First I’ll start with the UK.
Distance selling occurs when a business supplies and delivers goods from one EU country supplies and delivers goods to a customer in another EU country who is not registered for VAT.
You’re distance selling into the UK if:
Customers who are not VAT registered include:
Distance selling only involves goods, not services. It only takes place when a business sells and delivers goods located in one EU member state to someone in another EU member state who is not, and does not have to be registered for VAT.
If you distance sell into the UK and Isle of Man you have to register for UK VAT if the value of your distance sales exceeds £70,000 in a year. If you distance sell excise goods like alcohol and tobacco you’ll have to register for UK VAT and Excise Duty no matter how much your sales are worth. Sales you make to customers who are VAT registered do not count as distance sales.
If you’re outside the EU any sales of goods you make from a non-EU member state to the UK are not distance sales.
Separate rules apply to overseas businesses using an online marketplace to sell goods in the UK, where those goods are in the UK at the point of sale or sold to a UK customer and then imported in the UK by the seller.
If you use an online marketplace to sell such goods in the UK you must register for VAT by submitting a VAT1 ‘Application for Registration’.
Find our more about businesses selling goods in the UK using online marketplaces.
Threshold for distance selling
The distance selling threshold is £70,000. If the annual value of your distance sales into the UK and the Isle of Man is less than the distance selling threshold you charge VAT at the rate that applies in your own country. You account for the VAT there too.
If the value of your distance sales goes over the limit then you have to register for UK VAT. You then charge VAT on your VAT taxable sales at the UK rate instead of using your own country’s rate and account for it here.
You can apply to register for UK VAT as a distance seller voluntarily, even if you do not exceed the threshold.
Sales to the UK from outside the EU
If you are outside the EU and you sell goods to customers in the UK then this is not classed as distance selling for VAT purposes. The Channel Islands are not part of the EU.
Your customers should be aware that they may have to pay UK import VAT on the goods when they arrive in the UK. They may also have to pay duty.
When to register for VAT in the UK
You must register for UK VAT if the value of your distance sales into the UK during a calendar year (1 January to 31 December) goes over the distance selling threshold. So you must keep proper records of your distance sales to the UK.
If you distance sell any excise goods like alcohol and tobacco into the UK you always have to register for UK VAT. It makes no difference how much your distance sales are worth. You also have to register for UK Excise Duty. You’ll have to account for the VAT and Excise Duty in the UK.
Working out the value of your distance sales
To work out how much your distance sales are worth, add up the total value of all the VAT taxable distance sales you make into the UK and the Isle of Man, including any zero-rated goods. But do not include the following:
When to register
As soon as the value of your distance sales goes over the distance selling threshold you have to register for UK VAT. You have 30 days from this date to send a completed form VAT 1A ‘Application for Registration – Distance Selling’ to HMRC. Your registration date is the date when the value of your distance sales went over the threshold, and this is the date from which you have to start accounting for UK VAT on your sales.
Choosing to register for UK VAT voluntarily
Even if you do not have to register for UK VAT, you may choose to do so if you think it would help your business.
If your distance sales are below the threshold
If you do not have to register for UK VAT because the value of your distance sales is not over the limit and you do not sell any excise goods, you can apply to register if you want to. You’ll have to:
If you have not started making distance sales yet
If you do not have to register for UK VAT and you do not yet make distance sales into the UK, you may still be able to register if you intend to start making distance sales. You’ll need to:
If HMRC does not think you really intend to make distance sales in the UK they may turn down your application.
How to register for UK VAT
If you have to register for UK VAT as a distance seller, or if you want to register voluntarily fill in form VAT 1A and send it to HMRC.
When you register you can notify HMRC that you’re appointing a tax representative or an agent to deal with your UK VAT affairs. Or if you prefer you can deal directly with HMRC yourself.
Waiting for your VAT registration
You may have to wait a few weeks after you send off your application before you receive your registration confirmation and details. If you’ve registered because your distance sales have gone over the threshold, you must still account for UK VAT in the meantime. However, you will not be able to issue UK VAT invoices until you receive your VAT registration number.
If you’ve applied for voluntary registration you can choose the date when you want your registration to start. If you do not receive your registration details by that date, you’ll have to start accounting for UK VAT from that date onwards, but you will not be able to issue UK VAT invoices.
How to manage your UK VAT
Once you’re registered, you’ll have to add UK VAT to your prices at the appropriate rate when you make VAT taxable distance sales. Different types of goods have different VAT rates in the UK, so you’ll need to check which rates apply to the goods you sell.
Dealing with HMRC
Appointing a representative to handle your UK VAT affairs
You may find it convenient to appoint a tax representative to deal with your VAT affairs in the UK. You’ll still have to complete form VAT 1A to apply for UK VAT registration. And you’ll have to fill in form VAT 1TR to tell HMRC that you’ve appointed a representative. Once you’ve done that, your representative will be able to deal directly with HMRC on your behalf.
Deregistering for UK VAT
If you stop making distance sales into the UK, including sales of excise goods, you must cancel your registration. You must also deregister if you previously intended to make distance sales but you did not.
If you had to register for UK VAT because the value of your distance sales into the UK went over the registration threshold, you can apply to cancel your registration if either:
If you decided to register for UK VAT voluntarily, you may not be able to deregister straight away. You’ll normally have to wait until the end of the second calendar year following the year in which you registered.
