VAT on e-commerce UK

VAT on E-commerce sites in UK

What you need to know about E-commerce:

It is no surprise how the modern world has evolved, with advanced technology and strategic business moves. The businesses now make complete transformation by integrating online presence. It has created a new outlook, making products and services accessible from all across the globe. Whether you want it from the US or the UK, buy it online. Hence, consumer choices have widened, and the demand has risen. This affordable and convenient way of shopping has widely impacted the economy. Due to its increasing usage, JK Accountants have summarised what you need to know about VAT on e-commerce or online sites that are trading. 

So, such a system of online selling and buying is also known as e-commerce or electronic commerce. E-commerce trade on both models, Business-to-Business (B2B) and Business-to-Consumers (B2C). 

The building of an online store is easier than ever thought before. Hence, it is also a faster setup than a local physical store. All you need is a website and the shopping cart program. Additionally, a fulfillment program, for example, like Amazon, has just solved the central concern. With a logistic service provider, you do not have to wonder how you will deliver the goods to any part of the world. 

Nowadays, you can own a successful online business even without having a website. You can easily set up an e-commerce store with the options available on social platforms. An example: you can build an Instagram shop by signing up on this platform. Moreover, you do not even have to stock up the goods. Hence, there is a reduction in the expenses as you wouldn’t need a warehouse for storage.

How is e-commerce legally affected?

Perhaps, this has resulted in more and more businessmen adopting online paradigms. As simple as it sounds, one must bear in mind, any business has legal obligations. In this case, we are referring to the (Value-Added Tax) VAT on e-commerce sites. 

Being said that, e-commerce websites VAT depends on a few criteria and conditions. However, it won’t be long before you realize your online store is booming and is subjected to tax. Therefore, having a prepared plan beforehand is a must after establishing the business. 

To understand the rules of e-commerce websites VAT, read below. We have outlined the necessary information to guide you through the tax requirements for an online store.

How does VAT on e-commerce sites incur?

In every country, there is a fixed threshold; that determines whether you should or shouldn’t register for VAT. The VAT threshold remains the same, whether you have an online e-commerce website or local sales store. 

Speaking of the UK, if your store’s turnover, on a rolling basis, is £85,000 per year, you are required to register for VAT with the HMRC. Yet, a turnover below that amount requires no VAT registration.

What is the starting rate of VAT?

The starting rate of VAT is 20% on goods, which definitely brings up this question. 

Should the company bear the cost? Or pass it down to the consumers?

How does that work? The business increases the price of the products by 20%.

What happens if the business carries the VAT cost?

If the business decides to bear the cost, they can join the HMRC flat-rate scheme. The scheme only applies to firms having a turnover below £150,000, and from 20%, the payback rate is only 16.5%. 

Should there be a VAT amount on the website?

Either way, it is necessary for the owners to precisely mention the VAT to the consumer, on the e-commerce site. However, one does not need to specify it for individual items. 

The business can reasonably mention, “VAT is inclusive in the price.”

What are the VAT categories?

VAT is a tax that incurs on any products. There are three different ways of charging the VAT.

Standard Rate VAT:

As mentioned above, the standard rate of VAT on e-commerce sales incur at 20%. It appeals to a vast range of products. 

Reduced Rate VAT:

However, items related to the health and welfare industry are charged a reduced rate. For example, the VAT rate on elderly mobility aids or cycle helmets is 5%.

Zero Rate VAT:

Assuredly there are a few items that have a 0% VAT rate. Such as baby clothing and books. These are items that belong to this category. However, since there’s no VAT incurred, it isn’t necessary to mention the rate on the site. Though the figure should be mentioned in the quarterly sales reports. It is because even though it is zero-rated, it is still taxable.

VAT-Exempt-

Items that are exempt from VAT does not have to be mentioned in the reports. Hence, this is the difference between zero-rate VAT and exempt-VAT.

Here’s a fascinating fact, even though VAT on books is zero-rated, e-books and music aren’t! There is a different set of rules for it. 

