UK Distance Selling VAT Rules

Distance Selling VAT Rules

Like many countries in the European Union and around the world, the United Kingdom uses a general system of consumption tax for services and goods known as Value-Added Tax (VAT). The VAT system applies varied tax percentages on different kinds of goods and services sold to consumers.

Depending on the type of product or service, VAT can range from 0%, 5%, or 20%. Some goods are exempt from VAT altogether. Businesses and companies are required to pay VAT to Her Majesty’s Revenue and Customs (HMRC), generally every 3 months, if they sell goods that fall under the relevant categories. All companies and businesses that have a taxable sales turnover of more than £85,000 per year will be subject to registering for VAT.

Overseas companies and businesses selling directly to consumers in the UK are also subject to specific rules on VAT. This is known as distance selling.

Distance selling includes sales via phone, mail order, text message, and digital television. It differs from online selling via online marketplaces. It is important that your overseas company or business understands the VAT rules for selling to the UK to avoid engaging in VAT fraud, a kind of tax evasion that will subject you to penalties and surcharges from the UK Government through Her Majesty’s Revenue and Customs (HMRC).

This article will explain the VAT rules for businesses and companies outside the UK that seek to sell goods and services directly to consumers inside the United Kingdom. These rules differ between Great Britain (England, Scotland, and Wales) and Northern Ireland.

 

What is VAT?

Value-Added Tax (VAT) is the general system of consumption tax for services and goods in the United Kingdom. There are 166 countries around the world that utilise a VAT system for the taxation of services and goods. In the United Kingdom, VAT is charged at three different rates – a standard rate of 20% for the majority of services and goods, a reduced rate of 5% for some services and goods, and a 0% rate for most essential food products and children’s clothing items. Additionally, there are some services and goods that are fully exempt from VAT. Whilst the consumer is charged for VAT on services and goods, the onus is on the seller to pay VAT to the UK Government several times a year.

 

What are the VAT categories for goods and services?

It is important to know which VAT categories your goods and services fall under, to ensure that you know how to follow the VAT rules for selling goods to the UK from abroad. The following categories of products fall under the relevant VAT percentages:

20% Standard VAT rate: most services and goods

Alcoholic beverages Tolls for privately operated roads, bridges, and tunnels
Chocolate covered biscuits Carbonated drinks
Water for industrial properties Petrol and diesel road fuel
Taxi fares Video games, DVDs, CDs, and tapes
Bottled water Pushchairs and prams
Stationery products Sweets and confectionery products
Calendars and diaries Potato crisps
Non-culinary salt products Postage and packaging delivery charges
Postal services via Royal Mail and other licenced operators Electrical products
Shelled, roasted, and salted nuts Gas, electricity, heating oil, and solid fuel for business premises
Cold drinks and fruit juice, excluding milk Beverages and food products consumed at the premises of cafes, restaurants, and other eating establishments
Ice cream products Hot takeaway food products and beverages

 

5% Reduced VAT rate: some services and goods

Smoking cessation products Car seats for children
Mobility assistance aids for elderly individuals Gas, heating, electricity, and solid fuel for domestic, residential, charity, and non-business properties
Maternity pads Energy-saving products that are permanently installed in residential and charity properties

 

0% Zero VAT rate: most essential food items and children’s clothing

Household water Vehicle, boat, or aircraft transport of more than 10 passengers
Tea, cocoa, and coffee Shipbuilding of over 15 tonnes
Domestic and industrial sewerage Sanitary products
Cold sandwiches Culinary salt
Public transportation fares on bus, tube, and train Industrial protective boots and helmets
Prescription medicines Raw nuts and pulses
Newspapers, journals, and magazines Butter, cheese, and milk
Meat and poultry products Live animals suitable for human consumption
Fruit and vegetables Fish
Equipment for disabled individuals Eggs
Donated goods for sale at charity shops Cooking oil
Aircraft Bicycle and motorcycle helmets
Biscuits not covered in chocolate Printed books, charts, and maps
Bread Brochures, pamphlets, and leaflets
Building services for disabled individuals Cakes
Canned and frozen foods, barring ice cream Cereals
Ready meals and convenience foods Clothing and footwear for children under the age of 14
Construction and sale of new habitable buildings

 

Exempt from VAT

Television licences Sports activities and physical education
Postage stamps Membership subscriptions
Medical treatment and medical care Insurance
Health services, including services from  dentists, doctors, pharmacists, opticians, and other health care professionals Gambling, including lottery, gaming, bingo, and betting
Funeral care insurance Financial services, including shares/bonds, loans/credits, money transactions, and savings/deposits
Education and vocational training Cultural events run by public organisations, such as zoos, performances, museums, and art exhibitions
Human burial and cremation services Antiques and artwork sold to public organisations
Selling, leasing, and letting of commercial land and buildings

 

What are the VAT rules for goods that are outside the UK at the point of sale?

