United Kingdom

Goods

This guide is for e-commerce companies that sell online via web-stores or at marketplaces. 

 

VAT Standard rate 
20% 

 

VAT Reduced rate
5%
Some goods and services, eg children’s car seats and home energy. 

 

Zero rate
0%
Zero
-rated goods and services, eg most food and children’s clothes. 

 

Thresholds
For businesses established in the UK the digital supplies threshold is £8,818 (the figures before VAT is added). If the annual value of your total cross-border supplies of digital services to consumers in the EU in the current year and previous year is: 

  • Below the threshold, the place of supply is the UK
  • Over the threshold, the place of supply is where the consumer is located. 

If you are based outside the EU and supply digital services to consumers in the EU, the place of supply will be where the consumer is located. 

The £8,818 digital services threshold does not apply and you’re responsible for accounting for VAT on the supply regardless of the value of the sales. 

 

Deductible VAT 
If goods or services were used to make taxable supplies in the UK, VAT in input invoices might be credited. For example: 

  • VAT paid at custom clearance with your EORI number 
  • VAT paid to the UK suppliers  

You may be able to reclaim VAT paid on goods or services bought before you registered for VAT if the purchases were made within certain time limits.    

 

Registration procedure

You must register if you realize that your total VAT taxable turnover is going to be more than £85,000 in the next 30-day period. You have to register by the end of that 30-day period. Your effective date of registration is the date you realized, not the date your turnover went over the threshold. 

You must register if, by the end of any month, your total VAT taxable turnover for the last 12 months was over £85,000. You have to register within 30 days of the end of the month when you went over the threshold. Your effective date of registration is the first day of the second month after you go over the threshold. 

There’s no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK (or if you expect to in the next 30 days). 

Most businesses can register online – including partnerships and a group of companies registering under one VAT number. 

Tax representative

There is no liability to appoint a tax representative in the UK. 

Liability for Marketplace Operators

From 15 March 2018 new legislation allows HMRC to hold you, as the operator of an online marketplace, jointly and severally liable for the unpaid VAT of overseas sellers operating on your marketplace where: 

  • An overseas seller operating on your marketplace has not registered for UK VAT
  • You, as the operator of the online marketplace, knew or should have known that the seller should be registered for UK VAT 

These rules also extend existing rules, so you can also be held jointly and severally liable if HMRC tells you that a UK or overseas seller operating on your marketplace is not meeting its VAT obligations. 

You should carry out reasonable due diligence checks on new sellers setting up accounts on your website to be sure that they’ve registered for UK VAT, and should carry out checks on each one. Some of these checks include: 

  •  That the VAT Registration Number (VRN) a seller gives you, or is or displayed on your online marketplace, is valid
  • The location of the seller
  • The location of the goods that will be sold by the seller
  • If the seller, or those directing the seller, has been removed from your online marketplace before
  • How quickly the seller is able to fulfil orders from UK consumers
  • How the seller fulfils orders from UK consumers
  • If there’s anything about information that the seller, HMRC or a third party gives you that might indicate dishonest conduct or failure to meet their VAT obligations
  • Monitoring when the seller begins to offer goods for sale on your online marketplace
  • If an overseas seller opens an account on your online marketplace it should alert you that they’re likely to start selling goods in the near future and should register for VAT. 

Tell HMRC when you identify and remove a seller who has not met their VAT obligations from your marketplace. 

  • If you find out an overseas seller’s VRN is invalid
  • If you discover a VRN for an overseas seller is invalid, and do not take prompt action to remove the seller from your online marketplace you could become jointly and severally liable for the sellers unpaid VAT if the seller is still operating on your marketplace 60 days after the initial 10 day period has ended. 

 

Keeping records

You must keep VAT records for at least 6 years (or 10 years if you use the VAT MOSS service). 

You can keep VAT records on paper, electronically or as part of a software program (such as book-keeping software). Records must be accurate, complete and readable. 