 

How is the VAT rate calculated outside the UK?

International sales among the EU countries will have a standard 20% UK VAT rate. There is a further classification to it. 

Ecommerce sales to an EU Buyer:

Unregistered VAT buyers:

If the receivers in the EU; are not VAT registered, you will have the tax charged in the usual way, the UK rate. Hence, it is known as “distance sales.”  

How does distance-sale work?


The sales of goods could be through a mail-order or directly to an individual.   

Registering VAT in other EU countries:

Nonetheless, the threshold of VAT differs in every country, and exceeding it means you will have to register for VAT in the destination country too. Therefore, one should closely observe the sale-distance between the EU nations. As a result, you will realize some states have a lower VAT rate, while others have a higher threshold. However, you do not want to exceed this limit.

Registered VAT buyers:

The sales can incur at zero-rate VAT to a registered buyer in the EU if the following conditions are met:

  • The goods dispatches from the UK to another EU country.
  • The buyer is VAT registered in their specific country.
  • Their VAT registration number is included in the sales invoice, with a two-letter country code.
  • You receive the ‘evidence of removal,’ that notifies the goods have been dispatched from the country.

Evidence of removal includes details of the transaction. Such as;

  • Customer orders
  • Sales invoices
  • Bank documents
  • Customer correspondence
  • Goods descriptions and values
  • Transportation and the route details. 

It is extremely crucial for every seller to keep this evidence for six years. Incase; the HMRC inquiries, and you do not have the documents, you will have to pay VAT for every item sold.

 

How can you send the zero-rated goods to the EU?

  • Through Post: you will receive a certificate of posting from the post office.
  • Via Courier: you will get an airway bill number. Hence, this evidence is sufficient enough for HMRC to acknowledge that the goods have been shipped. 
  • Handing the package directly: Customers can voluntarily pick-up the parcel from you. Though, maintain an invoice for this transaction too.

Moreover, if you are a UK registered seller, you must inform the HMRC of all your transactions done to any EU country.

To report the sales of goods with zero rate VAT, apply these forms:

  • Standard VAT Return (The sixth and the eighth box.)
  • The Intrastat Supplementary Declarations (used for higher sales value.)
  • The EC Sales List (ESL)

 

The treatment of VAT outside the EU nations:

E-commerce sales outside the EU have a different set of taxation rules. Mostly, the VAT is zero-rated in exports. Thus, it means there is no VAT for exports. 

With the term export, it refers to sales outside the EU countries. Likewise, product distribution to any EU country is known as; “dispatches” or “removals.” 

Besides, if you are exporting goods outside the EU, make sure to satisfy the EU Custom authorities and make them happy. To do this, you should get the Economic Operator Registration and Identification Number (EORI.) It is a specific number for every retailer that is valid in any country across the EU. One should use it while providing information about the trade transaction with the customs. For instance, during the completing declaration. 

Sending goods to the EU for a non-EU buyer:

Suppose; you are selling the goods to a non-EU buyer but delivering the goods to an EU country for dispatch, such as using an EU fulfillment service. Often, they cover up most of the administrational work. Hence, you will only have an uncomplicated VAT receipt from abroad. However, it is a must to collect the paperwork handled by the fulfillment agent. 

Yet, you can claim for the zero-rate VAT if:

  • You are only delivering goods to the EU.
  • The end receiver is not from the EU countries.
  • The EU business handles the exports of the goods
  • The trade should happen within six months of leaving the UK.

Regarding this method, you must keep the records of the customer name, invoice details, and description of the items ordered. Furthermore, if you want to make exports of goods and services; easy and quick, attach the documentation and send it to the HMRC. You can send the documents electronically via the New Export System (NES.)

 

However, stated by the EU regulations, VAT should be implemented according to the consumer’s home town. For example, the UK based will have 20% VAT while Croatia may have 25%.

