Being an organisation incorporated in the UK, if we wish to engage the services of a contractor living and working in the USA, what are the implications for e.g. tax and VAT? Do we need to pay the US-based contractor VAT? Do they need to pay income tax in the UK? Are there standard contract templates for contracting across international boundaries like this?
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1 Answer
This can be a minefield of special cases, but in general it will be treated as though you'd "imported" the services from the USA. Assuming you're VAT registered, you don't pay VAT to the contractor, but you're responsible for accounting for the VAT to HMRC. For goods, you'd pay Import VAT when the goods came through customs and then claim it back. For services you account for the VAT on your VAT return and claim it back at the same time, so no money changes hands. You effectively add the purchases to your sales and charge yourself the VAT, then reclaim the same amount of VAT.
As far as I know, the contractor would just pay tax on it as normal income in the USA, and HMRC would have no interest in his income. Although the supply is happening in the UK for VAT purposes, he's not working in the UK.