Records you must keep include: 

  • Copies of all invoices you issue 
  • All invoices you receive (originals or electronic copies) 
  • Self-billing agreements – this is where the customer prepares the invoice 
  • Name, address and VAT number of any self-billing suppliers 
  • Debit or credit notes 
  • Import and export records 
  • Records of items you cannot reclaim VAT on – for example business entertainment 
  • Records of any goods you give away or take from stock for your private use 
  • Records of all the zero-rated, reduced or VAT exempt items you buy or sell 
  • A VAT account 

You must also keep general business records such as bank statements, cash bookscheque stubs, paying-in slips and till rolls. 

If you use the Cash Accounting Scheme you must use these records to match them against your payment records and receipts. 

If you’ve signed up for Making Tax Digital for VAT, you must keep a digital record of anything that is needed for your VAT Return (your business name, address and VAT registration number, any VAT accounting schemes you use, the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell, the VAT on everything you buy and sell. You must add all your transactions to your digital records, but you do not need to scan paper records like invoices or receipts.) 

VAT payment date

The deadline for paying HMRC is usually – 1 calendar month and 7 days after the end of an accounting period. You need to allow time for the payment to reach HMRC’s account. 

Filing VAT returns

You must submit your return online to HMRC (HM Revenue and Customsunless: 

  • Your business is subject to an insolvency procedure – if you have a Company Voluntary Arrangement or an Individual Voluntary Arrangement you can submit your return online if you want to
  • You object to using computers on religious grounds
  • You cannot because of your age, a disability or because of where you live, for example you do not have internet access. 

Lovat platform supports digital submission. 

You usually submit a VAT Return to HM Revenue and Customs (HMRC) every 3 months. This period of time is known as your ‘accounting period. Check your VAT Return and payment deadlines in your VAT online account. 

It tells you: 

  • When your VAT Returns are due 
  • When the payment must clear HM Revenue and Customs’ (HMRC) account 

The deadline for submitting the return online is usually – 1 calendar month and 7 days after the end of an accounting period. 

Digital services

VAT standard rate
20% 

VAT reduced rate
5% 

 

VAT zero-rated
0% 

VAT calculation peculiarity
VAT= Total revenue * 20/120 

 

Threshold
The thresholds for registering for VAT or joining a VAT accounting scheme from 1 April 2017. You must register your business for VAT with HM Revenue and Customs (HMRC) if its VAT taxable turnover is more than £85,000 

 

The digital supplies threshold
The digital supplies threshold is £8,818. If the annual value of your total cross-border supplies of digital services to consumers in the EU in the current year and previous year is: 

  • Below the threshold, the place of supply is the UK
  • Over the threshold, the place of supply is where the consumer is located 

To work out the value of your digital sales, you must use the figures before VAT is added. 

EU countries plus Norway and Switzerland threshold 

If your business stays below €10,000 in cross-border sales of digital goods per year, throughout the EU, then you can charge the VAT rate of your home country on all those cross-border sales.  

To work out the value of your digital sales, you must use the figures before VAT is added. 

Businesses with B2C cross-border supplies of digital services within the EU that do not exceed a value of €100,000 per year have reduced VAT administrative obligations. These businesses are obliged to obtain only one piece of evidence in respect of their customer’s location (to determine where the VAT arising is due). 

Pieces of evidence

If the total value of the cross-border digital sales: 

  • Is below £88,183 before VAT in the current year and previous calendar year, one piece of evidence is required (this cannot be ‘other commercially relevant information’) 
  • Exceeds £88,183, 2 pieces of non-contradictory evidence are required for that supply and all supplies after it 

Examples of the type of supporting evidence that tax authorities will accept include: 

  • The billing address of the consumer 
  • The Internet Protocol address of the device used by the consumer 
  • Consumer’s bank details 
  • The country code of the SIM card used by the consumer 
  • The location of the consumer’s fixed landline through which the service is supplied
  • Other commercially relevant information – for example, product coding information which electronically links the sale to a particular jurisdiction 

Businesses using payment service providers 

A business which makes cross-border digital service supplies must get and keep 2 pieces of information as evidence of where a consumer normally lives. This shows that the correct rate of VAT has been charged and will be accounted for to the correct EU member state tax jurisdiction. 

