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VAT and Selling Goods Online: What You Need to Know

Selling goods online can be a great opportunity, but understanding the VAT rules is essential. Therefore, this article explains the key concepts related to VAT and selling goods online and can be read in conjunction with our previous article by way of a recap.

What Is an Online Marketplace?

If you run an e-commerce business you may sell via an online marketplace. It’s therefore important to understand in VAT terms what is considered an online marketplace. This is because the online marketplace will ultimately be responsible for any unpaid VAT relating to sellers on it’s platform.

An online marketplace is a business platform, like a website or app, that facilitates the sale of goods. However in order for it to be regarded as an online marketplace, the platform must have the following characteristics:

• Firstly, the platform must set terms and conditions for supplying goods.
• Secondly, it must authorise or facilitate customer payments.
• Lastly, the platform should be involved in the ordering or delivering of goods.

However, platforms that only process payments, advertise products, or redirect customers to other websites without further involvement are not online marketplaces.

VAT and Overseas Sellers

When considering VAT and selling goods online you need to consider overseas e-commerce businesses selling goods to the UK – as well as UK based businesses. It’s therefore important to understand the UK VAT implications for overseas sellers.

What is an overseas seller?

For VAT purposes an overseas seller has the following traits:

• The overseas e-commerce business has no business establishment in the UK.
• It makes taxable sales of goods to UK customers.

What’s more, a UK based e-commerce business has the following characteristics:

• Decision-making and central administration occurring in the UK.
• A permanent presence with resources for taxable sales.

A virtual office or fulfilment centre alone doesn’t qualify as a UK establishment.

VAT and Selling Goods Online: Key Issues

Overseas Sellers Using Online Marketplaces

When an overseas seller trades and sells goods in the UK via an online marketplace the following applies:

• The online marketplace itself must be VAT registered.
• The overseas seller is ultimately responsible for paying the import VAT and customs duties upon importation. This is usually conducted via an import agent.

Different rules apply depending on whether a UK customer is VAT registered :

• Where they are VAT registered the sale is made by the overseas seller and not the online marketplace. The overseas seller must register for UK VAT and charge UK VAT on the very first sale. The mandatory VAT registration threshold does not apply in these circumstances.
• If the UK customer is not VAT registered, the sale is regarding as being made by the online marketplace. Therefore the online marketplace is responsible for charging VAT. The overseas seller is treated as making a zero-rated supply to the online marketplace.

The situation is slightly different where goods are stored outside the UK:

• If the value of the sale is less than £135: The online marketplace charges supply VAT.
• Whereas when sales are over £135 the Import VAT is paid by the customer at the UK border.

UK sellers on online marketplaces

There are specific rules that apply to UK sellers conducting business on an online marketplace depending on where the customer is based. These are as follows:

UK based customers:

Where sales are to UK customers, UK VAT will only apply if the VAT registration threshold is exceeded.

EU based customers:

Those goods exported to the EU are zero-rated. However, local VAT and customs duties may apply. In this case, the ‘Import One Stop Shop’ (IOSS) can simplify VAT on EU sales under €150.

Sales to non-UK/EU customers:

If the sale is to a customer based outside the UK or EU,Zero-rated exports apply if goods leave the UK.

New Rules from 2021 Onwards

From January 2021, marketplaces selling goods in the UK must be VAT registered. New regulations also clarify:

• When marketplaces account for VAT.
• Rules for goods stored in the UK versus outside.
• VAT obligations for EU and Northern Ireland customers.

Recent Updates: VAT Assessments for Online Sellers

From September 2022, HMRC may issue VAT assessments for inaccurate returns without first requesting trader information. These assessments:

• Apply to returns up to December 2020.
• Allow statutory reviews and appeals.

Failure to pay could lead to joint and several liability notices.

Navigating VAT and Selling Goods Online

Understanding VAT rules for online sales is vital for compliance and smooth operations. Stay updated on VAT and selling goods online to avoid surprises and maximise efficiency.