The beauty of e-commerce is that it opens up the whole world as your potential market, but that brings with it a lot more compliance issues to deal with. Even if world domination isn’t your immediate aim there are eCommerce VAT considerations for any online business.
The VAT issues that you might face include:
• Do you need to register or should you register voluntarily?
• Selling into the EU
• Postponed VAT
• Selling services in the EU
• Selling digital services within the EU
• International VAT including registration and reporting in other jurisdictions
• VAT treatment of gift vouchers
• VAT Retail schemes
Do You Need To Register or Should You Register Voluntarily for eCommerce VAT?
The VAT registration threshold in the UK is £85,000 (measured on a rolling 12-month basis) and will remain so until at least April 2024. It is advantageous to register voluntarily in some circumstances – if, for instance, the majority of your products are zero-rated. In these circumstances, you are likely to be eligible for a VAT refund because you will reclaim VAT on your costs if you have a valid VAT invoice. If you export the majority of your sales these are also zero-rated and voluntary registration is likely to be beneficial.
If you dropship goods from outside the UK that have a value of less than £135 then you are required to account for VAT at the point of sale and there is no VAT registration threshold. The equivalent value in the EU is €150.
Selling to the EU
How you deal with EU VAT will largely depend upon how you fulfil your EU orders. You might fulfil from the UK, from within the EU, dropship from within the EU or from outside the EU. Each of these fulfilment options has different options when it comes to VAT compliance.
There is a very low threshold of just €10,000 which applies to the whole of the EU. But this threshold only applies to distance sales within the EU. As a UK seller, there is no avoiding EU VAT. However, there are alternative options to VAT registration. Some sellers do successfully make their customers the importer on record. This means that the customer pays for any VAT or duty when the goods are delivered. This must be made crystal clear to the customer at checkout in order to avoid unexpected costs for the customer and subsequent customer service issues. Many couriers will also offer the option for them to pay the VAT on import and re-bill to the seller. They do however charge a fee for this, and they vary considerably. If you have high volumes this could be a lot more expensive than the cost of VAT registration and submitting VAT returns. But for low volumes, it can work very well.
In addition, if you sell through marketplaces then the marketplace will be responsible for accounting for VAT on your sales. For example, if you have a product for sale for €120 and it is purchased by someone in France where the VAT rate is 20%, then the customer will pay €120 to Amazon, but Amazon will account for the €20 VAT to the French tax authorities and remit €100 to you (less their usual selling fees of course).
However, selling via a marketplace doesn’t necessarily mean that VAT registration can be avoided. If you hold inventory in an EU country then you must register for VAT in that country. So, if you use Amazon FBA services in the EU, you will hold inventory in at least one country, possibly more. Amazon does however still account for the VAT on your sales in these circumstances. In these circumstances, it is quite possible that your EU VAT returns will only include sales values, but with no VAT actually due. But, if you have inventory in the EU, you will have to have purchased that inventory and got it to the warehouse. If the goods came from outside the EU then they will have been subject to import VAT at the point of entry into the EU. You will want to claim that VAT back and will be able to do so on your EU VAT returns. That assumes that the point of entry is the point where you have your inventory and therefore your VAT registrations.
Some countries do have VAT deferral schemes. In the Netherlands, you can apply for an article 23 license. You will need a fiscal representative to do so. But this means that you can defer your import VAT and account for it on your VAT return and an amount that should be paid, but also make a claim to recover it on the same return. The two entries cancel each other out and no payment is made, and no refund is received. It is very similar to how UK VAT postponement works (see below), except that in the UK fiscal representation, is not required. France and Ireland also have postponement schemes, more closely aligned to the UK scheme (see below) in that there is no application process or fiscal representation required. A lot will depend on how – logistically – you get your goods into the EU.
You may of course be selling from your own website. Platforms like Shopify are not marketplaces, so you must account for VAT in these circumstances. If you are not going to make the customer the importer on record, or use a VAT payment arrangement with a courier then you are going to use either the import One Stop Shop (“iOSS”) if you fulfil from the UK (or anywhere else from outside the EU) or the One Stop Shop if you fulfil from within the EU. These two schemes are very similar, the difference being that the iOSS can only be used if the value of the goods being sold is less than €150. If you import goods worth more than €150 you will either be making the customer the importer on record or using the services of a courier to pay the VAT due on import.
If you are using either the iOSS or OSS then you will register in one country and submit returns and pay your VAT to that one country. But you will account for VAT on sales based on the VAT rate applicable to where your customer is. You will need to report that you made €x of sales to French customers at 20% VAT and €y value of sales to German customers at 19% VTA and so on, for all countries in which you have made sales.
It is quite possible that you will have multiple scenarios and may use more than one method to account for your EU Sales. For instance, you could be selling on Amazon and using FBA services in Germany. You will therefore have a German VAT registration. If you take advantage of the PAN EU programme you will have multiple VAT registrations. You may also sell products from your own website which you fulfil from the UK, in which case you will possibly have an iOSS registration. More than likely you will also have a UK VAT registration for your UK sales.
