From your weekly shop to watching a film, most things can be ordered from your own home, or even while on holiday abroad. But what are the VAT implications for the suppliers? Will your sales create a liability to register for UK VAT? Here we highlight the UK VAT implications of such sales.
If you are involved in e-commerce and sell to non-business customers in the UK, you are likely to need to register for VAT in the UK. The rules are intricate and contextual, depending on what you sell, how you sell and who your customers are.
From the outset, it is important to note that the VAT rules are different for supplies of goods than for supplies of services. Goods can be thought of as something tangible (such as t-shirts, books and TVs), while services are intangible (for example downloads, software, apps, music).
'Distance selling' is a VAT term that applies where a business that is registered for VAT in one EU country sells and delivers goods to a customer in another EU country AND the customer is not VAT registered themselves. Currently there is an annual registration threshold in the UK of £70,000 for distance sales. Once over the limit, you will need to register from that point and charge UK VAT on those sales. There is no registration threshold when you do not have a business establishment in the UK and sell goods stored in the UK to UK customers through an online market (such as Amazon). There are similar rules for each country in the EU and the registration thresholds vary, meaning you could need 27 separate VAT registrations!
Non-EU suppliers who ship their goods to the UK before being sold through an online marketplace will also need to register for VAT in the UK from their first sale.
Recently, HMRC has been targeting non-EU based sellers, as they consider that there has been a significant amount of VAT fraud as a result of these e-commerce businesses not UK VAT registering and not paying UK VAT on their sales when they should have done so. HMRC has new powers that can now force overseas retailers to provide a financial guarantee or to appoint a UK-based VAT representative. In the event that VAT is not paid, HMRC can even hold the online marketplace liable for the tax if no action is taken against the retailer.
Cross-border services and e-services
The rules for services are different. Services are usually treated as existing where the supplier belongs. One exception to this is electronically-supplied services such as downloads. For the last few years, e-services have been subject to VAT in the country where the customer belongs. There is no limit on these sales, meaning a business could need a VAT registration in countries in which it is not established.
The good news for parties affected by this is that the European Commission, realising this could become excessive if a business sells e-services to consumers in many EU Member States, developed an online service they can use to make their VAT compliance easier. Known as the VAT Mini-One Stop Shop (MOSS) a business can register for VAT MOSS in one EU country and declare all of its e-service sales in the EU in one place. One registration for all the 28 member states is easier, but it would be nice if it also applied to goods.
The European Commission has recently announced their proposal for changes to e-commerce. By 2021, the plan is to expand the VAT MOSS system to include distance sales and the name will be changed to the VAT One Stop Shop (OSS). 'Trusted' non-EU business will be able to register for this system, though no criteria for how ‘trusted’ status has been listed yet.
New yearly thresholds are included in this proposal for cross-border online sales of both goods and e-services. Less than €10,000 per year in online sales will mean that you will continue to use the VAT rules in your home country. Under €100,000 per year in online sales and you can use simplified rules for identifying where your customer belongs, which at the moment requires two different pieces of evidence.
It is uncertain how the UK will be treated under the proposal once the Brexit conversations finish. The present rules will remain in effect for several years yet, so it is important to be mindful of your current obligations.
If you are not sure if you should be registered in the UK, or another EU country, our team can provide advice on your individual circumstance.