VAT rules for online businesses selling goods in the UK
If you sell goods to UK customers online it's important to understand the VAT rules for online businesses selling goods in the UK. Failure to understand the VAT rules for online businesses could result in an unexpected VAT bill at a later date.
Although, we've provided an overview of the VAT treatment of online sales previously, in this article we've decided to focus on the VAT rules for online businesses selling goods in the UK.
To gain an understanding of the VAT rules for online businesses selling goods in the UK, firstly you need to establish your place of supply for VAT purposes. This determines what country VAT is payable in when you are selling goods online.
Businesses that sell goods to the UK via an online market place, broadly fall into three categories. These VAT rules for online businesses that are selling goods in the UK fall into three categories.
UK businesses that sell goods which are in the UK at point of sale
The most straight-forward scenario is where goods never leave the UK and are sold to UK customers. In this case it is only once the VAT registration limit is exceeded that VAT registration is required and VAT charged on any subsequent sales to UK customers.
If you are VAT registered and sell goods to EU customers the VAT treatment will depend on whether or not your customers are registered for VAT in the EU.
Any non-VAT registered EU customers should be charged UK VAT in the usual manner though you will potentially be caught by the distance selling rules. If your sales to an EU territory exceed the distance selling threshold then you will be required to register for EU VAT in that country and charge EU (rather than UK) VAT at the appropriate rate thereafter.
Because the distance selling thresholds are frequently much lower than the UK's VAT registration threshold then for practical purposes it's very important to keep track of your EU sales to avoid potentially registering late.
If you are selling goods to VAT registered EU customers from the UK then you can potentially zero rate (0%) the goods for VAT. However it's important to include both your own and the customer's VAT registration number on your invoice. The sale will also need to be recorded on your EC sales list.
If you are selling goods to non-EU customers and the goods are physically leaving the UK then you can potentially zero-rate for VAT purposes. However in order to do this, you must retain evidence that the goods are being exported outside the UK.
EU businesses that sell goods to UK customers
Once again, where the business is VAT registered the treatment will be determined by whether or not your customers are registered for UK VAT.
Non--VAT registered customers
If the goods are already based in the UK at the point of sale and the EU business does not have a fixed establishment in the UK it will automatically be required to register for VAT from day one - there is no threshold.
If the goods are in the EU country at the time of sale then they will be regarded as UK distance sales. Once the UK's distance selling threshold (£70K) is exceeded an EU business must register for UK VAT and charge UK VAT on all subsequent sales.
VAT registered customers
Once again, if the goods are already based in the UK and the EU business does not have a fixed establishment in the UK it will automatically be required to register for VAT.
If the goods are in the EU country at the time of sale then they will be subject to EU VAT, however it may be possible to zero rate the sale if your customer provides you with a valid UK VAT registration number.
Non-EU businesses that sell goods to UK customers
If the goods are already based in the UK and your business does not have a fixed or business establishment in the UK then automatic VAT registration will be required.
If the goods are outside the EU at the point of sale though you are responsible for importing the goods to the UK, then registration is automatically required where there is no fixed or business establishment in the UK
However if your buyer is responsible for importing the goods to the UK, the supply is deemed to take place outside the UK and there are no potential UK VAT obligations for your business
VAT rules for online businesses selling goods in the UK - other points
It's important to establish what counts as turnover for VAT purposes when selling online, particularly where the distance selling rules apply. As mentioned above, we covered this particular topic in a previous blog.
One final point to mention is that because online market places (e.g. Amazon) can be held jointly and severally liable by HM Revenue for an online seller's VAT liability they are likely to request details from you if they consider that your online business should be registered for VAT. They can also potentially block you from selling goods on their marketplace if you fail to provide a VAT registration number where they believe one is necessary.
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