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 VAT considerations for any e-commerce business that needs to register for VAT.
The VAT issues that you might face include:
- Do you need to register or should you register voluntarily?
- Distance selling
- Cross border transactions within the EU
- International VAT including registration and reporting in other jurisdictions
- Selling digital services within the EU
- VAT Retail schemes
- VAT treatment of gift vouchers
Distance selling occurs when a business supplies and delivers goods from one EU country to a customer in another EU country who is not registered for VAT. Distance selling only involves goods, not services. If you distance sell to another EU country you may have to register for VAT in that country. This depends on the value of your sales in those other countries and the thresholds vary from country to country, but the lowest threshold is €35,000.
We work in partnership with international VAT specialists, VATGlobal. They can help with registration, filings and compliance in all 28 European Union member states along with 22 other jurisdictions around the world. By working in partnership with VATGlobal we can ensure that your international VAT compliance and accounting is correctly accounted for in your UK accounts without the need for you to act as a go-between.
VATGlobal services include:
- Dedicated account manager with a minimum of 3-4 years of international VAT
- Fiscal representation
- Tax Reporting
- Secure cloud based portal for communication, file sharing and reporting
The VATGlobal dedicated Distance Selling Rules page can be found here.
Cross Border Transactions Within the EU
How VAT is accounted for on cross border transaction within the EU depends upon whether you are selling or purchasing goods or services and whether you are selling to a consumer or a VAT registered business. Most likely you will be selling goods to a consumer, but that won’t be the case for all e-commerce businesses. There are also special rules if you are selling digital services.
Sales of goods to EU consumers, despatched from the UK, will be subject to UK VAT (at the appropriate rate for the goods), subject to the distance selling rules above. However, if you move stock to other EU warehouses from which the goods are despatched (e.g. using Fulfilled by Amazon) then this then this will require a VAT registration in that country and the sales will be subject to VAT in that country.
If you are selling goods to other VAT registered businesses then this is zero rated. However you must obtain the customer VAT number and include this on your sales invoice. You can verify a VAT number for any VAT registered business using the VIES Service. You will need to obtain evidence of removal from the UK within 3 months, but most likely you will either dispatch the goods by post (in which case use form “Certificate for posting goods form 132”, or ask the Post Office for a certificate of posting) or courier who should give you either an airways bill number or a customs dispatch pack receipt copy.
You may import your goods from another EU country, in which case the reverse of the above will apply, in that you will need to provide your supplier with your VAT number in order to obtain zero rating. However, although zero rated this does not mean that no VAT is applicable. You are then required to account for the VAT that you would otherwise have paid your supplier, had they been in the UK. You include this on your VAT return as sales or output VAT in box 2 of your return as if you had made the sale. You also then reclaim the VAT on the same return. Whilst this normally has no impact on the VAT you will be paying to HMRC, since the two entries cancel themselves out, this will not always be so (for example in a partially exempt business). The value of the purchases also goes in box 9 of your return. Similarly if you make B2B supplies within the EU the value of that sale goes in box 8 of your return.
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 is therefore subject to UK VAT.
For sales to business customers (“B2B”) the place of supply is where the customer belongs. As with the sale of goods to business customers you should verify that the customer is a VAT registered business. Supplies are services (except exempt supplies) are subject to the reverse charge mechanism (which is similar to how cross border transactions work for B2B, although there are no entries made in boxes 2, 8 and 9 of your return).
Services which 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.
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”). Many countries have similar rules to the EU in terms of distance selling and it is likely that, if you sell internationally, you will have to deal with tax compliance in the markets that you sell. Working in partnership with VATGlobal we can assist in 22 non EU jurisdictions.
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 another EU state then VAT will be due in that country according to its rate and rules and you’ll be required to either register in that member state or register for “MOSS”. MOSS stands for Mini One Stop Shop. 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.
You can find out about MOSS .
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.
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 voucher for VAT purposes:
Single Purpose Vouchers (“SPV”) are currently a voucher that can only be used to purchase one type of goods or services, and the VAT rate is known at the time the voucher is issued by a retailer.
Multi Purpose Voucher (“MPV”) are effectively not an 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 their 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.
However the above definition will change on 1 January 2018. An SPV will be a voucher that can be redeemed for a range of goods or services, but the VAT rate for all the items is the same and the pace of supply is known at the time of issue. An MPV is still a voucher than is not an SPV.
For example a voucher that can be redeemed to purchase CD’s is currently an SPV but one that can be redeemed for CD’s, DVD’s or computer games would not be. From 1 January 2018 this will also be an SPV.
The VAT liability for vouchers will therefore be earlier for many vouchers that are currently issued. In addition to having to account for VAT earlier vouchers that are currently MPVs that will become SPVs will no longer benefit from what is often called “breakage” (non redemption). If an MPV is not redeemed no VAT is due. So for vouchers that are currently MPVs that will become SPVs VAT will be due regardless of redemption.