Selling goods online can be a great opportunity, but understanding the VAT rules is essential. Therefore, this article explains the key concepts related to VAT and selling goods online and can be read in conjunction with our previous article by way of a recap.
What Is an Online Marketplace?
If you run an e-commerce business you may sell via an online marketplace. It's therefore important to understand in VAT terms what is considered an online marketplace. This is because the online marketplace will ultimately be responsible for any unpaid VAT relating to sellers on it's platform.
An online marketplace is a business platform, like a website or app, that facilitates the sale of goods. However in order for it to be regarded as an online marketplace, the platform must have the following characteristics:
However, platforms that only process payments, advertise products, or redirect customers to other websites without further involvement are not online marketplaces.
VAT and Overseas Sellers
When considering VAT and selling goods online you need to consider overseas e-commerce businesses selling goods to the UK - as well as UK based businesses. It's therefore important to understand the UK VAT implications for overseas sellers.
What is an overseas seller?
For VAT purposes an overseas seller has the following traits:
Conversely, a UK based e-commerce business has the following characteristics:
A virtual office or fulfilment centre alone doesn’t qualify as a UK establishment.
VAT and Selling Goods Online: Key Issues
Overseas Sellers Using Online Marketplaces
When an overseas seller trades and sells goods in the UK via an online marketplace the following applies:
Different rules apply depending on whether a UK customer is VAT registered :
The situation is slightly different where goods are stored outside the UK:
UK sellers on online marketplaces
There are specific rules that apply to UK sellers conducting business on an online marketplace depending on where the customer is based. These are as follows:
UK based customers:
Where sales are to UK customers, UK VAT will only apply if the VAT registration threshold is exceeded.
EU based customers:
Those goods exported to the EU are zero-rated. However, local VAT and customs duties may apply. In this case, the 'Import One Stop Shop' (IOSS) can simplify VAT on EU sales under €150.
Sales to non-UK/EU customers:
If the sale is to a customer based outside the UK or EU,Zero-rated exports apply if goods leave the UK.
The Rules from 2021 Onwards
From January 2021, those marketplaces selling goods in the UK must be VAT registered. Additionally, these regulations also clarify:
Recent Updates: VAT Assessments for Online Sellers
What's more from September 2022, HMRC can issue VAT assessments for inaccurate VAT returns without first requesting trader information. Additionally, these assessments apply to VAT returns up to December 2020, plus they allow statutory reviews and appeals.
Failure to pay these assessment could lead to joint and several liability notices being issued to the online marketplace.
Summary
Understanding VAT rules for online sales is vital for compliance and smooth operations. It is also important to understand where it is necessary to account for UK VAT.
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