The New Year 2021 brought in changes in VAT compliance in UK following Brexit. As an e-commerce seller, dealing business with the EU now is different.
Before we dive into the important points, note that UK VAT is the same as EU VAT—it is a consumption tax levied on goods and services bought in the UK.
You may be a sole trader, a partnership, or a limited company doing B2C. That means you’re supplying products to individual customers. No matter what type of business, you should get a UK VAT registration if:
- Your taxable sales exceed the threshold of £85,000 in 12 months
- You expect your taxable sales to exceed said threshold within the month (30-day period)
Once you’ve crossed the threshold, you have 30 days to register for VAT in UK. You must be aware of your sales standing to know how close you are to breaching it as it might take 3 weeks or more to get your VAT registration in UK. If there are delays, these are usually caused by the HMRC requiring verification documents from you.
If you fail to report your VAT number to the HMRC in time, you’ll be liable to pay penalties.
With this in mind, it may be favourable to you or your business to voluntarily register for VAT way ahead of time. Your VAT advisor should be able to give you a clear picture of your numbers beforehand.
- You are a UK-registered merchant and you exceed the distance selling threshold (DST) in the EU in the last year
- You are a non-UK seller and you exceed the DST in the UK
- You are a non-UK seller or dropshipper and you plan to sell products from a UK warehouse.
Vat Registration with Munshian Ltd is as easy as 1, 2, 3, 4, 5
How to Register for VAT in UK:
Registering for UK VAT can be done online or through a VAT representative, with your registration also being referred to as your Government Gateway account. This account is what you or your accountant use to submit your returns to the HMRC (HM Revenue and Customs).
Be aware that you must start charging VAT on your products on the effectivity date of your registration or the first day of the month following your breach of the threshold limit.
These are some relevant regulations on UK VAT including the ones that changed due to Brexit:
- UK to UK sales is still chargeable with 20% VAT
- E-commerce sales from the UK to non-UK and non-EU territories are subject to VAT but is usually taken care of by the market platform
Marketplaces like Amazon, eBay, or Etsy usually take care of charging VAT to end customers.
- Destination VAT is still applied to products sold in EU member states
The rate of VAT depends on the EU member state itself. For example, Germany’s VAT is 19%, while Spain’s is 21%.
Starting July 1st, UK-based e-commerce businesses will no longer have to be registered in all EU member states that they sell to. He only needs to register at OSS in one EU member state of his choice. This is one of the simplifications brought about by the new EU VAT rules.
- Some services from the UK to non-UK are now not subject to VAT
These services include accounting, advertising, financial services (i.e. banking and insurance), and manpower supply.
- Broadcasting and transport services paid for in the UK are subject to VAT even if the client is not a UK resident.
- Digital services supplied by a UK business are not subject to VAT if the client is not a UK resident
Examples of these services are live streaming, digital TV broadcasting, telecommunications, and other services supplied online such as photography, music downloads, e-games, and online publications.
It is important to note, however, that services supplied to a UK client by a non-UK seller are subject to VAT. This means that if you’re a non-UK resident supplying goods and services to the UK, you will need to register for UK VAT.
- Exported goods are zero-rated
Supplying products from the UK to the EU and the rest of the world is now VAT-free. However, there are exceptions to this rule that depend on the status of the customer and the length of time it took to export the goods.
E-commerce sellers previously included UK VAT in the prices of their goods. With Brexit, EU VAT is applicable in its stead.
- Sale and supply of goods to the UK are subject to duty and UK VAT if over £135
The client is obliged to pay import tax. He or she should also cover UK VAT if the item is over £135
Read Posts:
Brexit VAT and EU VAT Changes: What to Do Now?
Because of these new rules, UK and non-UK sellers will have to look at their business activities to understand and choose which VAT approach to use in light of Brexit.
Here are a couple of VAT strategy tips for UK merchants selling to the EU:
Option 1: UK sellers can apply for the OSS as non-EU merchants. They can also choose which country they will register at. From there, they can have one registration for all EU countries.
Option 2: If they have lower value products (lower than €150), they may choose to go through the IOSS.
Non-UK merchants may continue to do business with their UK clients but would have to report those transactions now as exports.
Munshian Ltd Knows VAT Registration and VAT Compliance in UK
It’s of utter importance to be on top of your business’ financials to make sure you’re still on the right track when it comes to UK VAT registration and compliance. But how can your product be the next best thing if you’re too caught up in your accounting books?
Let Munshian take care of these for you and you won’t have to be worried about United Kingdom VAT registration, non-compliance, overdue returns, filing deadlines, penalties, or even HMRC inspections. These experienced professionals provide legal and accurate tax services for clients doing business anywhere in the UK and the EU.
We’ll be glad to answer any questions you may have on EU or UK VAT registration and compliance.
