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Is Your Ecommerce Business VAT Compliant?

Are you VAT Compliant?

The way we do business has changed dramatically over the past few months, what with the COVID-19 pandemic forcing many companies online. As the high street continues to suffer, online sales are through the roof. But if you’re fully embracing this digital way of life, it’s essential to abide by VAT compliance laws. With tax obligations set to be a little more complex after 31 December, getting ahead of the game and familiarising yourself with ecommerce VAT rules and responsibilities is a must to stay above water.

So with this in mind, here’s how to make your ecommerce business VAT compliant into the new year, regardless of whether it’s going to be a deal or no deal for Brexit.

How is E-Commerce VAT Calculated?

Whether you’re new to the ecommerce world or could do with a little update, familiarising yourself with VAT calculations will help you take firm hold of your finances. As it stands, once your digital business surpasses a turnover of £85,000, you register for VAT and start charging 20% tax on your products. You can either increase your prices to cover the VAT bill or absorb the costs yourself, whatever you think is more viable for your company.

VAT rates differ so it’s important to know which products face full VAT charges and which don’t. Many products are charged at a reduced rate of just 5%. This includes health and welfare products such as cycle helmets and nicotine patches. Some products like baby clothes, animal feed, plants and seeds even qualify for a zero VAT rate so long as they meet certain conditions. For example products packaged as pet food are standard-rated. Therefore VAT calculations will very much depend on the type of business you run and the products you sell and it’s your responsibility to know the VAT percentages.

Even if your products are zero VAT rated you still need to record the sales in your quarterly reports, so that everything can be traced and monitored if necessary.

VAT When Selling Goods or Services

If you’re selling a digital service, then VAT is charged differently. As it stands, you’ll need to follow EU legislation. This states that digital goods and services must include VAT at the rate of the customer’s home country. So if a customer is based in the United Kingdom, the sale must include a 20% VAT charge. If they’re based in Ireland, the VAT charge would be 23% and so on. Registering to pay VAT in other countries is also important.

VAT Payments After 31 December

As mentioned, VAT is set to get a little trickier after the 31 December 2020. So here’s what you should know in advance.

  • If you’re a business selling goods to the EU from 1 January 2021, you will have to consider VAT registering in Europe. Goods will be subject to import VAT.
  • After 31 December, the UK will no longer be a member of the EU Mini One-Stop-Shop single VAT return scheme. So, you’ll have to register in an EU state as a non-Union business to sell things like broadcast or telecoms services.
  • If you’re an online marketplace (OMP) you will be expected to take ‘all reasonable steps’ to ensure that the correct VAT is charged.

In the event of a No Deal Brexit agreement, every UK business will have to comply with the legal obligations of each EU country they sell to.

The Advantages of Planning Now

The upcoming VAT changes aren’t secret, so you’ve plenty of time to plan. Speak to your accountant about VAT registration and find out how the VAT changes could impact your e-commerce business. Leaving things too late could result in a lot of running around at the start of the year as you try to learn all of the rule changes.