Ecommerce & VAT in the UK: All you Need to Know

For an E-Commerce seller, being active in the United Kingdom is a double-edged sword.

On the one hand, the UK boasts millions of potential customers with a high purchasing power.

On the other, the UK’s exit from the European Union made cross-border selling more complicated – especially when it comes to tax matters. 

So how do you need to proceed when you want to expand into Great Britain and start selling to British customers?

Together with hellotax, we created a quick guide, explaining which VAT matters you have to take care of.

VAT registration in the UK 

For UK businesses there is a VAT threshold that indicates whether or not a business needs to register for VAT.

If a UK business expects a VAT taxable turnover of more than £85,000 in the next 30 days

OR

if a business had a VAT taxable turnover of more than £85,000 in the last 12 months, it needs to register for VAT.

No matter when you register, your effective date of registration – the day from which on forward you are liable for VAT – is the day you realize that your turnover will exceed the threshold. 

For non-UK businesses, the situation is more precise.

If neither you nor your company is based in the UK, you must register for VAT as soon as you supply goods and services to the UK or if you plan to do so in the next 30 days. 

To register for VAT in the UK you will need to get an account for the “Government Gateway”.

The account is then used to register for UK VAT and obtain an English VAT number. You will receive the VAT number after approximately 30 days.

In Great Britain, the VAT ID consists of the country code GB and nine numbers.

You will also need to apply for an EORI number, used for customs processes if you plan to import goods into the UK. 

Sell in the United Kingdom

Once you register for VAT you are free to sell products to UK customers.

You can do so via platforms and fulfilment networks by Amazon, or via your own hosted online shop and with the help of a hired fulfilment partner. 

Either way, your next steps include a lot of paperwork.

First of all, you will need to use the UK VAT rates for purchases from UK customers.

While Amazon makes automatic changes to their checkout page, you will need to make adjustments in the software if you use shop systems like Shopify or others. 

Next, you will need to deal with imports and customs. If you send packages to UK customers they represent an import once they arrive in the UK ever since the UK’s exit from the European Union.

This means you are not only liable for normal VAT but also for import VAT: a problem for many sellers. 

Import VAT is usually due once the package crosses the border. Depending on your fulfilment method and business model import VAT can, therefore, be due before you even sell the product to your end consumer or receive payment.

You will only be able to recover the import VAT in your regular VAT returns, submitted later.

This fact has caused negative cash flows for both non-UK and UK businesses since Brexit. 

Thankfully, the UK has introduced the “UK postponed VAT Accounting scheme”, which allows businesses to postpone the payment of import VAT from the moment of import to the filing of regular VAT returns.

The scheme effectively replaces the EU Reverse-Charge-Mechanism. 

To use the Postponed VAT Accounting scheme you will need to indicate this by writing a “G” into box 47 on your customs declarations.

This way, customs will not hold your goods but note that import VAT will be accounted for later on.

Later on, in your VAT return, you will need to include the postponed import VAT in boxes 1 and 4.

The first box indicates the VAT due and the fourth box the VAT reclaimed. Generally, the two sums cancel each other out. Lastly, in Box 7 you should include the total net value (value excluding VAT) of all imports for which you postponed VAT.

VAT returns in the UK 

So how do you file VAT returns in the UK – and do you even have to?

The answer is yes!

Every UK and non-UK business that had to register for VAT in Great Britain also needs to submit VAT returns on a regular basis. 

VAT returns are due four times a year, quarterly.

The deadline for submission is always the same: one calendar month and seven days after the end of the previous accounting period. If your annual turnover is below £1.35 million you also have the option to file VAT returns only annually.

But there is a catch.

You need to prepay a certain VAT amount estimated based on the last year at the beginning of the current year.

In the end, you will either receive a refund or be liable for additional VAT – depending on how business went that year. 

When the deadlines come around it’s time to compile VAT returns.

Where you can find the VAT return form depends on whether you signed up for Making Tax Digital for VAT.

This new program aims to make the UK tax system the most digital in the world.

If you have signed up you can use accounting software compatible with the new program. If not, you can use your “Government Gateway” account.

In both cases, you will naturally need a VAT number to successfully submit the VAT returns. 

And one more thing...

Managing VAT in a foreign country is hard. Even if you speak the national language, as is the case with the UK, differing regulations, deadlines, software, and forms take a toll on your productivity. But there is a solution. 

hellotax is a VAT service provider specializing in E-Commerce.

The form offers software that automatically compiles your VAT returns and boasts a team of local tax accountants in the UK and other European countries that register you for VAT and submit all necessary documents and returns.

They take care of all VAT duties while you can continue to concentrate on your business in the UK.