including it as input VAT in box 4 of their regular VAT return, subject to the normal rules about recovering input tax.

VAT on services

UK VAT may need to be charged on services performed in the USA or to clients based there, depending on the type of service supplied. This is a complex area, and there are specific rules for the following services:

  • Services relating to land or property
  • Services of short-term hire of means of transport
  • Services involving physical performance and events. For example artistic, cultural, education and training, sporting, entertainment services, exhibitions, conferences, meetings
  • Supplies of admission to artistic, cultural, education and training, sporting, entertainment events, exhibitions, conferences and meetings and services related to admissions
  • Ancillary transport, valuation of/work on goods
  • Restaurant and catering services
  • Passenger transport
  • Freight transport
  • Intermediary services (generally agencies or brokers working for a commission)
  • Training services supplied to overseas governments


Everything else is covered by a general rule. This includes copyright, royalties, licences, other intellectual rights, advertising, consultants, engineers, lawyers, accountants, data processing, written translation, computer programming, software maintenance, web design, sound engineers and technicians, the supply of staff, banking and insurance.

Under the general rule, if the service is being supplied to a consumer (rather than a business) in the USA, it will be subject to UK VAT. This means that UK VAT must be charged at the usual UK rate, either standard rate, reduced rate, zero-rated or exempt. The UK business will account for VAT in the usual way.

If the service under the general rule is being supplied to a business customer in the USA, it will be outside the scope of UK VAT (UK VAT is not charged). Some evidence of the business purpose should be obtained.

If the UK business accounts for VAT on the Flat Rate Scheme, it does not need to pay Flat Rate VAT on the value of services which are not subject to UK VAT due to them being performed in the USA or to a customer based there.

Services relating to land or property include estate agency, conveyancing, architects, surveying, construction, property maintenance and repair work, hotel accommodation (unless a tour operator), defined exhibition stands, and property management services. If the property is in the UK, the service is liable to UK VAT regardless of the status or location of the customer. If the property is in the USA, the service is outside the scope of UK VAT regardless of the status or location of the customer.

In all cases, it is important to look at the precise nature of the underlying service being provided. A business cannot turn one type of service into another by simply changing the wording on the invoice.

Additional services rules

The UK business is still able to reclaim any UK VAT on expenses which it incurs in providing a service which is deemed to be outside the UK, providing that the service would be taxable if it was made in the UK, and subject to the normal rules about reclaiming input VAT.

If a VAT-registered UK business receives a service from an American supplier, and the place of the service according to the above rules is in the UK, the UK business may need to ‘reverse charge’ that service (see section 16, VAT Notice 741). If the UK business is not registered for VAT, and the service is ‘intangible’ or ‘intellectual’, the value of that service will be included in the turnover of that business in determining whether it needs to register for UK VAT.

Please note that are not taking on any new overseas clients, and we do not give free advice by email or telephone.




29 Comments (oldest first)

  1. Roger

    We are a construction company and we have been asked to do some building work in America. The company we will be working for and invoicing is in the UK but the work will be in America. Do we charge UK VAT?

    1 November 2014

  2. Admin

    If the land or property is in Jersey, your service is outside the scope of UK VAT. It is not charged.

    2 November 2014

  3. M J Horn

    A USA firm wish our UK firm to make changes to our digital product/service in order to incorporate our product into their portal - they are paying for those changes (and we are outsourcing to a UK digital development agency) - would our invoice to the USA company covering those costs be zero-rated VAT?

    We understand we’ll pay VAT to the UK supplier on their services but do we charge the USA firm VAT on their payment to us received to cover the outsourced work?

    12 November 2014

  4. Admin

    With VAT on services with an overseas aspect, it is important to identify the nature of the service being supplied. I’m not completely clear about your business model (what is your “digital product/service”?), but this supply looks like some sort of IT or web development service. In this case, with your customer belonging in the USA, the supply is outside the scope of UK VAT, so there is no need to charge it.

    12 November 2014

  5. S. Tenorio

    If a US company hires a UK-based development company to build a website and all work is conducted in the UK, but payment comes from the US, does the UK service provider need to charge VAT?
    thanks

    20 November 2014

  6. Admin

    It is not so much where the payment comes from, but where the client belongs.

    If the client has an office in the USA and nowhere else, there is no need to charge VAT.

    If the client has its head office in the USA, and a branch office in the UK, you need to decide which one is the most direct user of the service. This should reflect commercial reality, and may be different from the contractual position. In the case of web development, this will usually be the office of the client which provides the editorial and artistic direction. If this office is in the USA, there is no need to charge VAT. If this office is in the UK, you probably do need to charge VAT.

    20 November 2014

  7. LT

    We have a UK based company that is arranging for computer software and hardware to be installed in the US for a Canadian company.

    They have invoiced the Canadian company, and have not included VAT under the B2B rules.

    The US company that they have subcontracted to carry out the work has charged Federal Sales Tax on the invoices they have raised against the UK company for the services they are supplying in the US.

    Can the UK company reclaim this ‘Sales Tax’ in the UK as input tax?!

    20 November 2014

  8. Admin

    “Can the UK company reclaim this ‘Sales Tax’ in the UK as input tax?!”

    No, definitely not.

    20 November 2014

  9. Steve

    I advertise a rental property which is in Florida on a US website and have done so for about 8 years. This year at renewal they’ve begun charging 20% VAT because the country where I’m normally resident is the UK. I pay in US Dollars. Are they right to do this?

