A client works through her own limited company, providing public relations and marketing consultancy to businesses in the UK and all over the world. The business is VAT registered in the UK on a voluntary basis; is she going to be affected by Making Tax Digital?
This type of question is one we are regularly asked.
Any entity with a taxable turnover that is above the VAT registration threshold on 1 April 2019 must follow the Making Tax Digital (MTD) rules, so essentially the question here is what is included within “taxable turnover”?
Taxable turnover for MTD is the same as taxable turnover for VAT registration purposes. HMRC’s VAT Notice on MTD (700/22) rather ambiguously states that “VAT taxable turnover is the total value of everything you sell that is not exempt from VAT”. but this is not simple to understand, so we have provided some general clarification below.
The following supplies are included in taxable turnover:-
- The net value of standard-rated, reduced rated and zero-rated supplies of goods and services made within the UK (**see the explanatory notes below).
- Reverse charge services received from overseas businesses that would be standard rated, reduced rated or zero-rated if made in the UK. (***see the explanatory notes below).
- Reverse charges required to be made on the receipt of specified goods or services subject to the domestic reverse charge in the UK. This includes mobile phones, computer chips and wholesale supplies of gas and electricity.
- Self-supplies of construction services as per VAT Notice 708: Building and construction, section 25. This is where a business uses its own labour to carry out building works for its own use, and the value is £100,000 or more.
The following supplies are not included in taxable turnover:-
- Exempt supplies of goods or services made in the UK
- Reverse charge services received from overseas businesses that would be exempt if made in the UK
- Income outside the scope of VAT because it is not a consideration for a supply such as farm subsidies, power generation subsidies and some grant income
- Supplies of services where, under the place of supply rules, the place of supply is outside the UK; these supplies are outside the scope of UK VAT
Place of supply of goods and services
The place of supply for goods is where they are physically located when they are sold; sales of goods from stock held in the UK is UK turnover even if the sale is a zero-rated export or zero-rated supply to a VAT registered business in another member state.
Although there are some exceptions, the general rule for business to business (B-B) supplies of services is that the supply takes place where the recipient belongs. This means that those services received by a UK business from an overseas supplier will count to the recipient’s turnover. Conversely, services supplied by a UK supplier to an overseas business customer will not.