Do I charge VAT on sales to overseas customers, and when does the answer change?

Before anything else, split your sales into four buckets. Services to a business abroad. Services to a private customer abroad. Goods leaving the UK to a business. Goods leaving the UK to a private customer. Each bucket has its own answer, and a lot of confusion comes from owners applying one rule across all of them because the customer address looked foreign.

The rule behind it is called the place of supply. In plain terms, VAT follows where the sale is treated as happening, and that is not always where you are sitting. For most services sold business to business, the sale is treated as happening where your customer is, so UK VAT does not go on the invoice. For most services sold to private customers, it is treated as happening where you are, so UK VAT does.

Goods are simpler in principle. If they physically leave the UK and you can prove it, the sale is zero rated. If they do not leave, or you cannot prove they left, it is an ordinary UK sale and the VAT is yours to pay.

Northern Ireland has its own rules for goods moving to the EU. If your stock sits there, treat everything below as a starting point rather than an answer.

This is the cleanest case. You invoice a company in Dublin, Dubai or New York for consultancy, design, software work or agency retainers. The sale sits outside the scope of UK VAT, you charge nothing, and your customer accounts for the VAT in their own country under the reverse charge.

Three things make that stand up if anyone asks.

• Evidence that the customer is genuinely in business, usually their VAT or tax registration number, kept on file rather than remembered.
• Wording on the invoice to the effect that the reverse charge applies and the customer accounts for VAT.
• The net value still recorded on your VAT return in Box 6, even though no VAT goes in Box 1.

The expensive mistake runs the other way. I regularly see UK companies adding standard rate VAT to invoices for overseas business customers because the bookkeeping template had it set that way. The customer pays it, nobody queries it, and you have handed HMRC money your competitor did not.

Watch the exceptions. Work connected to land or property is taxed where the property is. Events are taxed where they are held. Some digital and transport services follow their own path. If your work touches any of those, the general rule is not your rule.

Goods exported from Great Britain to a customer outside the UK can be zero rated, and zero rated is a real VAT treatment rather than an absence of one. The sale still appears on your return, the net value still goes in Box 6, and it still counts towards whether you need to be VAT registered in the first place.

The condition everyone underestimates is proof. You need evidence that the goods actually left, obtained within three months of the sale. Courier tracking, export declarations, proof of postage, freight documents, the order and the payment record. Keep it filed against the order, not scattered across inboxes.

If you cannot produce it, HMRC can treat the sale as a normal UK sale and charge the standard rate after the event. On a year of export orders, that comes straight out of margin you have already spent.

The riskiest version is a customer who collects the goods from you in the UK and says they are taking them abroad. You are relying on somebody else’s paperwork. Some sellers take a VAT deposit and refund it once proof of export arrives, which is a sensible habit if that is a regular part of your trade.

Invoices in dollars or euros also need a consistent exchange rate you can defend later, applied the same way every time.

Selling to consumers rather than businesses changes the shape of the problem. For most services sold to a private customer overseas, UK VAT applies at the standard rate, which surprises owners who assume anything leaving the country is VAT free.

Digital products and downloads to EU consumers are taxed where the consumer lives, which can mean registering for the EU One Stop Shop rather than adding UK VAT. Physical goods going to EU consumers bring import VAT at the other end, handled either by the buyer, by you, or through the Import One Stop Shop depending on how you have set the store up.

Marketplaces complicate this further. On some sales Amazon or eBay is treated as the seller for VAT and collects it themselves. On others you are the seller. Both land in the same payout.

This is why I tell sellers never to build a VAT return from payout totals. The payout is a net figure after marketplace VAT, fees, refunds and adjustments, and it tells you nothing about which bucket each order belonged to. You need the transaction detail behind it, which is the job A2X does when it is mapped properly.

Here is the part most articles skip. You can treat every overseas invoice correctly and still lose money every quarter, because the VAT scheme you are registered under does not suit a business that sells abroad.

On the flat rate scheme you pay a percentage of your gross takings and, with narrow exceptions, you cannot reclaim VAT on what you buy. Zero rated export sales still form part of the turnover the percentage is applied to. So you can be charging a customer in Texas nothing, paying HMRC anyway, and reclaiming nothing on your stock, freight or software.

We moved a watch seller with around 70 per cent of her sales overseas off flat rate and onto the standard scheme. She now accounts for VAT on the UK share only and reclaims her input VAT on everything she buys. Nothing about her products or customers changed. One registration did.

If a meaningful share of your sales leaves the UK, the scheme question is worth more to you than the invoice wording. That review sits at the centre of our e-commerce VAT work, alongside import VAT and the reverse charge on the buying side.