VAT on International Sales or Transactions in UK

At last international online sellers must register for UK VAT or risk getting struck off online marketplaces

That VAT rules are complex is part of the reason why a lot of small businesses delegate this part of the business to an accountant, but complexity is not necessarily why so many overseas online sellers to the UK are not paying UK tax in the shape of VAT.

An overseas seller is a business that sells goods (not services) stored in the UK to UK consumers even if the business doesn’t have an actual establishment in the UK are eligible to pay VAT on International Sales or Transactions in UK. The rules of “distance selling” from the EU are different from the rules for overseas sellers from elsewhere in the world.

All traders based outside the EU and selling goods online to UK customers should charge VAT if their goods are already in the UK at the point of sale. I know it seems unfair to single out one country, but there is evidence that Chinese businesses in particular are using warehouses in ports in the UK as “staging posts”, which means they can offer “amazing prices” and “fast delivery” via eBay and Amazon.

When some customers have requested a VAT receipt from some of these online retailers, they’ve been told that they don’t apply the tax or VAT on international sales to GOV. However, all non-EU overseas businesses selling on eBay and Amazon should be applying VAT on UK sales sold to customers in Britain, regardless of how low their turnover is in the UK. The VAT can only be avoided if an item sold from outside the EU is a genuine low-value item and has come into the UK in a small package already addressed to an individual. Then the sale is not classed as distance selling for VAT purposes, although customers sometimes have to pay UK import VAT on the goods when they arrive in the UK. Duty may be payable as well.

So as the cheaper prices online often reflect the fact that the seller is not paying VAT on the sale of the good in the UK even though it is the law that they should, the chancellor announced that the government is “taking further action to address online VAT fraud, which costs the taxpayer £1.2bn per year, by making all online marketplaces jointly liable for VAT – [and] ensuring that sellers operating through them pay the right amount of VAT.”

The National Audit Office has estimated that VAT tax evasion is costing the Treasury up to £1.5bn a year. Keen to be seen to crack down hard on tax evasion, the UK government is holding sellers as well as online marketplaces, such as Amazon and eBay, jointly and severally liable for online sellers’ VAT.

Time to take responsibility – Pay International Transaction VAT in UK

Previously the likes of Amazon and eBay have shirked responsibility but now both the online retailer and the marketplace, that is, e.g. Amazon or eBay will be held jointly and severally liable by HMRC for the UK VAT an overseas seller owes if they don’t meet their VAT requirements.

Overseas sellers must charge VAT on your UK sales of goods, account for it, and pay UK VAT to HMRC, if sellers fail to do so then the likes of Amazon and eBay and other online marketplaces will have to pay the VAT on their behalf.

Any overseas online retailers to the UK reading this can see more information on how to account for the VAT by reading VAT Notice 700/12: how to fill in and submit your VAT Return or please feel free to contact DNS and we’ll ensure you comply with UK tax law and help you save tax compliantly where we can.

What now?

Online retailers living in the UK have already been notified by eBay that they will have to start paying fees to its UK business. The changes are likely to affect traders that have a business account with eBay but have not registered for VAT; in a message to customers eBay stated: “You’ll begin paying 20 per cent UK VAT to eBay (UK) Limited on taxable fees and won’t be able to reclaim VAT paid unless you register for VAT with HMRC.”

This means that individual one-off sellers on eBay might find their fees go up a bit to account for the fee that eBay now charges. But the fact that VAT at 20% will be automatically charged on eBay fees to UK sellers who have not registered as business sellers hopefully will mean that businesses operating within the UK will need to register as business sellers and will probably also need to account for VAT as a business if their taxable turnover is above the VAT threshold of £85,000 (or £70,000 if “distance selling” in the UK) over the course of a calendar year (1 January–31 December).

So this should get businesses registering for VAT and paying VAT in order to claim it back; and marketplaces won’t want to fall foul of HMRC’s jointly and severally liable clause. This will improve prospects no end for high street retailers as well as mail order and internet retailers who run their businesses within the law and pay all the taxes they’re liable for. I support this move and feel it is long, long overdue.

Read more about distance selling and UK VAT here.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.