In short
- A limited company is not “outside VAT”. It is subject to UK VAT depending on what it sells, to whom, and where the customer is. Three questions, not one.
- The £90,000 registration threshold applies only to companies established in the United Kingdom. A limited company with no establishment there has no threshold: it must register from its first taxable sale in the UK.
- Good news: most services sold to businesses, British or European, fall under the reverse charge by the customer. They trigger neither UK VAT nor registration.
- Sales to European consumers, especially digital ones, fall under the VAT of the customer’s country through the EU one-stop shop. That is the point most directors overlook.
- Registering voluntarily can be worthwhile to recover VAT on UK purchases, at the cost of quarterly returns.
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What VAT looks at, and what it ignores
VAT cares neither about your nationality, nor your residence, nor your company’s country of incorporation. It looks at three things: what you sell (goods or services, and which), to whom (a business or a consumer), and where the customer is. The combination of the three determines which country’s VAT applies, and who has to collect it.
For a limited company run from abroad and selling services, that logic is usually favourable. It still has to be applied, not merely hoped for.
The £90,000 threshold probably does not concern you
The United Kingdom requires VAT registration above £90,000 of taxable turnover over any rolling twelve months. That threshold is reserved for companies established in the United Kingdom, meaning with a real establishment there, premises or staff.
A limited company whose director lives abroad, with no UK office or employee, is a “non-established taxable person”. For it, there is no threshold: the obligation to register arises from the first sale whose place of supply is the United Kingdom.
What sounds harsh is in practice inconsequential in most cases, because such a company’s sales of services are rarely taxable in the United Kingdom. Everything depends on the place of supply.
The place of supply, item by item
Services sold to a business, wherever it is
General rule: the service is taxable where the customer is established. If your customer is a French business, the VAT is French, and the customer accounts for it under the reverse charge on its own return. If your customer is a British business, the VAT is British, and again the customer accounts for it under the reverse charge, because you are not established in the United Kingdom. In both cases: invoice without VAT, with the reverse-charge wording and the customer’s VAT number. No registration on your side.
Services sold to a consumer
General rule: the service is taxable where the supplier is established. For a limited company, that is the United Kingdom. A sale to a consumer, British or not, is therefore a sale taxable in the UK, and for a non-established company it triggers registration from the first pound. There are many exceptions, the main one being digital services.
Digital services sold to European consumers
Online courses, software, subscriptions, downloadable content: the VAT is that of the consumer’s country. A limited company selling a course to a consumer in France must collect French VAT at 20 %, to a consumer in Germany German VAT at 19 %. Rather than registering in each country, it registers for the EU one-stop shop (the “non-Union” scheme) in a single member state and declares all those sales there quarterly.
Goods
Goods follow separate rules, based on where they are located at the time of sale. Goods stored in the United Kingdom make the company taxable there with no threshold. Goods shipped from the European Union fall under EU VAT. Trading in goods requires a specific analysis before any incorporation.
Invoicing a French or European customer, in practice
- Business customer, VAT registered: invoice without VAT, wording “Reverse charge, Article 196 of Directive 2006/112/EC”, the customer’s intra-community VAT number checked on VIES, the customer’s full address.
- Consumer, conventional service: the sale is in principle taxable in the United Kingdom. If the company is not registered and not required to be, it invoices without VAT. If it is registered, it applies 20 % UK VAT.
- Consumer, digital service: VAT of the customer’s country, declared through the one-stop shop. The displayed price must include that VAT.
These details are not decorative. A reverse-charge invoice without a valid customer VAT number can be recharacterised, with the VAT claimed from the supplier.
A worked example, step by step
A training and consulting limited company, run from Portugal with no UK establishment, generates £100,000 of turnover.
- £70,000 of consulting invoiced to French and Belgian businesses. Place of supply: the customer’s country. Reverse charge by the customer. Invoices without VAT. No VAT to collect, no registration.
- £20,000 of consulting invoiced to British businesses. Place of supply: the United Kingdom, but reverse charge by the British customer since the company is not established there. Invoices without VAT. Still no registration.
- £10,000 of online courses sold to consumers in France and Spain. Digital services: French and Spanish VAT. Registration for the one-stop shop in a member state, quarterly return, roughly £2,000 of VAT collected and paid over.
- Outcome. No UK VAT registration. One EU one-stop-shop registration. Three invoice templates. VAT is neither an obstacle nor a windfall: it is a mechanism, set up once.
This analysis is part of our plans from incorporation, before the first invoice.
Registering voluntarily: when it makes sense
A limited company not required to register may do so voluntarily. The benefit is to recover UK VAT paid on its purchases: software, equipment, services invoiced from the United Kingdom. The cost is a quarterly digital return and stricter invoicing discipline. For a company with few UK purchases, the benefit is nil. For one investing in the United Kingdom, it can be real.
The mistakes that cost
- Believing a limited company is outside VAT. It is subject to the same place-of-supply rules as any company.
- Selling digital products to European consumers without the one-stop shop. The VAT remains due in each country, with penalties, and is usually discovered late.
- Invoicing under the reverse charge without checking the customer’s number. Liability for the VAT falls back on the supplier.
- Registering as a precaution when it is not needed. Returns to file for nothing, and penalties if they are forgotten.
- Forgetting that the director’s residence can create an establishment. A director working from France may create a permanent establishment, with consequences for VAT as well as corporation tax, which we detail in the article on French tax residence.
Frequently asked questions
Does my company need a VAT number to invoice a French business?
No. A reverse-charge invoice requires the customer’s VAT number, not the supplier’s. A UK number is only needed if the company is registered in the United Kingdom.
Is the EU one-stop shop open to a British company?
Yes, through the “non-Union” scheme, reserved for businesses established outside the Union. Registration is made in a member state of your choice.
What happens if I exceed £90,000 of sales to European businesses?
Nothing on the UK VAT side: those sales are not taxable in the United Kingdom and do not count towards the threshold. The threshold only covers sales taxable in the UK.
Do I need VAT bookkeeping if I am not registered?
No return, but bookkeeping that clearly separates sales by customer type and by country, so you can prove, if asked, that the regime applied was the right one.
What if my business customer has no VAT number?
A business without a VAT number is treated as a consumer for the place of supply. The sale becomes taxable in the United Kingdom, which may trigger registration. Check before invoicing.
What to take away
A limited company’s VAT does not come down to a threshold. It is read line by line, customer by customer. For a services company run from abroad, the result is often simple: no UK VAT, a one-stop-shop registration if it sells digital products to consumers, and clean invoices. It is all set up once, alongside the other annual obligations, and then repeats without surprises.
To go further: the complete guide to forming a UK limited company.