    20 November 2014

  10. Admin

    Why do you say it is a “US website”? The fact that its domain ends in “.com”? The fact that it advertises US properties? The fact that you pay in US dollars?

    What is the entity that is charging you? Do they have a UK address? Do they have a UK VAT number?

    21 November 2014

  11. LT

    Referring to points 9&10, is there any way for them to reclaim this tax then?

    Would they claim it as foreign tax paid on their CT?

    I am struggling to understand why they would lose 7% of their revenues by way of tax in the US, and have no way of reclaiming it?

    21 November 2014

  12. Admin

    “Referring to points 9&10, is there any way for them to reclaim this tax then?”

    Without knowing the full details of your situation, or the ins and outs of US Federal Sales Tax (not really what this page is about), I think it is unlikely you will be able to reclaim this, at least from the UK government.

    “Would they claim it as foreign tax paid on their CT?”

    No. That is for US tax deducted from income arising there.

    One option is to go back to the US supplier who did the work, and ask them if there is a provision in US tax law whereby they do not need to charge Federal Sales Tax to an overseas customer. Given that they are a US company, and the equipment and service was supplied on US soil, I think this is unlikely.

    21 November 2014

  13. Mark Mullin

    I am a sole proprietor in the US. I am sending an invoice for web site design to a client in the UK. Do I need to charge VAT? They are asking me to include a declaration that I am responsible for VAT.

    21 November 2014

  14. Admin

    Assuming that your client in the UK is a business (rather than a consumer), this is a service which is subject to VAT where the customer belongs. There is no need for you to register for VAT in the UK as a Non-Established Taxable Person, or to charge VAT. Your client has to account for the VAT under the reverse charge mechanism, and they cannot avoid that responsibility by you making a declaration.

    21 November 2014

  15. Sarah

    I recently made my first export from the US to the UK, not realizing VAT would be charged and not invoicing the UK client (a business) for the VAT. Our carrier (UPS) paid the VAT and charged it back to us. Not fully understanding the VAT rules, I’m wondering now if there is a way to recover it (is it uncommon to send a follow-up invoice to the client?)

    21 November 2014

  16. Admin

    Different carriers have different procedures, but the basic idea is that UPS should issue a certificate (it might be called a form C79) for the VAT they have paid, which the UK company can use to reclaim the VAT (subject to the usual rules about reclaiming input VAT).

    22 November 2014

  17. Claire

    I am based in the UK and I am invoicing a company in the US as they are sponsoring one of our seminars, which is to be held in London, do I charge VAT?

    3 December 2014

  18. Admin

    It depends on exactly what you mean by “sponsoring”.

    If your charge is for the right to have an active presence (perhaps setting up a stand) at an event in the UK, it is subject to UK VAT, wherever your customer is based.

    General advertising charges to a US company are not subject to UK VAT, even if the advertising space is physically in the UK.

    Generally for seminars, exhibitions, conferences and similar events:

    If your charge is for admission to events, it is subject to UK VAT, wherever your customer is based.

    If your charge is for organising an event in the UK on behalf of a US company, it is not subject to UK VAT.

    4 December 2014

  19. John

    I’m selling a web-based business to an American company, including the website and all IP. I’m UK based. Is any VAT due on the sale?

    6 December 2014

  20. Admin

    It might qualify as a TOGC (Transfer of a business as a Going Concern), in which case no VAT is charged.

    Otherwise, it depends on the breakdown of what is being sold. If it included stock which was not being immediately exported as part of the sale, then VAT would be charged on that part.

    Selling a business is a complicated matter. If the sale price is over say £10,000, you should get proper professional advice.

    8 December 2014

  21. Opie

    I want to purchase a jacket from the UK shipped to the US do they charge me VAT

    10 December 2014

  22. Opie

    The jacket I want to purchase is only available from Lynx brp eu. The price is around $360 US I just wanted to make sure I do not get ripped off on VAT and shipping costs

    10 December 2014

  23. Admin

    You should not be charged VAT on that, if the supplier knows what they are doing.

    10 December 2014

  24. Martin Smith

    Hi guys,

    I run a UK Company (currently not VAT registered).

    I understand that VAT isn’t charged on product sales within the US, provided the product has been ‘exported’ to the USA.

    What if our company (or a company we pay) manufactures our product in the USA and we sell it direct to USA customers?

    Thanks,
    Martin

    10 December 2014

  25. Admin

    That would be completely outside the scope of UK VAT.

    11 December 2014

  26. susan

    Hi
    I am a UK citizen who lives in the USA. We are about to instruct a firm of solicitors and estate agents in the UK to sell our property in the UK, and do the legal work. The bills for these services will be paid by the company based in the USA. Will the solicitors and estate agents charge VAT on their invoices?

    18 December 2014

  27. Admin

    Yes, because these are services relating to land and property in the UK.

    18 December 2014

  28. Sacha

    Hi, what if the company is a digital service provider registered in the US? Does US sales tax apply or does the new EU digital service tax apply for this US company to charge for their UK client, above their service cost?

    19 December 2014

  29. Admin

    US providers of digital services should have been charging VAT based on the country of their customer since 2003. The only change in January 2015 is reporting through MOSS instead of the VoES portal.

    19 December 2014

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