VAT Cheat Sheet - B2B SaaS
Navigating VAT can feel like a minefield, but this guide simplifies it for UK-based businesses selling B2B SaaS.
Note: This advice is not comprehensive for all countries or situations. It’s correct as of 1st December 2024. For tailored guidance, please reach out.
TL;DR
If, except for the UK, you are just selling to the EU, and your sales are always B2B then you simply need to collect the company's VAT number and state the reverse charge mechanism on the invoice, the one stop shop (OSS) is not relevant or needed. If you sell to other countries, then read this guide. The reverse charge means no cash changes hands for VAT. You need to ensure you modify your invoice as below.
What is the Reverse Charge Mechanism?
The reverse charge mechanism shifts the responsibility for VAT reporting from you (the seller) to your customer (the buyer). Here’s how it works:
The buyer calculates the VAT due.
The buyer remits this VAT to their tax authority and typically reclaims it as input VAT.
Key Point: No money changes hands for VAT in reverse charge scenarios. This reduces fraud and simplifies cross-border reporting.
What to Do When a Reverse Charge Applies
Collect:
The customer’s VAT number (Tax ID).
The customer’s business address.
Modify Your Invoice:
Include the customer’s VAT number and address.
Add a reverse charge notice, such as:
“Tax to be paid by the customer on a reverse charge basis.”
“Reverse charge – VAT to be accounted for by the recipient.”
Common Customer Locations
USA
The USA is more complex and varies by state. You may only collect tax in the event that you are registered to collect VAT. You are only required to do so if you exceed transaction thresholds and if B2B SaaS is taxable.
Thresholds are based on a sales amount which range from $100,000 to $500,000 or number of transactions which is always 200 transactions (if it applies, except for Wyoming which is 100).
At the point when you are making material sales to the US it is imperative that you use some form of tax compliance software Put simply, it’s not something you want to be managing yourself.
Recommendation: Use tax compliance software like Anrok to manage US sales tax.
Conclusion
VAT and sales tax are complex, but as a B2B SaaS business, you can usually rely on the reverse charge mechanism for most international transactions.
Key Takeaways:
Always collect your customer’s VAT number to prove B2B sales.
Modify your invoices to include a reverse charge notice.
Use sales tax tools for non-EU regions like the USA.
For specific guidance or questions, don’t hesitate to contact me!