Value Added Tax is an extremely important revenue stream for the UK government. After income tax and National Insurance, it is the third highest earner for the government. While VAT is charged at every stage that value is added within the supply chain, the final payment is always made by the customer. Therefore, for most businesses, VAT is not a burden. Whenever a VAT registered business pays VAT, they will always be able to reclaim it.
Triggering a VAT Obligation
Holding stock in any EU country, where the business is not established, triggers an automatic obligation to VAT register in that country. This is because you have created a taxable supply there. Even if you are using 3rd party warehousing, such as Amazon’s warehouses, you remain the owner of the product and therefore you take responsibility for the VAT liability. If you plan to store inventory in more than one country, you will require multiple VAT registrations.
However, UK businesses do not need to VAT register in the UK until they cross the £85,000 turnover threshold within a 12-month period. Bear in mind, this threshold only applies to UK VAT registrations for UK based businesses.
Once you are VAT registered in any EU country you will then need to start charging VAT on your products and declare this to the tax authorities in your VAT returns. The VAT rate varies between 18%-27% from country to country within the EU. This percentage of VAT needs to be included within the final pricing of your goods. This percentage is based on the final price that the customer pays, so it would always include all fees, including shipping costs etc.
Distance Selling Rules
However, within the EU, you can sell directly to customers in other EU countries whilst keeping your stock in a single location. By using the distance selling rules, you can sell directly to private customers until you have reached set thresholds within a calendar year. In Germany, the threshold is €100,000 and in other countries such as France, Italy, and Spain, the threshold is €35,000. Once you pass the threshold, you must become VAT registered in the destination country and begin charging local VAT. Until the threshold is reached, you will continue charging the VAT rate where your goods are stored.
Businesses that only sell digital products or services within the EU can register for the VAT Mini One-Stop Shop (or VAT MOSS). EU businesses much register for VAT MOSS in the country they are established in. Once registered, businesses can sell their digital products all over the EU without needing to worry about obtaining additional VAT registrations. Instead, sellers will need to track where their customers are buying their goods from and charge the local VAT rate where the customer is based. Every three months, the seller will then declare these sales – including the different VAT rates charged – on their quarterly VAT MOSS return. All the collected revenue is then paid to tax authority where the company is established. The tax authorities will then divvy up the collected revenue across the EU, as required.
At SimplyVAT.com, we love VAT so that you don’t have to!
We will be able to manage all your VAT obligations, from your initial VAT registration to each of your ongoing VAT returns. If you are interested in speaking to one of our compliance team, please do not hesitate to get in contact – we are here to help!
Phone: +44 1273 634 594