I am looking to expand my business by selling elsewhere in Europe. How should I approach this expansion with regards to the treatment of VAT elsewhere in Europe?

Many businesses these days sell goods in Europe. The potential VAT treatment differs, depending on whether you sell to individuals (including non-registered businesses) or VAT registered businesses.

For instance many online suppliers make sales of goods to individuals in other member states and the VAT treatment is not to difficult. If the item supplied is standard rated you charge VAT and if it is zero rated, you do not. However, it should always be remembered that in general the delivery charge will follow the liability of the goods supplied and is not a separate exempt charge. It is possible for the postage to be considered a separate exempt charge but this is a separate matter that will not be covered here.

There is one potential trap any business selling goods to individuals in Europe should be aware of, and that is something called “distance selling thresholds”. What this means is that if the value of sales to individuals, in a member state exceeds a certain threshold, in a 12 month period, you would become liable to register there. You would no longer charge UK VAT, but the relevant VAT rate applicable in the member state. Each member state can choose a threshold of either 35,000 Euros or 100,000 Euros, so if your sales are approaching £30,000 in one member state give us a call and we can let you know the relevant threshold.

For businesses supplying goods to other VAT registered businesses the position is slightly more involved. The supply of goods to a customer VAT registered in another member state is zero rated, but only if certain requirements are met.

First you must obtain your customers VAT registration number (including the 2-letter country pre-fix) and show it on your sales invoice. The second is that the goods must leave the UK and go to another member state, not necessarily the customer’s member state, and you must hold shipping evidence to support this. Accordingly if the goods did not leave the UK, even if the customer was VAT registered in another member state, UK VAT would be chargeable.

The sales invoice should also bear a declaration as to why no VAT is chargeable, something like “intra-EC supply, zero rated as a despatch” is acceptable. On the VAT return the sales value should be entered not only in box 6 but also box 8. Also because of the box 8 entry you will generally be required to complete an EC sales list (VAT 101) and if your EC sales exceed £250,000 a more involved intrastate declaration is required.

Obviously these are only the very basic VAT requirements. We would always advise, if you are new to selling goods to customers in Europe, or are unsure of the treatment of a particular transaction, that you seek professional advice. As part of this you can always call the VAT helpline number below.

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.