Is your ecommerce business VAT compliant?
Will your ecommerce business be compliant post 31 December 2020?
Online business is nothing new. Our high streets illustrate the rise in online shopping perfectly, and now the coronavirus pandemic has forced even more businesses to change. Fortunately, it’s fairly easy to set up a business from your UK home and sell to customers throughout the world. But, is your ecommerce business VAT compliant? Remember that ecommerce businesses come with tax obligations like any other business. And after 31 December, those tax obligations may be a little more complex.
We still don’t know if it’s going to be a deal or no deal for Brexit, but poor planning leads to poor performance, so don’t wait. Find out how to make your ecommerce business VAT compliant post 31 December.
How is VAT calculated for my ecommerce business?
Currently, once your online business is turning over more than £85,000 you register for VAT and start charging 20% tax on your products. You can either increase your prices to cover the VAT bill or absorb the cost yourself.
Different rates of VAT – Some products are charged at a reduced rate of 5%; including health and welfare products, such as cycle helmets and nicotine patches.
And some products are zero-rated VAT; such as baby clothes. If you’re selling those online, you won’t need to charge any VAT at all. However, don’t forget to still record the sales in your quarterly reports. Check the rates of VAT on your products or services here.
Are you selling goods or services? – This is an important point, because if you’re selling a digital service, then VAT is charged differently. Currently, you would need to follow EU legislation. It states that, digital goods and services must include VAT at the rate of the customer’s home country. So, a sale to a customer in the UK, must include 20% VAT. If they’re in Ireland, it’s 23%.
Are you selling to other countries? – If you’ve got your UK VAT payments sorted, that’s great. But, if your empire is growing and you’re selling goods to other EU countries, you’ll also need to register to pay VAT there too. Every member state has its own annual threshold for distance sales, and if you’re exceeding that threshold (typically either €35,000 or €100,000) you’ll need to register for VAT there too.
VAT payments after 31 December?
Loss of Distance Selling thresholds – From 1 January 2021, UK ecommerce sellers of goods to the EU will have to consider VAT registering in Europe. Goods will be subject to import VAT.
Selling digital services to EU consumers – After 31 December, the UK will no longer be a member of the EU Mini One-Stop-Shop single VAT return scheme. If your business sells broadcast or telecoms services to consumers, for example, it will have to register in an EU state, as a non-Union business.
Are you an online marketplace (OMP)? – If your business is a website or mobile application, which facilitates the sale of goods to customers, and meets all the following conditions, you are an OMP:
- Sets the general terms and conditions of the sale.
- Authorises the charge to the customer for payment.
- Is involved in ordering or delivering the goods.
From 1 January 2021, OMP’s will be expected to take ‘all reasonable steps within their power to ensure that the correct VAT is charged’. It means you’ll need to do your due diligence, and consider all the information available to you in determining the correct VAT treatment.
In the event of a ‘no deal’
If the UK leaves without a deal on 31 December, it will be the responsibility of every UK business to comply with the legal requirements of each EU country they sell to.
The benefits of planning now
There are lots of things to consider and put in place. It’s perfectly achievable, but by planning now, you could save yourself a real headache and money too. Speak to your accountant about VAT registration and about how the changes to VAT could affect your ecommerce business.
If you take advice from your accountant now, you can avoid potential fines from HMRC or delays with the sale of goods and services in other countries. You don’t want a customer in Germany being asked to pay additional costs that they weren’t expecting.
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About Liz Cordell
I’m an experienced copywriter, with a great attention to detail. Having previously held positions at a global publisher, a top 100 law firm and a Big Four professional services firm, I now work with clients across a range of industries. Whether it’s new content for a website or creating interesting blogs for my clients, I can create engaging copy that doesn’t take a lifetime to read.