Etsy is the biggest platform for selling handmade goods, crafts and bespoke items. Selling on Etsy can provide a fantastic opportunity for your business, connecting you to people worldwide. However, VAT on Etsy can be complex, and it is important to understand it so that you don’t fall foul of any VAT laws or regulations. If you are in any doubt, it is always wise to speak to a professional and experienced accountant, such as our team at Elver E-Commerce.
VAT on Etsy
Etsy may charge VAT on their fees. If you can provide Etsy with a valid VAT ID, then no VAT is charged, but the fees are subject to the reverse-charge mechanism. This means that you need to account for VAT on your VAT return on fees that Etsy would have charged you had they charged VAT, but you can claim it back on the same return.
Etsy also applies VAT to digital sales, but they handle this process. You will receive the amount of money that you have listed your item for less VAT, and you do not need to process the VAT on your own returns. This applies to digital sales in the UK, EU, and many other countries, Australia probably being the most notable.
Do I Need to be VAT Registered to Sell on Etsy?
You do not need to be VAT registered unless your business turns over more than £85,000 per year, and you don’t need to be VAT registered just to sell on Etsy. Many sellers on Etsy are not VAT registered. Remember that you will be charged VAT by Etsy on your seller’s fees if you are not VAT registered, which you won’t be able to reclaim.
Who is Responsible for VAT on Cross-border Sales on Etsy?
If you are registered for VAT in the UK, you are responsible for VAT charges, and you must collect VAT on all UK sales where VAT is due and then reimburse it to HMRC via your VAT return. Regardless of your VAT registration status, Etsy will apply and account for VAT or GST in many other jurisdictions (e.g. EU and USA). Your settlements will have the relevant amount of tax deducted from them.
What Are the VAT Rates and Exemptions on Etsy?
Standard VAT is 20%, which applies to most goods and services sold in the UK. Some items are charged at 5%, the most notable for e-commerce sellers being children’s safety car seats and certain health products. Items that are considered essential are zero-rated for VAT purposes, for example, everyday food and books. If you are turning over under £85,000, you don’t need to register for VAT and, therefore, don’t need to worry about what VAT rate your goods are subjected to.
If you turn over more than that or choose to register voluntarily (this could be in your interests if you primarily sell zero-rated products but incur input VAT on your costs), check with a professional accountant who rates your goods should be sold at. Your Etsy seller’s fees will be charged a 20% VAT rate if you are not registered. However, once you have registered for VAT and provided Etsy with your VAT number, the reverse-charge mechanism will apply to the Etsy fees, and you will not be charged VAT.
Do Etsy Sellers Need to Issue VAT Invoices?
If you are not registered for VAT, you do not need to issue a VAT receipt. Issuing a sales invoice to your customer is good practice, but you do not need to worry about the VAT. If your business is registered for VAT, you must issue a VAT invoice to your customers, showing the breakdown of VAT. The criteria to be met to create a valid VAT invoice varies depending on the value of the sale.
How Does Etsy Manage VAT Collection and Remittance?
For UK-based Etsy sellers, If you are registered for VAT, you are responsible for collecting and remittance your VAT. If you are not registered for VAT, then VAT is not collected or remitted on your sales.
If you are an overseas-based seller registered for VAT in the UK and selling on Etsy, Etsy will be responsible for collecting and remitting the VAT to HMRC on your behalf. On your UK VAT return, you will still need to report your Etsy sales but will not need to pay VAT on these sales. The only exception is if you have made sales to another UK VAT-registered business and they have provided their VAT number on placing the order. In this instance, the seller remains responsible for collecting and remitting the VAT on their UK VAT return.
Speak to the Team at Elver Ecommerce Today
If you have any questions about your VAT position when selling on Etsy, the team at Elver Ecommerce are here to help. We are experienced e-commerce accountants and can provide support for you to sell across a multitude of platforms. Whether you are selling on Etsy or eBay, we are here to help; take a look at our services page here.