Defining digital services (E-services list)

Radio and television broadcasting services, which include: 

  • The supply of audio and audio-visual content for simultaneous listening or viewing by the general public on the basis of a programme schedule by a person that has editorial responsibility 
  • Live streaming through the internet if broadcast at the same time as transmission by radio or television 

Telecommunications services  means transmission of signals of any nature by wire, optical, electromagnetic or other system and includes: 

  • Fixed and mobile telephone services for the transmission and switching of voice, data and video, including telephone services with an imaging component, otherwise known as videophone services 
  • Telephone services given through the internet, including Voice over Internet Protocol (VoIP) 
  • Voice mail, call waiting, call forwarding, caller identification, 3-way calling and other call management services 
  • Paging services
  • Access to the internet 

It does not cover services just given over the telephone, such as call center help desk services. 

Electronically supplied services – these rules only apply to e-services that you supply electronically and includes things like: 

  • Supplies of images or text, such as photos, screensavers, e-books and other digitized documents, for example, PDF files 
  • Supplies of music, films and games, including games of chance and gambling games, and programmes on demand 
  • Online magazines 
  • Website supply or web hosting services
  • Distance maintenance of programmes and equipment
  • Supplies of software and software updates
  • Advertising space on a website 

Registration procedure

You must register if you realize that your total VAT taxable turnover is going to be more than £85,000 in the next 30-day period. 

You have to register by the end of that 30-day period. Your effective date of registration is the date you realized, not the date your turnover went over the threshold. 

You must register if, by the end of any month, your total VAT taxable turnover for the last 12 months was over £85,000. 

You have to register within 30 days of the end of the month when you went over the threshold. Your effective date of registration is the first day of the second month after you go over the threshold. 

There’s no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK (or if you expect to in the next 30 days). 

Late registration

If you register late, you must pay what you owe from when you should have registered. You may get a penalty depending on how much you owe and how late your registration is. Most businesses can register online – including partnerships and a group of companies registering under one VAT number. 

When you ca not register online. You must register by post using VAT1 if: 

  • You want to apply for a ‘registration exception’ 
  • You’re joining the Agricultural Flat Rate Scheme
  • You’re registering the divisions or business units of a body corporate under separate VAT numbers 

Register by post using form: 

  • VAT1A if you’re an EU business ‘distance selling’ to the UK 
  • VAT1B if you import (‘acquire’) goods worth more than £85,000 from another EU country 
  • VAT1C if you’re disposing of assets on which 8th or 13th Directive refunds have been claimed 

VAT returns filing date

You usually submit a VAT Return to HM Revenue and Customs (HMRC) every 3 months. This period of time is known as your ‘accounting period. Check your VAT Return and payment deadlines in your VAT online account. 

It tells you: 

  • When your VAT Returns are due
  • When the payment must clear HM Revenue and Customs’ (HMRC) account

The deadline for submitting the return online and paying HMRC are usually the same – 1 calendar month and 7 days after the end of an accounting period. You need to allow time for the payment to reach HMRC’s account. 

Keeping records

You must keep VAT records for at least 6 years (or 10 years if you use the VAT MOSS service). 

You can keep VAT records on paper, electronically or as part of a software program (such as book-keeping software). Records must be accurate, complete and readable. 

Records you must keep include: 

  • Copies of all invoices you issue
  • All invoices you receive (originals or electronic copies)
  • Self-billing agreements – this is where the customer prepares the invoice
  • Name, address and VAT number of any self-billing suppliers
  • Debitor credit notes
  • Importand export records
  • Recordsof items you cannot reclaim VAT on – for example business entertainment
  • Records of any goods you give away or take from stock for your private use
  • Records of all the zero-rated, reduced or VAT exempt items you buy or sell
  • A VAT account
  • You must also keep general business records such as bank statements, cash books,chequestubs, paying-in slips and till rolls. 
  • If you use the Cash Accounting Scheme you must use these records to match them against your payment records and receipts.

If you’ve signed up for Making Tax Digital for VAT, you must keep a digital record of anything that is needed for your VAT Return (your business name, address and VAT registration number, any VAT accounting schemes you use, the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell, the VAT on everything you buy and sell. You must add all your transactions to your digital records, but you do not need to scan paper records like invoices or receipts.)