Goods destined for Great Britain

You must first determine the total intrinsic value of all items in a consignment. Businesses and companies will account for VAT at the point of sale rather than at the point of import for a consignment of goods that meets the following criteria:

  • Valued under £135
  • Outside the UK at the point of sale
  • Sold directly to customers in Great Britain (England, Scotland, and Wales) – this does not include goods that are sold indirectly on an online marketplace

 
Businesses and companies from anywhere outside the UK will be charged under UK supply VAT. Business-to-business sales where the customer has a UK VAT registration number do not require charging and accounting for VAT.

Businesses and companies will be subject to the normal importation rules (upfront payment at the point of import) for VAT and customs on a consignment of goods that meets the following criteria:

  • Valued over £135
  • Outside the UK at the point of sale
  • Sold directly to customers in Great Britain (England, Scotland, and Wales) – this does not include goods that are sold indirectly on an online marketplace

 

Goods destined for Northern Ireland

Whilst Northern Ireland follows the UK VAT system as a member of the United Kingdom, the Northern Ireland Protocol of the EU-UK Withdrawal Agreement provides that Northern Ireland will maintain ties to EU VAT rules for the purposes of importing goods to the country. 

You must first determine the total intrinsic value of all items in a consignment. Businesses and companies will account for VAT at the point of sale rather than at the point of import for goods that meet the following criteria:

  • Valued under £135
  • Outside the UK and the EU at the point of sale
  • Sold directly to customers in Northern Ireland – this does not include goods that are sold indirectly on an online marketplace

 
Businesses and companies from outside the UK and the EU will be charged under import VAT. Business-to-business sales where the customer has a UK VAT registration number do not require charging and accounting for VAT.

Businesses and companies will be subject to the normal importation rules (upfront payment at the point of import) for VAT and customs on a consignment of goods that meets the following criteria:

  • Valued over £135
  • Outside the UK and the EU at the point of sale
  • Sold directly to customers in Northern Ireland – this does not include goods that are sold indirectly on an online marketplace

 
Business-to-business consignments valued over £135 destined for Northern Ireland will be eligible to use postponed VAT accounting. This allows businesses to recover and declare their import VAT at the same time instead of being required to recover these monies at a later date.

 

What are the VAT rules for goods that are in the UK at the point of sale?

Businesses and companies based outside the UK that have goods physically in the UK at the point of sale will be required to register and account for VAT on direct sales to customers based in Northern Ireland and Great Britain. This does not apply to goods that are sold indirectly to customers via an online marketplace.

What are the VAT rules for overseas sellers making supplies of zero-rated goods?

The VAT rules for overseas sellers making supplies of zero-rated goods are that VAT registration is not required.

To avoid VAT registration, will need to be certain that the goods you produce are indeed zero-rated. You should consult the above list of relevant goods categories. If some of your goods are zero-rated and other goods apply to one of the other VAT schemes, you will need to ensure that you are registered for VAT and that you pay the relevant VAT rate for those goods that are not zero-rated.

Overseas sellers making supplies of solely zero-rated goods that have an annual sales turnover of more than £85,000 can apply to HMRC for exemption from VAT registration due to the overall inapplicability of VAT to your business or company.

 

VAT rules & invoices

The VAT rules regarding invoices are in line with the normal VAT rules for the content and format of invoices. VAT invoices can only be issued by VAT-registered businesses and companies. VAT rules require that the seller of goods and services issue customers with a full paper invoice or a full digital invoice. Businesses and companies must issue invoices within 30 days of the supply date or payment date for the goods consignment and should maintain records of all invoices.

Invoices do not need to be entirely reflected in English or British pound sterling. However, if your VAT invoice is partially or entirely in a language other than English or a currency other than British pound sterling, you will be required to include the total VAT amount payable in British pound sterling and to give an English translation of the relevant invoice to a VAT officer within 30 days, if requested.

VAT invoices will not be required for the following categories of goods:

  • Goods sold within the UK that are entirely VAT exempt or VAT zero-rated
  • Goods from outside the EU that are sold in Northern Ireland

 

What are the VAT rules regarding records?

