VAT on eCommerce sales in the United Kingdom (UK) and European Union (EU) refers to the application of value-added tax (VAT) on online businesses that sell goods and/or services to customers. It’s all about the taxes that come into play when you buy things online.
Before July 1, 2021, the EU had its own rules for eCommerce VAT. If you were selling something to a customer within the EU you had to charge VAT based on the VAT rates of that customer’s country.
Both the EU and UK have ‘distance selling thresholds’. These are limits on how much businesses can sell to customers in a particular country before they are required to register for VAT there. If businesses go beyond those thresholds, they must register and charge VAT on each sale that is made.
To make things a bit simpler, the EU introduced a VAT One-Stop Shop (OSS) scheme. The schemes allows businesses to register in one place and submit a single VAT return for their sales in multiple EU member states. It saves businesses from having to deal with multiple tax systems.
For goods imported from outside the EU, also has an Import One-Stop Shop (IOSS) scheme. This is for goods up to a certain value, allowing non-EU businesses to collect and pay VAT at the time of sale.
eCommerce VAT on Sales Pre-Brexit
Before Brexit, VAT on eCommerce sales in the UK and EU worked in a similar way.
If an eCommerce business in the UK or EU selling goods and/or services online, they had to consider VAT rules. Within the EU, it followed the ‘destination principle’; when a business made a sale to a customer in another EU country, they had to charge VAT based on the VAT rules of that customer’s country. Each EU member state had its own VAT rates and rules.
Looking at the UK, it implemented VAT rules based on the EU VAT Directive, which meant it followed the same destination principle. This applied to businesses within the UK selling to EU customers and businesses from other EU countries selling to UK customers.
ECommerce VAT on Sales Post-Brexit
After Brexit, the UK decided to do things its own way and gain more control over its VAT rules. If you’re a business outside of the UK selling to UK customers with a taxable turnover for the last 12 months of over £85,000, you must be VAT registered and charge VAT on sales that exceeds this threshold.
On the EU side of things, they continued to follow the destination principle for eCommerce VAT. An EU business selling to customers within the EU, follow the same rules pre-Brexit.
For businesses that sell goods from outside the EU to customers within the EU, the EU introduced the Import One-Stop-Shop (IOSS) scheme. This scheme allows non-EU businesses to collect and pay VAT at the point of sale. The UK has a similar scheme for non-EU businesses selling to UK customers.
Monitor the Changes for UK and EU eCommerce VAT
It is essential for multiple stakeholders to closely monitor and take into account the chances in UK eCommerce VAT and EU eCommerce VAT rules.
- Online businesses: eCommerce businesses operating in the UK and the EU should be highly concerned about the change to eCommerce sales and VAT. They need to understand and adapt to the new rules to ensure compliance.
- Cross-border traders: Businesses involved in cross-border eCommerce between the UK and EU should be aware of the different VAT requirements and thresholds in each jurisdiction to avoid any potential non-compliance risk.
- Digital service providers: Providers of digital services, such as software, online courses, or streaming services should be aware of specific VAT rules related to digital services and how they differ between the UK and EU.
- B2B and B2C Consumers: Changes to eCommerce VAT can indirectly affect consumers as there could be potential impacts on pricing and overall cost of goods and/or services.
- Tax advisors and consultants: Professionals in tax and accounting industries are required to monitor any changes to eCommerce VAT and implement necessary changes to comply with VAT rules.
VAT registered businesses in eCommerce sales between the UK and EU (including those above), should closely monitor developments in the UK and EU eCommerce VAT rules to ensure compliance with the latest regulations.
The Benefits of eCommerce VAT Changes
The changes to eCommerce VAT regulations in the UK and EU have brought some benefits for businesses involved in online sales. The changes aim to harmonise VAT rules across the EU member states and the UK. The uniformity helps businesses by providing more consistent guidelines and reduces complexities of varied tax laws of different countries.
The effort of simplifying VAT compliance for eCommerce businesses is among the most notable benefits made through the VAT changes. With the introduction of schemes like OSS in the EU and a similar scheme in the UK, businesses can register in a single jurisdiction and submit VAT returns for their cross-border sales. This streamlined approach saves businesses from dealing with multiple tax systems and reduces administrative burdens.
The changes also contribute to enhanced market access for businesses. By simplifying the VAT compliance process, businesses can readily expand their reach and sell goods and/or services to customers in different countries within the UK and EU. The new rules to eCommerce VAT in the UK and EU allow businesses to navigate VAT requirements easily, leading to smoother cross-border transactions.
The simplified VAT compliance process not only benefits businesses but also enhances the overall experience for customers. With easier access to a broader range of products and services, customers can enjoy a seamless purchasing experience across borders. They can confidently make purchases from businesses located in different countries within the UK and EU, knowing that the eCommerce VAT compliance process has been simplified, resulting in fewer complications and any potential delays.
Please remember that Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.