VAT Help for E-Retail Businesses

May 26 2016, 0 Comments

If you’re reading this, then It must mean that your e-retail business is on its way to a successful future! If in fact is has progressed to a strong position, you might need to start charging VAT. 

On the surface, whenever VAT is mentioned, people begin to panic as they automatically presume it will be confusing and difficult. In this case however, selling products online is covered by many of the same rules you would experience if you were selling from a physical store, so it’s not an a completely new set of rules that will perplex you. 

A business that charges its customers VAT is basically acting as an unpaid tax collector on behalf the taxation governing bodies. Therefore, it ultimately means that every quarter you must submit the figures you’ve taken to HMRC.

Below we have run through a few points to show how this area of tax applies to you as an e-retailer.

The difference between a shop and an online store 

From a VAT perspective, there is practically no difference between physical and online retailing. The only time there is a difference is if you’re selling digital goods and services, like musical downloads or e-books for example, as then these sales are covered by a different set of VAT regulations.

Similar to the process of a physical shop, as an e-retailer you’re carrying out the same job of taking payments from customers, communicating with them and distributing their product(s) but instead it’s online and not over the counter. If you are in fact VAT registered, you need to make this transparent with your customers so you should look to advertise this on your website. The prices that you display can be shown as VAT inclusive so you don’t need to mess about by listing VAT separately.

Registering for VAT 

During a 12-month period, if you’re turnover on VAT taxable goods is larger than the sum of £82,000, you must as a result register for VAT otherwise you will face financial penalties. 

If on the other hand, you don’t hit this threshold yet - which was set as of February 2016- you don’t need to register or charge your customers VAT. This doesn’t apply to a calendar year as it is recorded over a rolling 12-month basis.

What VAT rate to charge?

For the most part, there are three VAT rates that apply to the UK. The majority of goods will experience a 20% rate but some items have a reduced rate of 5% and a zero-rated (0%) VAT.

This is where things get a bit trickier as just because an item may have a 0% VAT charge, it doesn’t make it exempt from VAT completely. It does instead mean that the item is still VAT taxable, however the rate you must charge to your customers is 0%. You will still have to record all of the sales and report them on your tax return even if they’re zero rated as these items count towards your yearly threshold amount. 

What happens when I’m selling abroad?

  • EU customers = If you’re based in the UK, you charge the set rate of VAT (20%). There are circumstances where you may be able to zero rate the goods if the individual is VAT registered.
  • Outside of the EU = Selling from the UK to outside of the EU means that VAT doesn’t apply.

There are sometimes exceptions however, so it’s worth checking on the HMRC website first before you go ahead.

What about delivery?

The VAT you charge on delivery depends on the rate that applies to the specific pieces you have on sale. As an example, if you’re selling a pen that has a 0% VAT, a 0% rate will apply to the delivery. As a promotion, if you decide to give free delivery, the VAT will then be included in the overall fee for the product.