VAT-registered businesses and companies are required to keep all records and VAT invoices for a minimum of 6 years from when their goods are sold in the UK. You will be required to keep records of the following types of documents:

  • All invoices issued for goods and services
  • All invoices received for goods and services
  • All self-billing agreements
  • All names, addresses, and VAT numbers for self-billing customers and suppliers
  • All credit and debit notes
  • All export and import records
  • All records of items on which you are not permitted to reclaim VAT
  • All records of goods that you take from your stock for personal use and goods given away for free
  • All records of VAT exempt, zero-rated, and reduced goods sold or bought
  • Your VAT account
  • General business records including till rolls, cash booklets, business bank statements, cheque stubs, and paying in slips

 
You should ensure that all records are accurate, up-to-date, and in compliance with legislation and regulations relevant to your business or company. HMRC has the right to investigate your records at any time to ensure that your business or company is paying the correct amount of VAT.

What are the VAT rules for goods returned to your business?

The VAT rules for goods returned to your business from the UK will depend on several key factors, including the following questions:

  • Is your business or company registered for UK VAT?
  • When did you originally send the goods to the customer?
  • How much were the goods valued?
  • Where did you originally send the goods from?
  • When were the goods returned to your business or company?

 
If the customer returns the goods and requests a refund:

  • If you charged the customer VAT and have refunded the cost of the goods including VAT, you will be required to adjust the relevant VAT return. If you did not charge the customer VAT, you will not be required to adjust the relevant VAT return.
  • If the customer returns the goods and requests a replacement:
  • If you charged the customer VAT and there is a difference in price between the original goods and the replacement goods, you will need to amend your VAT return in accordance with the cost discrepancy. If there is no difference in price between the original goods and the replacement goods, you will not be required to amend the relevant VAT return.

 

What is the VAT Flat Rate Scheme?

The Flat Rate Scheme for VAT is a system introduced by Her Majesty’s Revenue and Customs (HMRC) where your business or company can pay a fixed VAT rate to HMRC. Your flat rate will depend on your business type and the kind of goods you produce and/or sell. In this Scheme, your company can retain the difference between what you pay to HMRC and what you charge customers for VAT. The Flat Rate Scheme simplifies record keeping and could save money for your business or company. 

To be eligible for the Flat Rate Scheme, your business or company must have an annual sales turnover of less than £150,000 or less, excluding VAT. Therefore, the Flat Rate Scheme only applies to small businesses. In your first year as a VAT-registered business part of the Flat Rate Scheme, you will benefit from a 1% annual discount on your VAT bill. You must apply directly to the HMRC for the Flat Rate Scheme. You will not be able to reclaim VAT on the vast majority of your business purchases. You can leave the Flat Rate Scheme at any time.

 

VAT Rules For Selling Goods To The UK FAQs

What is distance selling for VAT?

Distance selling is the process by which a company or business engages in direct selling to a customer via telesales over the phone, text messages, digital television, mail orders, and online. This does not include online marketplaces which sell indirectly to customers. Distance sellers will be required to engage with the VAT system differently depending on the destination of the goods and services, the location of your business or company, and the VAT rate of the goods and services.

What are the VAT rules for selling goods to Great Britain?

In Great Britain, consignments of goods valued under £135 that are located outside the UK can account for VAT at the point of sale. Consignments of goods valued over £135 that are located outside the UK will require upfront payment of VAT at the point of import. Companies can apply for a VAT refund to recoup these costs.

What are the VAT rules for selling goods to Northern Ireland?

Northern Ireland follows different VAT rules for imported goods within the UK and EU. In Northern Ireland, consignments of goods valued under £135 that are located outside the UK and EU can account for VAT at the point of sale. Consignments of goods valued over £135 that are located outside the UK and EU will require upfront payment of VAT at the point of import. Companies can apply for a VAT refund to recoup these costs.

Do EU businesses distance selling to customers in the UK need to pay VAT?

EU businesses distance selling goods to the UK will need to pay VAT on eligible goods and services destined to Great Britain. For goods destined to Great Britain, EU businesses will be required to pay import VAT for consignments over £135 in value and then recoup these costs through a VAT refund. EU businesses can charge VAT at the point of sale for consignments under £135 in value.

Is VAT charged on international sales?

VAT may be charged on international sales depending on the destination of the goods and services, the location of your business or company, and the VAT rate of the goods and services. Whilst customers bear the brunt of VAT charges, businesses and companies may need to pay these costs upfront and apply for a VAT refund at a later date.

 

Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

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