Ordinarily, when goods are sold to VAT registered business customers in other EU countries, these goods are zero rated for VAT in the supplier’s country, as long as the goods are dispatched from the country of supply and the customer accounts for the VAT due on the goods as acquisition tax, calculated at the relevant rate in the country of receipt.
DISTANCE SELLING THRESHOLDS
Each EU member state sets an annual distance selling threshold, which can be eitherper calendar year. For countries that don’t use the Euro, the equivalent value in the local currency applies e.g. the UK distance selling threshold is , which broadly equated to .
VAT registered businesses are required to keep a record of all sales made over a calendar year to non-taxable persons in each EU member state, to ensure that they remain aware of when they might breach the distance selling threshold. Once the threshold is breached in an EU state, the supplier is required to register and account for VAT to the local tax authorities on all future sales of goods in that country. In addition, businesses can also voluntarily register and account for VAT in another EU member state if they wish to, prior to exceeding the distance selling threshold.
An exception to the threshold rule, however, is where a supplier sells goods which are subject to; these goods are not subject to the threshold and suppliers of such goods are required to register for VAT as soon as they make any supplies to other EU states.
APPLYING THE DISTANCE SELLING RULES
The distance selling rules described apply where goods sold to customers in other member states are dispatched from the supplier’s country. However, in some instances suppliers may also wish to hold stocks of their goods in other member states, for speed and ease of shipment. As soon as a stock of goods is held by a supplier in a member state other than its own, this triggers a liability for the supplier to register for VAT in the member state where goods are held.
APPLYING TO ECOMMERCE
Many businesses that sell goods via Amazon have supplies of their stock held in fulfilment warehouses in other member states at Amazon’s request, to make it easier to ship goods to the end customers when orders are placed. Amazon are obliged to inform sellers that the placement of their stock in other EU warehouses triggers a requirement to register for VAT, but many small business find the process of obtaining EU VAT registrations daunting and difficult.
The current VAT rules for B2B and B2C supplies of goods to EU customers will change when the UK leaves the EU. The precise details will depend on what, if any, deal is reached between the UK and the EU.
If the UK leaves without a deal, all such supplies will become exports from the UK, which will be subject to zero rate VAT, provided certain conditions are satisfied. Import VAT and possibly Customs duties will be due in the destination country. If the UK supplier acts as the importer of record, it will need to register for VAT in the country of importation, reclaim the import VAT and account for local VAT on the supply of the goods to the end customer.
Although the outcome of Brexit is still uncertain, businesses should prepare now for the possibility of a no deal Brexit on 31 October 2019. For example, this may include speaking to your shipping providers to discuss export and import procedures, to ensure business continuity.
Rules about distance selling in the EU
All of the DSR (Distance Selling Rules) are designed to protect the consumer. Here’s a quick overview:
- Must provide detailed, thorough information before the contract is signed.*
- Any charges or extra fees must be explicitly stated and agreed to by the customer. No pre-ticked boxes!
- The point where a customer clicks to complete a purchase or contract must use a Call To Action such as “Buy Now” or “Pay Now” — something that clearly states payment is expected.
- Must provide contract in a durable form (print or email), sent as soon as the contract is confirmed.
- You must offer returns and refunds, with a 14-day minimum. There’s a seven-day cooling off period, during which a customer can cancel for any reason. Then the customer is granted seven more days to test their satisfaction with the product. (If any information about the sale is missing or inaccurate, then the buyer has three months to cancel the contract or return the product — potentially for a full refund at your cost.)
How EU VAT works for distance selling physical products
It all depends on annual sales thresholds. If your sales are below a threshold so far that year, you do VAT in your own country. If your year sales surpass a threshold, you do VAT in the other country.
Here’s a bit more detail.
EU VAT distance selling thresholds for physical products vary. Most €35,000, some are €100k — and, of course, some member states use their own currency.
If your total sales remain under the threshold of the customer’s country, then your sales are liable to VAT in your own membership state. You charge your local VAT rate, you owe that VAT to your home tax authority each quarter.
But as soon as your total sales in a certain country have hit the distance selling threshold, then your VAT liability switches over to that country for those sales and you must register for VAT in that country.
The distance selling thresholds do NOT apply to:
- B2B sales. Any goods sold to buyers who have a valid VAT number!
- Excisable goods (tobacco, alcohol, petrol) are always subject to VAT in the destination country. No threshold. You must register in those states.
- Digital products.
How EU VAT works for digital products
Digital products are governed by different tax laws, even though the transactions are technically distance sales.
For B2C sales
If your business stays below €10,000 in cross-border sales of digital goods per year, throughout the EU, then you can charge the VAT rate of your home country on all those cross-border sales. This makes it much easier to comply with VAT, because you’re only using one tax rate on your digital goods. Once you pass that threshold, you charge the VAT rate of your customer’s country.
For B2B sales
You charge the VAT rate of the customer’s country. If you’re selling to a customer abroad, then you don’t even think about your home country’s VAT. It’s always about the destination rate.
There are no registration thresholds. Even one sale in a foreign country requires you to be registered and compliant with their local VAT system. For this reason, it’s hugely helpful for digital businesses to register for a VAT MOSS, even more so than for businesses that sell physical goods. With a MOSS, you can avoid registering individually in each country where you make a sale.
VAT MOSS (which stands for Value Added Tax: Mini One Stop Shop) was introduced so that UK sellers could just pay VAT to HMRC, instead of having to register for VAT in every EU country.