Besides, we are here to help you by effectively simplifying your VAT procedures. After Brexit, there are new rules and potential VAT obligations for the e-Commerce sites.

What you need to know about E-commerce:

It is no surprise how the modern world has evolved, with advanced technology and strategic business moves. The businesses now make complete transformation by integrating online presence. It has created a new outlook, making products and services accessible from all across the globe. Whether you want it from the US or the UK, buy it online. Hence, consumer choices have widened, and the demand has risen. This affordable and convenient way of shopping has widely impacted the economy. 

So, such a system of online selling and buying is also known as e-commerce or electronic commerce. E-commerce trade on both models, Business-to-Business (B2B) and Business-to-Consumers (B2C). 

The building of an online store is easier than ever thought before. Hence, it is also a faster setup than a local physical store. All you need is a website and the shopping cart program. Additionally, a fulfillment program, for example, like Amazon, has just solved the central concern. With a logistic service provider, you do not have to wonder how you will deliver the goods to any part of the world. 

Nowadays, you can own a successful online business even without having a website. You can easily set up an e-commerce store with the options available on social platforms. An example: you can build an Instagram shop by signing up on this platform. Moreover, you do not even have to stock up the goods. Hence, there is a reduction in the expenses as you wouldn’t need a warehouse for storage.

How is e-commerce legally affected?

Perhaps, this has resulted in more and more businessmen adopting online paradigms. As simple as it sounds, one must bear in mind, any business has legal obligations. In this case, we are referring to the (Value-Added Tax) VAT on e-commerce sites. 

Being said that, e-commerce websites VAT depends on a few criteria and conditions. However, it won’t be long before you realize your online store is booming and is subjected to tax. Therefore, having a prepared plan beforehand is a must after establishing the business. 

To understand the rules of e-commerce websites VAT, read below. We have outlined the necessary information to guide you through the tax requirements for an online store.

How does VAT on e-commerce sites incur?

In every country, there is a fixed threshold; that determines whether you should or shouldn’t register for VAT. The VAT threshold remains the same, whether you have an online e-commerce website or local sales store. 

Speaking of the UK, if your store’s turnover, on a rolling basis, is £85,000 per year, you are required to register for VAT with the HMRC. Yet, a turnover below that amount requires no VAT registration.

What is the starting rate of VAT?

The starting rate of VAT is 20% on goods, which definitely brings up this question. 

Should the company bear the cost? Or pass it down to the consumers?

How does that work? The business increases the price of the products by 20%.

What happens if the business carries the VAT cost?

If the business decides to bear the cost, they can join the HMRC flat-rate scheme. The scheme only applies to firms having a turnover below £150,000, and from 20%, the payback rate is only 16.5%. 

Should there be a VAT amount on the website?

Either way, it is necessary for the owners to precisely mention the VAT to the consumer, on the e-commerce site. However, one does not need to specify it for individual items. 

The business can reasonably mention, “VAT is inclusive in the price.”

What are the VAT categories?

VAT is a tax that incurs on any products. There are three different ways of charging the VAT.

Standard Rate VAT:

As mentioned above, the standard rate of VAT on e-commerce sales incur at 20%. It appeals to a vast range of products. 

Reduced Rate VAT:

However, items related to the health and welfare industry are charged a reduced rate. For example, the VAT rate on elderly mobility aids or cycle helmets is 5%.

Zero Rate VAT:

Assuredly there are a few items that have a 0% VAT rate. Such as baby clothing and books. These are items that belong to this category. However, since there’s no VAT incurred, it isn’t necessary to mention the rate on the site. Though the figure should be mentioned in the quarterly sales reports. It is because even though it is zero-rated, it is still taxable.

VAT-Exempt-

Items that are exempt from VAT does not have to be mentioned in the reports. Hence, this is the difference between zero-rate VAT and exempt-VAT.

Here’s a fascinating fact, even though VAT on books is zero-rated, e-books and music aren’t! There is a different set of rules for it. 

 

How is the VAT rate calculated outside the UK?

