If you run a UK-based agency and you sell digital services to a client in Australia, the VAT treatment is straightforward in most cases. You do not charge UK VAT. But there are exceptions, and you need to get the paperwork right to satisfy HMRC.

The core rule is this: for VAT purposes, the place of supply for digital services to a client outside the UK is where the client belongs, not where you are based. That means the supply is outside the scope of UK VAT. You do not add 20% to your invoice. You do not declare the sale on your VAT return as a standard-rated supply.

But "outside the scope" does not mean "ignore it completely". How you treat the transaction on your VAT return, and whether your Australian client has their own GST obligations, depends on who you are selling to. Let us work through the scenarios.

The Core Rule: Place of Supply for Digital Services

Under UK VAT law, the place of supply for business-to-business (B2B) digital services is where the recipient belongs. For business-to-consumer (B2C) digital services, the place of supply is also where the consumer belongs, provided you do not exceed the £8,818 threshold for cross-border B2C supplies to EU consumers. For non-EU consumers, the place of supply is always the consumer's location.

Australia is outside the UK and outside the EU. So whether your client is a business or a consumer, the place of supply is Australia. That means the supply is outside the scope of UK VAT. You do not charge VAT.

But there is a critical distinction between B2B and B2C supplies that affects how you report the sale.

B2B Supplies: Your Client Is a Business

If your Australian client is a VAT-registered business (or the Australian equivalent, registered for GST), the supply is outside the scope of UK VAT. You do not charge VAT. You record the sale in box 6 (total value of supplies) and box 7 (total value of exports and related supplies) of your VAT return. It goes in box 6 and box 7, not box 1.

Your client may need to account for Australian GST under the reverse charge mechanism. Under Australian GST law, if a business imports services from overseas, they may need to self-assess GST at 10% on the value of the supply. That is their responsibility, not yours. You do not collect or remit Australian GST unless you are registered for GST in Australia.

If you are not registered for GST in Australia, your invoice should show no UK VAT and no Australian GST. It should be clearly marked as "zero-rated for UK VAT purposes" or "outside the scope of UK VAT". Some agencies also include a note that the client may need to account for GST under the reverse charge.

B2C Supplies: Your Client Is a Consumer

If your Australian client is a consumer (an individual, not a business), the supply is still outside the scope of UK VAT. You do not charge UK VAT.

However, Australia has a GST regime for cross-border digital services supplied to consumers. If you sell digital services to Australian consumers and your turnover from Australian consumers exceeds AUD 75,000 per year, you may be required to register for Australian GST and charge 10% GST on those supplies. This is the Australian equivalent of the UK's VAT MOSS system for digital services to EU consumers.

The threshold is AUD 75,000. If you are a small UK agency with only occasional Australian consumer clients, you are unlikely to hit this threshold. But if you actively market to Australian consumers and your revenue from them exceeds AUD 75,000, you need to register for Australian GST, charge 10%, and file returns with the Australian Taxation Office (ATO).

Most agency founders reading this will be selling B2B, not B2C. If you sell to Australian businesses, the B2B rules apply and the consumer threshold is irrelevant.

What Counts as a Digital Service?

For VAT purposes, digital services include website design and development, SEO services, content creation, social media management, PPC advertising management, software development, graphic design, video production, and similar services delivered electronically. If you deliver the service remotely and the client receives it electronically, it is a digital service.

Physical services delivered in Australia (for example, sending a staff member to Sydney to run a workshop) are treated differently. That would be a supply made where the service is physically performed, and different VAT rules apply. But for the typical UK agency selling digital services remotely, the place of supply is where the client belongs.

How to Record the Sale on Your VAT Return

When you sell digital services to an Australian client and do not charge VAT, you still record the sale on your VAT return. It goes in:

  • Box 6 (total value of supplies): Include the full value of the sale.
  • Box 7 (total value of exports and related supplies): Include the full value of the sale.

Do not put the value in box 1 (VAT due on sales). You are not charging VAT, so nothing goes in box 1 for that transaction.

If you use accounting software like Xero or QuickBooks, you need to set the VAT rate on the invoice to "Outside the scope" or "No VAT" (depending on your software's terminology). Do not use "Zero-rated" if your software treats that as a UK zero-rated supply. Use the correct "Outside the scope" code. This ensures the sale maps to the right boxes on your VAT return.

If your software does not have an "Outside the scope" code, you may need to create one or use a manual adjustment. Check with your accountant if you are unsure.

What If You Are on the Flat Rate Scheme?

If you use the Flat Rate VAT scheme, the same place of supply rules apply. Sales to Australian clients are outside the scope of UK VAT. You do not charge VAT. You do not include those sales in your flat rate percentage calculation. They are not flat rate supplies.

