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How to record the sale of services to the EU dated on or before 31st December 2020

When you sell services to your customers in the EU, so long as the 'place of supply' of those services is in the EU, the sale will be outside the scope of UK VAT. Here's how to track those sales in FreeAgent.

Please note that the guidance in this article only applies to transactions dated 31st December 2020 or earlier. For transactions dated on or after 1st January 2021, please follow the guidance in this article.

Which services does this apply to?

This applies to services that are not directly related to the sale of goods.

For example, if you're shipping cameras overseas, the cost of the shipping is directly related to the goods (the cameras) - and the cost of the shipping is treated as a sale of goods rather than a sale of services.

If you are selling digital services to end consumers in the EU, you may have to report these separately under VAT MOSS.

1 Enable additional VAT options

Before you can tag invoices as EU, you need to enable these VAT options in FreeAgent. Select 'Settings' from the drop-down menu in the top-right corner and then select 'VAT Registration'.

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Select 'Yes' in the 'Do you need to use VAT rates other than standard UK ones?' section.

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Save your changes.

2 Make sure the VAT options for the contact is set

Select the 'Edit Details' button for your contact in the EU.

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Make sure that contact's country is in the EU but outside the UK, and that you have set the 'Charge VAT' option to 'Only if contact is based in the United Kingdom' or 'Never' because the sales are outside the scope of UK VAT.

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Save any changes you have made.

Please note these settings are different from the ones you need if you are selling goods to a customer based in the EU - so if you are selling both goods and services not related to those goods, you'll need to set up two different contacts in FreeAgent.

3 Create your invoice

You're now ready to create your sales invoice as normal.

As you do that, select the More Options arrow.

Tick the box saying 'EC Services'.

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When you create the invoice, FreeAgent will then pick up that it's for a sale of services to a customer in the EU.

FreeAgent assumes that whenever the 'EC Services' box is ticked, the place of supply is in the EU but outside the UK, so make sure it is.

Add items and send the invoice as normal.

VAT reporting - not on the Flat Rate Scheme

When you correctly create an invoice for the sale of EC services, if you are not on the Flat Rate Scheme, FreeAgent will add the amount of the invoice (or its corresponding receipt if you are cash accounting for VAT) to box 6 on your VAT return. Box 8 will not be used because that's just for sales of goods.

This applies even though sales of EC services are outside the scope of UK VAT, because HM Revenue specify that sales of services to the EC go in box 6 unless you are on the flat rate scheme.

VAT reporting - on the Flat Rate Scheme

When you correctly create an invoice for the sale of EC services, if you are on the Flat Rate Scheme, FreeAgent will add the invoice (or its corresponding receipt if you are cash accounting for VAT) to box 6 on your VAT return, but will not work out flat rate VAT on that sale, because HMRC specify that these sales should be reported in box 6 but not be part of your flat rate turnover.

Box 8 will not be used because that's just for sales of goods to the EU.

Who said VAT was easy :-)

I'm selling both goods and services to a customer in the EU - and the services are not directly related to the goods.

In that case you'll need to create two invoices in FreeAgent, one for the goods and the other for the unrelated services.

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