International sales among the EU countries will have a standard 20% UK VAT rate. There is a further classification to it. 

E-commerce sales to an EU Buyer:

Unregistered VAT buyers:

If the receivers in the EU; are not VAT registered, you will have the tax charged in the usual way, the UK rate. Hence, it is known as “distance sales.”  

How does distance-sale work?


The sales of goods could be through a mail-order or directly to an individual.   

Registering VAT in other EU countries:

Nonetheless, the threshold of VAT differs in every country, and exceeding it means you will have to register for VAT in the destination country too. Therefore, one should closely observe the sale-distance between the EU nations. As a result, you will realize some states have a lower VAT rate, while others have a higher threshold. However, you do not want to exceed this limit.

Registered VAT buyers:

The sales can incur at zero-rate VAT to a registered buyer in the EU if the following conditions are met:

  • The goods dispatches from the UK to another EU country.
  • The buyer is VAT registered in their specific country.
  • Their VAT registration number is included in the sales invoice, with a two-letter country code.
  • You receive the ‘evidence of removal,’ that notifies the goods have been dispatched from the country.

Evidence of removal includes details of the transaction. Such as;

  • Customer orders
  • Sales invoices
  • Bank documents
  • Customer correspondence
  • Goods descriptions and values
  • Transportation and the route details. 

It is extremely crucial for every seller to keep this evidence for six years. Incase; the HMRC inquiries, and you do not have the documents, you will have to pay VAT for every item sold.

 

How can you send the zero-rated goods to the EU?

  • Through Post: you will receive a certificate of posting from the post office.
  • Via Courier: you will get an airway bill number. Hence, this evidence is sufficient enough for HMRC to acknowledge that the goods have been shipped. 
  • Handing the package directly: Customers can voluntarily pick-up the parcel from you. Though, maintain an invoice for this transaction too.

Moreover, if you are a UK registered seller, you must inform the HMRC of all your transactions done to any EU country.

To report the sales of goods with zero rate VAT, apply these forms:

  • Standard VAT Return (The sixth and the eighth box.)
  • The Intrastat Supplementary Declarations (used for higher sales value.)
  • The EC Sales List (ESL)

 

The treatment of VAT outside the EU nations:

E-commerce sales outside the EU have a different set of taxation rules. Mostly, the VAT is zero-rated in exports. Thus, it means there is no VAT for exports. 

With the term export, it refers to sales outside the EU countries. Likewise, product distribution to any EU country is known as; “dispatches” or “removals.” 

Besides, if you are exporting goods outside the EU, make sure to satisfy the EU Custom authorities and make them happy. To do this, you should get the Economic Operator Registration and Identification Number (EORI.) It is a specific number for every retailer that is valid in any country across the EU. One should use it while providing information about the trade transaction with the customs. For instance, during the completing declaration. 

Sending goods to the EU for a non-EU buyer:

Suppose; you are selling the goods to a non-EU buyer but delivering the goods to an EU country for dispatch, such as using an EU fulfillment service. Often, they cover up most of the administrational work. Hence, you will only have an uncomplicated VAT receipt from abroad. However, it is a must to collect the paperwork handled by the fulfillment agent. 

Yet, you can claim for the zero-rate VAT if:

  • You are only delivering goods to the EU.
  • The end receiver is not from the EU countries.
  • The EU business handles the exports of the goods
  • The trade should happen within six months of leaving the UK.

Regarding this method, you must keep the records of the customer name, invoice details, and description of the items ordered. Furthermore, if you want to make exports of goods and services; easy and quick, attach the documentation and send it to the HMRC. You can send the documents electronically via the New Export System (NES.)

 

However, stated by the EU regulations, VAT should be implemented according to the consumer’s home town. For example, the UK based will have 20% VAT while Croatia may have 25%.

Besides, we are here to help you by effectively simplifying your VAT procedures. After Brexit, there are new rules and potential VAT obligations for the e-Commerce sites.

Scroll to Top