Is my understanding of current VAT rules in the UK correct?

1 A hosting company based in the UK who rents their dedicated servers (or reseller accounts) OUTSIDE the UK/EU is now liable for VAT input tax on those services by the reverse charge method?

2 Where that company IS NOT registered for VAT purposes then those taxes, above still apply and need to be paid?

3 Where that company IS registered for VAT purposes then those input (purchases) taxes can be offset against any output (sales) taxes.

4 Sales taxes in point 3 above simply means ALL UK accounts and just non registered EU accounts?

As you might guess, I ask as I am considering if a biz should be VAT registered or not OR if it should operate offshore.

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Dr S

>1 A hosting company based in the UK who rents their dedicated
>servers (or reseller accounts) OUTSIDE the UK/EU is now liable
>for VAT input tax on those services by the reverse charge
>method?

That's right

>2 Where that company IS NOT registered for VAT purposes then
>those taxes, above still apply and need to be paid?

Yes, right (however, you don`t have to actually pay them of course because you do reverse charge)

>3 Where that company IS registered for VAT purposes then
>those input (purchases) taxes can be offset against any output
>(sales) taxes.

That's right...because the non EU company pays VAT in the UK.

>4 Sales taxes in point 3 above simply means ALL UK accounts
>and just non registered EU accounts?

Right, since you don`t have to collect VAT from non EU customers or EU businesses.

>As you might guess, I ask as I am considering if a biz should be
>VAT registered or not OR if it should operate offshore

It should be VAT registered if you spend a lot in the EU and make most money outside the EU. For example I am buying domains and advertising in the EU and my company is located in the EU but 85% of my customers are US customers so I can get a lot back by beeing VAT registered - more than I actually pay.

Thnx Thomas. I guess there is no point in not being VAT registered under the (relatively) new rules. The fact that there are now clear rules on non EU-sourced supplies and accounting for input tax. Since you have to pay then anyway, you may as well claim 'em back.

We have a non hosting business that is VAT reg anyway.

I had considered setting up offshore (say, Delaware), but even that is difficult to argue when your own dominicile is within the UK.

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Dr S

I only pay like 1.5% taxes on my whole revenue because I make 85% of my money in the USA where I don't have to pay VAT and am spending all of the revenue for advertising etc... I am not making profit yet so actually I am just paying 1.5% taxes while building up my biz :)

Is it not possible to setup a business in the UK and aim towards people outside the UK to dodge the Tax barier? Or would this be illegal?

You wouldn't have to charge them VAT if they are outside the EU, but you and the company would still have to pay tax and NI if the company is UK based.

>Is it not possible to setup a business in the UK and aim towards
>people outside the UK to dodge the Tax barier?

You can do this to safe VAT. You still have to pay taxes on profit etc. but I guess you know that already. However, if you are operating a hosting business aiming it towords the USA is definitely a good idea as you won't have to collect VAT.