How to invoice overseas clients from the UK

Invoicing international clients: what UK tradespeople and freelancers need to know

Whether you are shipping bespoke joinery to a client in France or consulting remotely for a builder in Dubai, invoicing overseas clients has different rules from domestic work. Get the VAT treatment wrong and you face HMRC penalties. Get the currency and payment method wrong and you lose money on every transaction.

VAT on exports of services

Services supplied to business customers outside the UK are generally outside the scope of UK VAT under the "place of supply" rules. You do not charge VAT, but you must still include the supply on your VAT return (Box 6). The customer may need to account for VAT under their own country's reverse charge rules.

Services supplied to non-business customers (consumers) outside the UK follow different rules depending on the type of service. Most professional and consultancy services are outside the scope of UK VAT when supplied to anyone outside the UK.

Physical goods exported outside the UK are zero-rated for VAT purposes. You charge 0% VAT but can still reclaim input VAT on your costs. Keep proof of export (shipping documents, courier receipts) to support the zero-rating.

Practical example: VAT on services

Consider a UK-based IT consultant providing services to a business in Germany. The service is outside the scope of UK VAT. The German business will account for the VAT in their VAT return under the reverse charge mechanism. However, if the consultant provides services to a German consumer, different rules apply, and VAT may need to be considered based on the nature of the service.

What your invoice must include

An invoice to an overseas client should include everything a UK invoice requires, plus:

• Your customer's full name and address (including country)
• Their VAT or tax identification number (if they have one)
• A note explaining the VAT treatment: "Outside the scope of UK VAT, reverse charge applies" for B2B services, or "Zero-rated export" for goods
• The currency you are invoicing in (GBP, EUR, USD, etc.)
• Your payment details including IBAN and SWIFT/BIC code for international bank transfers

Step-by-step: creating an international invoice

1. Gather all necessary client information, including their VAT or tax ID.
2. Decide on the currency for the invoice. Consider the pros and cons of using GBP, the client's local currency, or a major currency like USD or EUR.
3. Clearly state the VAT treatment applicable to the transaction.
4. Include your international bank details to facilitate smooth payments.
5. Double-check all details to ensure compliance with international invoicing standards.

Which currency to invoice in

You have three options:

• Invoice in GBP, simplest for your accounting, but the client bears the exchange rate risk and conversion fees
• Invoice in the client's currency, more client-friendly, but you bear the exchange rate risk
• Invoice in a major currency (USD or EUR), a compromise that both parties are comfortable with

If you invoice in a foreign currency, you must convert the amount to GBP for your tax records using HMRC's exchange rates on the date of the invoice. Keep a record of the rate used.

Example scenario: currency choice

A UK carpenter invoices an American client for custom furniture. Invoicing in USD could be beneficial for the client, making payments straightforward. However, the carpenter should monitor exchange rates to minimize any financial loss. Using a service like HMRC's exchange rates can ensure accurate conversion for tax purposes.

Getting paid internationally

Traditional bank transfers (SWIFT) work but are slow (3 to 5 days) and expensive (£15 to £30 in fees per transfer, plus exchange rate markups). Services like Wise (formerly TransferWise), Payoneer, and Revolut Business offer faster transfers at much lower cost, often under 1% of the transaction value.

Set up a multi-currency account if you regularly invoice in EUR or USD. This lets you receive payment in the client's currency and convert to GBP when the exchange rate suits you, rather than at the rate your bank picks on the day the payment arrives.

Step-by-step: setting up a multi-currency account

1. Research available providers such as Wise, Payoneer, or Revolut Business. Compare fees and services.
2. Open an account with your chosen provider. Follow their verification process.
3. Link your multi-currency account to your main UK business account.
4. Inform your international clients of your new payment details to ensure seamless transactions.
5. Regularly monitor the account and currency rates to optimize conversions.

Record keeping for HMRC

Keep copies of all overseas invoices, proof of the client's business status (their VAT or tax number), proof of export for goods, and records of exchange rates used. With Making Tax Digital, these records must be held digitally and linked to your quarterly submissions.

Table: essential records for international invoicing

FAQs

Do I need to register for VAT in other countries?

For services supplied B2B, generally no. The reverse charge mechanism means your customer accounts for VAT in their country. For goods sold to consumers in EU countries, you may need to register for the EU's One-Stop Shop (OSS) if your sales exceed €10,000 per year across the EU.

What about withholding tax?

Some countries (particularly in the Middle East and Asia) apply withholding tax on payments to overseas suppliers. The client deducts tax at source and pays the net amount. The UK has double taxation agreements with many countries that reduce or eliminate withholding tax. Check the specific treaty for the country involved.

Can I use InvoiceAdept for overseas invoices?

Yes. InvoiceAdept supports multiple currencies and lets you add the correct VAT notation for overseas supplies. It also records the exchange rate used for your accounting records.

How do I handle late payments from international clients?

Send a polite reminder immediately after the due date passes. If the payment is still not received, consider using a debt collection agency that specialises in international debts. You may also want to include terms in your contract regarding late fees to deter future delays.

What should I do if my client refuses to pay VAT?

Explain the VAT rules applicable to your transaction. If the client is a business, they should understand the reverse charge mechanism. For goods, ensure you have zero-rated the invoice correctly. If disputes persist, consult a tax advisor for guidance specific to the client's jurisdiction.