My business is looking into the possibility of selling online. We see this as a positive move for our business, selling both in the European Community and outside. What are our obligations in terms of VAT?
Selling goods over the internet is an option more and more businesses are considering; either as a stand alone business or as an additional selling arm to the more traditional bricks and mortar.
In terms of VAT, where customers potentially can be across the globe, there are a few extra rules to be considered when dealing with non-UK customers. However, if these are treated correctly you should not have too many problems with the VAT man.
The first point to be established is where a customer is a resident, or if a business, where they are established. The next, where you have a customer within the EC (European Community), is whether you are supplying to an individual or a business. When you have a business customer within the EC, ask for their VAT registration number. This information requirement can be built into your online ordering process, making it easier to generate the desired information.
For sales to an EC business customer, a VAT registration is required so you can zero-rate the sale. Technically your customer’s registration should be shown on your sales invoice and evidence of shipment retained. It is these requirements that allow the sale of the goods to be zero-rated. Without an EC registration, UK VAT should be charged. On a VAT return the value of these sales should be entered in ‘Box 8’ as well as the normal ‘Box 6’. However, sales to EC businesses means there is a requirement to complete ESL’s (European Sales Lists – basically for statistical purposes), these can be obtained from HMRC.
These days where fraud is not uncommon, a prudent business should also check the validity of a customer’s EC VAT registration. This can be done at the following web address:
Sales to individuals whose residence is in the EC (known as distance selling) cannot however be zero-rated (unless the goods supplied are themselves zero-rated) and UK VAT is chargeable. There is however a twist in selling to EC individuals. If the value of sales in a calendar year exceeds either 35,000 or 100,000 Euros (member states can choose which limit applies) then you would be liable to register in that member state.
However for sales to an individual or a business outside the EC, the sale can be zero-rated as an export.
These are some of the basic rules if you are considering selling over the internet, however you should always take professional advice to ensure full compliance with VAT regulations.
Taxwise is available to help answer any tax queries. Just call the Advice Service on 01455 852555 and one of our specialists will be happy to help.