UK VAT rules for businesses
VAT, or value-added tax, is a consumption tax applied to most goods and services when they are sold. UK businesses must register for VAT when their annual turnover exceeds £90,000 and provide their VAT number to suppliers when making purchases. The standard rate is 20% but other goods and services are charged at 5% and 0%.
However, businesses can choose to register for VAT, even when their turnover is below £90,000 so they can reclaim the VAT their business pays on business purchases.
Selling to end users in EU countries
When selling goods and services to EU customers, it can be difficult to know whether you should be charging VAT. So let’s break it down, beginning with selling to consumers – the end users of the product or service you export. Should you charge VAT?
Whether you do or not depends on the “place of supply” of your goods or services. For goods, this means where it was made. For services, it means where it was consumed. So, you should charge UK VAT on goods that you sell to EU customers as if they were in the country. If you’re also registered for VAT in the relevant EU country, you can zero-rate the items as long as they meet the usual conditions (see below for more on accounting for zero-rated goods). If you’re providing services, you’ll have to follow the rules of the member country your customer is in.
Selling to EU businesses
Things change when you’re selling to businesses in the EU. Let’s consider goods transactions, which are known as dispatches and charged with 0% VAT. This means they are within the scope of VAT but are zero rated, so you need to account for these sales in your VAT return.
You have to tell HMRC about your EU sales on three different forms:
- your normal VAT return in box 6 and box 8
- the EC sales list (ESL)
- the intrastat supplementary declaration, if you sell over £250,000 of goods to EU customers in a year.
If you’re providing services to an EU business, the customer is responsible for self-accounting VAT under the reverse-charge mechanism. This means the customer is responsible for applying VAT, which will be zero rated. You just need to include the customer’s VAT number and a statement along the lines of “reverse-charge VAT applies to this transaction” on your invoice.
Selling outside the EU
When selling goods and services to the rest of the world, they are normally outside the scope of UK VAT. They are therefore completely exempt from VAT.
The importance of good record-keeping
Effective record-keeping is crucial for e-commerce selling across borders as it will ensure that all your sales and purchases are properly accounted for, helping you stay compliant with all tax regulations that apply to you. It will also help you send documents to HMRC and during an audit.
Wrapping up
Navigating VAT rules for cross-border e-commerce can feel overwhelming, but understanding your responsibilities is essential for staying compliant and avoiding costly mistakes. Whether you’re dealing with EU customers, businesses, or exporting globally, keeping accurate records and staying on top of VAT requirements will save you time and stress in the long run. If you’re unsure about any aspect of VAT for your e-commerce business, don’t hesitate to get in touch. With our support, you can focus on growing your business while we handle the details.
Need help with VAT for e-commerce exporting? Get in touch with us. Cross-border VAT is a complex topic but we have the experience and expertise to help you.