UK VAT Regulations for Overseas Goods sold to Online Customers
BUY NOW! Sale! Discounts! These are some of the most familiar terms for a Brit surfing on the internet, but there’s a reason why these terms have become ubiquitous to consumers online. The United Kingdom (UK) has a population of 66.76 million people (as of 2019) and a fast-growing online retail market. Data sourced from Statista shows that the online share of total retail shares in the UK grew to over 26% in 2020. In fact, according to Business Wire, the UK is the third-largest online retail market and the largest in Europe. This is why HMRC pays special attention to monitoring and changing Online VAT regulations in the UK. At Initor Global UK, our experts take a deep dive surrounding the regulations around online VAT and help you navigate through the complexity surrounding it.
What is the meaning of an online marketplace?
An OM or online marketplace is a digital space for a given business meant to handle its sale of goods or services to customers. HMRC defines an online marketplace as a business that utilizes a website or a mobile phone application to enable the sale of goods to customers subject to all the given criteria:
- The sale of goods or services is carried out as per the decided terms and conditions
- The online marketplace is involved in the ordering process or delivery as required
- The marketplace deals in facilitating or authorising payments of customers
It is crucial for a business entity not to fall in the definition of an online marketplace if it offers only one of the given services:
- Undertaking advertisements for goods
- Payment processing on behalf of customers to enable the supply of required goods
- Customer redirection to other websites or apps for sale of goods without any actual involvement in the sale process which a customer might undertake on the redirected site or app.
What is the connotation of an Overseas Online Seller?
In the context of Online VAT UK laws, OOS refers to a business enterprise that undertakes the direct sale of goods in the UK through any given online platform. The sale might fall under any of the B2C or B2B categories.
What are the important UK Online VAT Changes from 2021?
Here are some revised rules that came into effect for UK Online VAT’s imposition on the value of online goods sold and imported in the UK.
These rules are pertinent to all digital businesses, including OM or OOS.
- From 1 January 2021 onwards, on consignments of goods with a value of £135 or less outside the UK or sold through Online Marketplace (OM) or Overseas Online Seller (OOS), the UK VAT must be charged at the point of sale. £135 is the threshold value for the sale transactions. Thus, customers can gain exemption from customs duties for any transactions below the stated limit.
Levy of VAT in Different Scenarios:
1. Consignments of goods outside the UK sold to customers of Great Britain (Scotland, Wales, and England) – Must have UK supply VAT charged at the point of sale
2. The Goods outside the UK & EU sold to customers in Northern Ireland – Import VAT shall be charged instead of UK VAT
- This £135 limit is applied not to the separate value of individual items in a consignment. Rather, it is for the value of the total consignment.
- If the goods are sold from Northern Ireland to a Northern Ireland customer, the seller remains accountable for VAT. However, if the goods are offered through an online marketplace, then the online marketplace will be liable.
- From 1 January 2021, the space that facilitates B2C imports of goods of value below €150 will receive the supply from the preliminary seller to sell the goods further to the last consumer. The same is true for platforms facilitating intra-EU sales of goods by non-EU businesses.
- Domestic sales and sales pertaining to transport from the other Member States of the EU are also enclosed by the new requirement.
- The Online Marketplace has to specify where the consumer is located and the VAT rate that is applicable. It can prove a bit challenging as the VAT rates vary from one county, and platforms may not always have a comprehensive description of the goods they sell.
What is the relevant amendment for Goods outside the UK at the Point of Sale as per the UK Online VAT requirements?
Firstly, online marketplaces should estimate the goods’ consignment value by calculating their “intrinsic value.”
- Intrinsic value refers to the price of the goods sold, excluding transportation charges, insurance costs that are not included in the price and not individually shown on the invoice. Any other tariffs and payments are also not included.
If the consignment value exceeds £135: Customers may be liable for import VAT and need to adjust for the already accounted VAT at the time of sale.
OM should also know that the Low-value consignment relief (LVCR) has been removed in certain instances.
Removal of Low-value Consignment Relief in Certain Cases:
1. Sale in Great Britain – For goods imported outside the UK
2. Sale in Northern Ireland – For goods ordered remotely and are imported from outside the UK and EU
If the consignment value is less than £135: Then the online marketplace must charge and account for VAT at the time of sale. An OM or OOS should consider the following:
- To charge and account for VAT, the online marketplace will need to understand the nature of the goods to compute the correct rate of VAT to charge.
- Register for VAT. If it is already registered, then it is not necessary to re-register.
- Keep documents of the sold goods and confirm you have detailed and factual information to apply the correct VAT treatment to the goods.
What if the customer is another VAT registered enterprise?
- As per the UK Online VAT rules, if the buyer gives a current VAT registration number, the online marketplace or seller while issuing sales invoices to the customer, must list out the following- Reverse charge: Customer to Account for VAT. Based on the reverse-charge process, the customer entity will become liable for accounting the VAT as per the reverse-charge system. The business customer will be able to recoup as input tax on the same VAT return under typical recovery rules.
Is there any change in the rules for the creation of VAT Invoices?
The formal rule for VAT invoices will remain the same. An OM can either use a full paper or digital invoice for goods. Goods that are traded in Northern Ireland from outside the EU do not have to provide a VAT invoice.
What is the provision related to the maintenance of VAT Records for Online Marketplaces?
One needs to maintain complete and detailed records of the entire 6 years from the date the online marketplace sells any goods.
What is the applicability of the Revised UK Online VAT Rules on Goods Sold Until 31 December 2020?
If the online marketplace has received the order before 11 pm on 31 December 2021, then the new rules for UK Online VAT will not apply.
Sort out the compliance issues with UK Online VAT requirements for your business through the Tax Outsourcing Services from Initor Global UK!
Initor Global UK always remains on its toes to assist British firms in handling their accounting and tax woes. Income tax and VAT demands can prove complex for many business owners. Accounting firms and CA practitioners can find dependable support with Initor to deal with their clients’ tax troubles. We offer top-notch services in the realm of tax preparation outsourcing without burning a hole in your pockets. Our tax pros possess the required skills to handle troublesome matters such as the UK Online VAT regulations. Consult Initor Global UK to know more about our services!