VAT rules for eCommerce businesses - The Friendly Accountants

The UK VAT rules for eCommerce businesses pose many questions. For example, when do I have to register for UK VAT?, when is UK VAT payable? and what amount is UK VAT payable on?

In this post, we'll summarise the UK VAT rules for eCommerce businesses selling goods as they stand at present.

The VAT place of supply rules for goods is instrumental in determining what country VAT is payable in, when you are selling goods as an eCommerce business. Put simply, they can be placed in the following categories:

UK eCommerce businesses selling goods in the UK at the time of sale
EU eCommerce businesses that sell goods to UK customers
Non EU/UK eCommerce businesses that sell goods to UK customers

UK eCommerce businesses selling goods in the UK at the time of sale

If your goods never leave the UK, then the place of supply is deemed to be the UK. You would therefore only be required to charge UK VAT either once registered voluntarily or when you have breached the mandatory VAT registration threshold.

When your goods leave the UK and you're responsible for delivering your goods to customers in the EU then the following applies:

If your goods leave the UK, arrive in the EU and the customer is VAT registered, the sale is zero rated. Your EU customer will account for VAT under the reverse charge mechanism (though see below).
Where goods are sold to a customer in the EU who is not VAT registered then the default position applies. In other words, if you are VAT registered you charge UK VAT to your customer. However once your sales to an EU country breach the distance selling threshold it may be necessary to register for VAT in the relevant EU country. You would then need to charge EU VAT at the prevailing rate.
In a situation where your goods leave the UK and are sold to a non-EU customer then zero rating applies to the sale. However, it's important to retain evidence that the goods have been exported outside the UK/EU.

Another key point to mention is that where goods are shipped from outside the UK/EU to a customer based in the UK, the sale is deemed to take place in the UK (refer to the place of supply rules above).

EU eCommerce businesses that sell goods to UK customers

The VAT rules for EU ecommerce businesses that sell goods to UK can be summarised as follows:

Where goods are sold in the UK and an EU business has no business establishment in the UK a business must register for UK VAT immediately. The registration threshold does not apply.
If the goods are in the EU country at the point of sale and customers are not VAT registered then they are regarded as UK distance sales. The EU country's relevant rate of VAT is charged until the UK distance sales threshold is breached. Then the EU business must register for and charge UK VAT.
When goods are sold from an EU country to a UK VAT registered business then zero-rating potentially applies under the reverse charge procedure (see above).

Non EU/UK eCommerce businesses that sell goods to UK customers

As far as non EU/UK eCommerce businesses are concerned, the position is as follows:

When goods are sold in the UK and the non UK/EU business has no business establishment in the UK a business must register for UK VAT immediately. The VAT registration threshold does not apply.
If the goods are outside the EU at the point of sale and the non UK/EU business has no business establishment in the UK a business must register for UK VAT immediately.
However, where the buyer is responsible for importing the goods to the UK, then the non-UK/EU business has no UK VAT obligations.

Non-UK/EU businesses should be mindful of the joint and several liability rules for online market places. We covered this topic in our previous post here.

Additional points and recent developments

A number of online platforms receive payments on behalf of the business and you'll need to take into account any charges, commissions etc when accounting for VAT. You can read more about this here

The EU are intending to introduce changes to the distance selling rules from 1 January 2021. This is the day after the proposed transitional period for Brexit ends.

Essentially distance sales which are normally treated as having a place of supply in the country of the customer, will be treated as having a place of supply in the country of the business. Though this is only where the supplies do not exceed a new €10,000 calendar year threshold

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

Alternatively, please feel free to complete our Business Questionnaire here.

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About the author

Richard Baldwyn ATT CTA

Richard is Co-Founder of The Friendly Accountants and has more than 30 years' experience, in tax, including 3 years spent inside HMRC before moving into private practice. He advises individuals and owner-managed businesses on a wide range of UK tax issues, including the tax challenges created by digital platforms and online business models.

Richard has specialised in UK crypto taxation since 2016 and was one of the first UK tax advisers to write publicly about the taxation of cryptoassets. His work includes advising individuals, investors, founders and owner-managed businesses on complex crypto transactions, HMRC disclosures and enquiries, DeFi, NFTs and the tax issues facing businesses operating with digital assets.

He also has first-hand experience of cryptoassets and Web3 projects, combining practical knowledge of how crypto is used with wider UK tax experience.

He particularly enjoys making complex tax transactions easier to understand and helping clients apply tax rules to transactions and technologies that do not always fit neatly within traditional tax categories. More about Richard and the TFA team