What are the VAT considerations for the online selling sector?
VAT was introduced in 1973 to replace purchase tax and the last full re-write of the VAT Act was in 1994 so it is fair to say that VAT legislation has not kept pace with the technological changes that have affected the way business is done across many sectors.
Add to that the effects of Brexit and it is easy to see why businesses engaged in online selling struggle to understand how VAT law affects them.
HMRC have issued several guidance notes and briefs dealing with this sector but often they contradict each other, leaving businesses unsure of their liability.
The starting point for an online seller is to identify the place of supply of the goods or services they sell. The basic rule for goods is that they are supplied where ownership transfers and so, where the supplier and customer are in different countries, it is important to establish the legal position on transfer of ownership and when this happens.
For overseas businesses selling into the UK the value of the goods is also significant as goods valued at below £135 are not subject to import VAT which means that the seller must register for and charge VAT. Goods valued at over £135 will have import VAT payable and so either the customer incurs this extra cost or the seller must register in the UK.
For services it is different because the status of the customer comes into play with services supplied business to business mostly being taxed where the customer belongs and for business to consumer where the supplier belongs.
Having established where the supply takes place, the VAT liability must be established insofar as it applies in that place. Here it is important to note that, whilst most countries have a version of VAT, with the notable exception of the US, the rates of VAT and which goods are not chargeable to standard rate VAT is not consistent across these countries.
There are also special rules for online marketplaces which place the obligation on the marketplace to account for VAT where sellers do not do so.
What are the potential benefits of discussing VAT?
As is clear from the above this is a sector where it is very easy to get it wrong, with potentially catastrophic results.
There are one stop shop schemes available to businesses that sell into multiple jurisdictions within Europe which remove the requirement for multiple VAT registrations which can be attractive options but these come with their drawbacks, notably the inability to claim VAT on local costs.
We have the expertise to quickly establish your business’ responsibility and, through our membership of a global network of specialist advisers, we can help you put in place the steps and systems necessary to manage your VAT obligations.
What types of online sellers may benefit from discussing VAT?
If you are not VAT registered in the UK but sell to UK customers you should seek advice. Similarly if you are based in the UK and sell overseas.
If you sell via an online marketplace are they accounting for VAT on your behalf or would you be in a better position by being registered?
If you are using the one stop shop, is this the right option for you and where are you storing your goods to maximise VAT efficiency?
Do you supply digital services? There are special rules applicable here that differentiate between pre recorded and live services.
What is our experience of working with the online selling sector?
We have worked with online sellers and platforms across many specialist sectors, including specialist beauty products, food and drink suppliers, taxi and transport organisers, voucher supply and redemption business to name a few.
Each business is subtly different and we carry out a thorough review to ensure that we understand the legal and practical aspects of the business operation before we advise on VAT best practice and opportunities.
For start-ups we unravel the jargon, interpret the law in a way that can be understood and help to implement the required compliance systems, including VAT registration at the outset.
We can then be as involved as you need us to be, from ad hoc advice to annual reviews right through to full VAT compliance.
