Contractors' Questions: Should I VAT-register for my Czech contract?

Contractor’s Question: I have formed a new limited company here in the UK for my first project advising a trading company operating in the Czech Republic. The nine-month contract is still being finalised but looks set to come in above the current threshold for VAT. So do I need to register with HM Revenue & Customs for VAT and, if I do, at what stage do I charge VAT to the Czech company?

Expert’s Answer:  Your first consideration should be around the rules governing intra-EU supplies of services because the provision of advice, in VAT terms, is a service and because your client is in the EU.

For most intra-EU services, the VAT treatment hinges on whether your company is supplying a consumer (B2C) or a business (B2B). As you specify the Czech client to be a company, it appears that you will be making a B2B supply, in which case you would NOT charge UK VAT.

However, you should acquire your client’s Czech Republic VAT number and detail it on your invoice with a statement akin to: “It is your obligation to consider and, if appropriate, account for VAT under the reverse charge procedure.”

You still would not be required to register for VAT, assuming you do not charge UK VAT and make no other sales. Voluntarily registering for VAT is an option - on the basis of your B2B sales to the Czech Republic, as this would allow the recovery of the VAT which your limited company incurs on costs and overheads.

Bear in mind that providing B2B supplies to another EU state obliges you to submit lists detailing your sales to the Czech Republic and provide HMRC with the VAT number of your client, additional to the total sales figure. This can be done on a monthly or quarterly basis.

Lastly, there are exceptions to the general B2B rule which you should explore before proceeding.

The expert was Adrian Houstoun, partner at chartered accountancy firm Kingston Smith LLP.