However, you still record them in boxes 6 and 7 on your VAT return. The flat rate scheme only affects how you calculate VAT on your UK supplies. Your export sales are handled the same way as under standard VAT accounting.

What If You Charge UK VAT by Mistake?

If you invoice an Australian client and add 20% UK VAT, you have a problem. Your client does not expect to pay UK VAT. They may refuse to pay it. And if they do pay it, you have collected VAT that you should not have collected. You must account for that VAT to HMRC, even if it was an error. You cannot simply refund it and adjust your return without following HMRC's correction procedures.

If you discover the error within the same VAT quarter, you can issue a credit note and re-invoice correctly. If the error is in a previous quarter, you may need to submit a VAT error correction (form VAT652) or adjust your next return, depending on the value.

The better approach is to get it right first time. Train your team. Set your invoicing system up correctly for international clients. If you work with a mix of UK and Australian clients, your invoicing process should automatically apply the correct VAT treatment based on the client's country and VAT status.

Do You Need to Register for Australian GST?

For most UK agency founders, the answer is no. If you sell B2B digital services to Australian businesses, you do not need to register for Australian GST. Your client accounts for GST under the reverse charge.

If you sell B2C digital services to Australian consumers, you only need to register if your Australian consumer turnover exceeds AUD 75,000 per year. For most UK agencies, that threshold is not hit. But if you run a large agency with a significant Australian consumer base, or if you sell high-value digital products directly to individuals in Australia, you should check.

Registering for Australian GST is not trivial. You need an Australian Business Number (ABN), you need to file quarterly or annual GST returns, and you need to comply with Australian tax law. If you think you might be over the threshold, speak to a tax adviser who specialises in Australian GST before you register.

What About the Contract and Invoice?

Your contract with an Australian client should specify that the supply is exclusive of UK VAT and that the client is responsible for any Australian GST obligations. This protects you if the client later claims they were not aware of the reverse charge.

Your invoice should show:

  • Your UK company name and VAT registration number
  • The client's name and Australian business address
  • A clear description of the digital services
  • The net value in GBP or AUD (whichever you agree)
  • A statement: "Outside the scope of UK VAT. No VAT charged."
  • Optionally: "Australian GST may apply under reverse charge. Client to self-assess."

If you invoice in AUD, be careful with exchange rates for your VAT return. HMRC requires you to convert foreign currency amounts to GBP using the prevailing rate at the time of supply. You can use HMRC's published exchange rates, the spot rate on the invoice date, or an average rate if it is consistently applied. Pick a method and stick with it.

Common Mistakes Agency Founders Make

I see three mistakes regularly with UK agencies selling to Australian clients.

Mistake one: Treating the sale as zero-rated instead of outside the scope. Zero-rated supplies are UK supplies where VAT is charged at 0%. Outside the scope supplies are not UK supplies at all. The distinction matters because zero-rated supplies go in box 1 (at 0%) and box 6, while outside the scope supplies go in box 6 and box 7. If you put an Australian sale in box 1 as zero-rated, HMRC may query it. Use the correct treatment.

Mistake two: Not recording the sale on the VAT return at all. Some agency founders assume that because no VAT is charged, the sale does not go on the return. That is wrong. Boxes 6 and 7 capture the value of all supplies, including exports. If you omit export sales, your VAT return is incomplete and HMRC may ask why your declared turnover does not match your bank account.

Mistake three: Assuming the same rules apply to all international clients. They do not. Selling to a client in Australia is different from selling to a client in France, the US, or Saudi Arabia. Each country has its own rules for cross-border services. If you sell to multiple countries, you need to check the place of supply rules for each one.

When You Should Speak to Your Accountant

If your agency regularly sells digital services to Australian clients, or if you are planning to expand into the Australian market, ask your accountant to review your invoicing process and VAT return treatment. It is a simple check that prevents costly errors.

If you are an agency founder with a growing international client base, you should also consider whether your current accounting software handles multi-currency invoicing and outside-the-scope VAT codes correctly. If it does not, you may need to upgrade or add a manual workaround.

At Agency Founder Finance, we are ICAEW qualified accountants who work exclusively with agency founders. We deal with international VAT questions like this regularly. If your client base includes Australian businesses or consumers, we can help you set up your VAT reporting correctly from day one.

The rules are clear. Get the paperwork right, record the sale in the correct boxes, and you will have no issues with HMRC. Get it wrong, and you could face a VAT assessment, penalties, or a messy correction process. It is worth spending 30 minutes to get it right.