VAT on foreign payments/income?

Accounting1234
Accounting1234 Registered Posts: 8
I have passed my VAT exam but get a bit confused about VAT on different foreign transactions.

Just wondering if anyone could explain this in an intuitive way with examples? For example if you buy from Dropbox in the US, how would this be treated? Does the VAT go to the US or UK and why? Then you’ve also got the rules regarding EU, acquisitions, dispatches, exports, imports etc. Any help would be much appreciated.

Comments

  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    The VAT is paid in the country the purchase is made in.

    So if you purchase something from the US while in the UK it counts as a UK purchase. As for treatment it might be worth looking at the gov website as the rules have recently shifted regarding the EU due to brexit (this won't have featured in your exam)

    https://www.gov.uk/guidance/vat-imports-acquisitions-and-purchases-from-abroad

    Effectively the VAT is charged to the purchaser which you see as import VAT at customs in most cases (there are exceptions for some businesses.)

    With the old EU system it wouldn't be held up at all and the purchaser would apply the VAT both to purchase and sales VAT cancelling out the VAT amount in the return.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
  • Accounting1234
    Accounting1234 Registered Posts: 8
    > @Pian32 said:
    > The VAT is paid in the country the purchase is made in.
    >
    > So if you purchase something from the US while in the UK it counts as a UK purchase. As for treatment it might be worth looking at the gov website as the rules have recently shifted regarding the EU due to brexit (this won't have featured in your exam)
    >
    > https://www.gov.uk/guidance/vat-imports-acquisitions-and-purchases-from-abroad
    >
    > Effectively the VAT is charged to the purchaser which you see as import VAT at customs in most cases (there are exceptions for some businesses.)
    >
    > With the old EU system it wouldn't be held up at all and the purchaser would apply the VAT both to purchase and sales VAT cancelling out the VAT amount in the return.

    Ok, I think I’m following.. so basically if a US business wants to sell in the UK they have to follow the same VAT rules and charge VAT on sales? Then the UK purchaser buys the US item but with UK VAT basically?

    So what if the VAT registered business in the UK goes over to the US (doesn’t therefore import) and buys something? Then no VAT, right?

    Sorry for all the questions I’m just trying to get my head round it as I’d really like to understand this fluently but not sure how to go about it. I think I understand a bit better now though
  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    'Ok, I think I’m following.. so basically if a US business wants to sell in the UK they have to follow the same VAT rules and charge VAT on sales? Then the UK purchaser buys the US item but with UK VAT basically?'

    Not quite. The US business doesn't charge VAT this is charged by the UK on the item entering the country. Lets say you bought an item for £300 from a US supplier. On arrival in the UK it would get a 20% VAT charge of £6 which you would be liable for. (Then any extra import duties). The things the US supplier would do depends on the state/federal rules. You would be able to reclaim the VAT later as input VAT effectively cancelling the having to pay it in the first place.

    'So what if the VAT registered business in the UK goes over to the US (doesn’t therefore import) and buys something? Then no VAT, right?'

    This is where customs would come in and any items you'd have VAT to pay on would apply when you import the item to the country. If however the item was never brought to the UK there would be no VAT but there would likely be an equivalent in the country you're in.



    https://www.gov.uk/guidance/bringing-commercial-goods-into-great-britainin-your-baggage
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
  • Accounting1234
    Accounting1234 Registered Posts: 8
    > @Pian32 said:
    > 'Ok, I think I’m following.. so basically if a US business wants to sell in the UK they have to follow the same VAT rules and charge VAT on sales? Then the UK purchaser buys the US item but with UK VAT basically?'
    >
    > Not quite. The US business doesn't charge VAT this is charged by the UK on the item entering the country. Lets say you bought an item for £300 from a US supplier. On arrival in the UK it would get a 20% VAT charge of £6 which you would be liable for. (Then any extra import duties). The things the US supplier would do depends on the state/federal rules. You would be able to reclaim the VAT later as input VAT effectively cancelling the having to pay it in the first place.
    >
    > 'So what if the VAT registered business in the UK goes over to the US (doesn’t therefore import) and buys something? Then no VAT, right?'
    >
    > This is where customs would come in and any items you'd have VAT to pay on would apply when you import the item to the country. If however the item was never brought to the UK there would be no VAT but there would likely be an equivalent in the country you're in.
    >
    >
    >
    > https://www.gov.uk/guidance/bringing-commercial-goods-into-great-britainin-your-baggage


    Ahh ok thank you very much! Appreciated
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