ExpertMedium2 marksMultiple Choice
ACCA · Question 17 · Value added tax (VAT)
Section B - Case 1: Nimbus SaaS Ltd
Nimbus SaaS Ltd is a UK-based tech startup providing cloud software subscriptions. The company supplies digital services to both B2B (business) and B2C (consumer) clients globally.
Nimbus purchases server hosting services from a company based in the USA. How should Nimbus account for UK VAT on this B2B purchase?
Section B - Case 1: Nimbus SaaS Ltd
Nimbus SaaS Ltd is a UK-based tech startup providing cloud software subscriptions. The company supplies digital services to both B2B (business) and B2C (consumer) clients globally.
Nimbus purchases server hosting services from a company based in the USA. How should Nimbus account for UK VAT on this B2B purchase?
Answer options:
A.
The US company must register for UK VAT and charge it to Nimbus.
B.
Nimbus must apply the reverse charge mechanism, accounting for both output and input VAT on its UK VAT return.
C.
The supply is outside the scope of UK VAT, so no VAT is accounted for.
D.
Nimbus only accounts for input VAT, claiming a refund.
How to approach this question
Identify the transaction as an import of services by a UK business. Apply the reverse charge rules.
Full Answer
B.Nimbus must apply the reverse charge mechanism, accounting for both output and input VAT on its UK VAT return.✓ Correct
When a UK VAT-registered business purchases services from an overseas supplier, the general B2B rule applies: the place of supply is the UK (where the customer belongs). To account for the VAT, the UK customer applies the reverse charge mechanism. They declare output VAT on the value of the services and simultaneously claim the same amount as input VAT (subject to normal recovery rules), resulting in a nil net effect if fully taxable.
Common mistakes
Assuming imported services are completely outside the scope of UK VAT.
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