Do you run an online marketplace selling goods to UK customers?  Do you charge VAT on these goods?  This is what you need to know about VAT, eCommerce VAT and eRetailers.

Tax at the point of sale

VAT stands for Value Added Tax. Businesses have to pay VAT to HMRC when they sell or hire out goods or services. There are some exceptions, such as sales outside the UK. But for many businesses, VAT applies to every sale if you’re VAT registered. It doesn’t matter if your customer is another business or a consumer. However it is possible to reclaim the VAT charged on business expenditure – so long as you’re VAT registered.

What is eCommerce aka an online marketplace?

An online marketplace is a business using a website or mobile phone app that sells goods to a third party – the customer – and which does all of the following:

• Sets the terms or conditions on the sale of the goods to the customer
• Processes customer payments
• Orders or delivers goods

A business is not an online marketplace if it only does one of the following:

• processes payments
• lists or advertises goods
• Redirects customers to another website/s or app where goods are offered for sale

What is e-commerce VAT?

For most goods when it comes to VAT, there is no difference whether they are sold online (eCommerce) or in a physical bricks and mortar shop. The exception to this is for digital goods and services, such as eBooks and music downloads. 

HMRC views an online shop in exactly the same way as a physical shop. If you’re selling online or from premises, the basic rule is that you charge VAT if your business is registered for VAT.

This guidance explains what you must do to meet your UK VAT responsibilities if you are:

• a UK seller selling goods already in the UK at the point of sale to UK customers or
• an overseas seller, or their UK VAT representative, who:
  • sells goods already in the UK at the point of sale to UK customers
  • is based outside the UK and sells goods to UK customers, importing those goods into the UK

When should you register for VAT?

HMRC clearly states that you must register for VAT when your turnover for goods and services is over £90,000. This is known as the “threshold”. The threshold is not based on turnover in a calendar year, but on a rolling 12-month basis. You can register for VAT online or call the HMRC VAT advice line for more information. Once you pass the threshold, you have 30 days to register. Your effective VAT registration date will be the first day of the second month after you go over the registration threshold.

If your turnover is lower than the threshold, you don’t need to register and you don’t need to charge VAT – but you can choose to do so.

Retailers should charge VAT

In the UK, there are different VAT rates.

• 20% – this is the VAT rate for most items
• 5% – for some specified health, welfare and energy-related goods 
• 0% – a few goods are ‘zero-rated’
• Zero – some goods are VAT exempt

A full list of goods and services and their applicable HMRC VAT rate are listed on the .gov website.

You have to tell your customers if you are charging them VAT

If you are VAT-registered, you have to tell your customers on your website/app. You can show your prices as VAT inclusive: you do not need to list the VAT separately.

You need to charge VAT on delivery costs too

VAT applies on delivery charges at the same rate as the VAT on the item. So you charge 20% VAT on delivery for goods that are 20% rated, and 0% for goods that are zero-rated. If you offer free delivery, then there is no extra VAT to charge as it’s included in the price.

Selling to Europe or worldwide?

If you sell, send or transfer goods out of the UK you do not normally need to charge VAT. You can zero rate most exports from:

• Great Britain to any destination outside the UK
• Northern Ireland to a destination outside the UK and EU

Find out more here

Importing goods into the UK to sell to UK customers?

If you import goods into the UK, you need to pay any import VAT and Customs Duty. You can reclaim any VAT you pay when you import the goods and you need to charge VAT on the goods when you sell them to a customer.

There are different rules:

• for consignments of goods containing excise goods (this includes alcohol and tobacco products) importing excise goods to the UK
• for consignments of goods from Jersey and Guernsey, if VAT is collected and paid to HMRC under the Import VAT Accounting Scheme

Important to know – the difference between zero-rated and VAT exempt

Being zero-rated is not the same as VAT exempt. If an item is zero-rated, it is still VAT taxable, just at 0% and you still have to record the sale and report it on your VAT return so it counts towards your 12-month £90,000 threshold. VAT exempt goods are not recorded and do not count towards your VAT threshold.

What eCommerce retailers need to do

1. Decide if you are a UK business or make VAT sales to customers in the UK. If you sell all goods using an online marketplace and you only have a fulfilment centre in the UK, then you are an overseas seller.

2. Record your VAT taxable turnover.
3. If your VAT taxable turnover  is over £90,000 register for VAT and start charging it on your sales
4. Register for Making Tax Digital and report quarterly as per the rules

Dealing with VAT can be complicated and time consuming – how can Hour Hands help?

Once you have registered for VAT, you need to charge VAT on any goods and services sold, record these charges and make quarterly payments to HMRC. It means increased admin and meeting deadlines – additional tasks for your team.  This is how Hour Hands could help. Our team of experienced bookkeepers are on hand to manage all these tasks, including invoicing, reconciliations, credit control – the list goes on. We use most software packages or traditional spreadsheets to manage your accounting so you stay in control whilst we do the work.

In fact, we can handle most tasks that don’t require your personal time, giving you time to concentrate on something else that you are better skilled at doing or, to allow you time to enjoy doing something that fills you with happiness.

If you think that we can help – or if you’d like to talk about it and find out, do fill in the contact form or give us a call. We’re always on hand and happy to help!