You will also need an EU EORI number to import into the EU.
The possibility of deferring VAT was discussed above in relation to the Netherlands. When you import into the UK there is a similar option, known as a postponement. You do not need a fiscal representative, nor do you need to seek permission from HMRC. You simply make your courier aware that this is your preferred option. You do however need to obtain an EORI number. This can be done at the time of VAT registration or applied for at a later date. It is important to distinguish between UK and EU EORI numbers. A UK EORI will enable you to import into the UK, but it is not relevant to importing into the EU – you will need an EU EORI for that.
When you postpone import VAT you will need to create a Government Gateway account (which you may have created when you registered for VAT, unless an accountant did this for you). You will need to login and obtain your postponement statement each month (or at least quarterly when your VAT return is due). You then include this VAT on your return as both payable to HMRC and reclaimable from HMRC and the two entries cancel each other out.
Selling Services in the EU
The place of supply of services rules include general or default rules, but inevitably there are exceptions. For sales to consumers (“B2C”), the general rule is that the place of supply is where the supplier belongs, irrespective of where the customer is located. The sale can therefore subject to UK VAT. However, since Brexit most EU countries have implemented “use and enjoyment” rules which mean that the VAT is determined by the location of the customer. You can however use the OSS scheme as described above.
For sales of services to business customers (“B2B”), the place of supply is where the customer belongs. You should verify that the customer is a registered business. Supplies of services (except exempt supplies) are subject to the reverse charge. This means that your customer is responsible for accounting for the VAT that you would have charged had you been registered in their country, but they would usually be able to claim this back on the same VAT return.
Services that have their own rules include land-related services, hire of transport, entertainment, and cultural services, restaurant and catering services, and digital services. B2C supplies of digital services are treated differently again.
B2B sales of electronically supplied services, telecommunications services (and some other services) are subject to rules intended to ensure taxation takes place where services are consumed.
More likely you will be selling digital services to consumers. If you make B2C digital supplies to customers in the EU then VAT will be due in the country in which they are located according to its rate and rules and you’ll be required to either register in that member state or register for the One Stop Shop (“OSS”). Rather than having to register with every EU member state where you sell to consumers, MOSS allows you to register in one member state and account for VAT on all your B2C supplies of digital services across the EU electronically via a single calendar quarterly return.
Digital services include:
• Electronically supplied services (e.g. images or text, music, films and games, online magazines, web hosting, software and advertising space on a website)
• Radio and television broadcasting services
• Telecommunications services
The filing deadline for MOSS returns is shorter than a UK VAT return. MOSS returns are due by the 20th of the month following the end of the VAT reporting period.
Most countries have some form of tax on the sale of goods and services. Outside the EU this is usually called Goods and Services Tax (“GST”). Some countries have registration thresholds, but some have none. The United States is obviously a market that many businesses find attractive. Other popular jurisdictions include Australia, New Zealand and Canada.
In the United States every State is a separate jurisdiction. They do however have marketplace rules similar to the UK and EU, so selling via a marketplace can be a good way into the market. Similarly, if you have inventory in any State, that creates an obligation to register for GST.
In many States the GST is made up of two components – a State level tax and a County tax. The rate of GST can therefore vary even within a State as County taxes can be different.
Thresholds are typically $100,000 of income per State, but many States have volume thresholds, typically of 200 orders, which is usually a threshold more quickly reached. If a typical order value is less than $500 you will reach the order threshold before the income threshold.
To account for GST in the USA you will really need to use software, like Quaderno, which you can link to your store. The software will then provide all the relevant data required for you to complete your returns. Software like Quaderno can also report on other countries and provide a worldwide reporting solution.
You may sell gift vouchers on your website to be redeemed at a later date for goods or services. The VAT treatment of a voucher does actually vary depending upon the type of voucher being issued. There are two types of vouchers for VAT purposes:
Single Purpose Vouchers (“SPV”) are vouchers that can only be used to purchase goods or services where the rate of VAT and place of supply are known at the point the voucher is issued and all goods or services that could be purchased using the voucher have the same rate of VAT and place of supply.
Multi-Purpose Vouchers (“MPV”) are effectively not SPV. As they could be redeemed for any goods or services which might have different rates of VAT applied to them, the appropriate VAT rate is not known at the time of issue.
The difference in terms of their VAT treatment is that the VAT is payable on an SPV at the time it is issued, whereas the VAT on an MPV is only payable when it is redeemed.
Whilst there are special VAT schemes for retailers, they are designed to reduce the complexities of accounting for VAT on the sale of inexpensive items in high volumes. If you are selling online then a retail scheme is less likely to be relevant, even though you are a retailer, because the nature of online sales is such that your systems will record what you have sold on a line-by-line basis and should therefore be capable of determining the correct VAT treatment of every sale. It is HMRC’s expectation that an online business would not need to use a retail scheme. However, you can find an outline of these schemes here.