If you run a thriving eCommerce business, you might have to start thinking about the looming VAT registration threshold. At Archimedia, we always encourage businesses to strive and prepare for VAT. It can be a daunting stage of business growth, but once you get through it, the possibilities are endless.
In this blog, we’re helping you understand exactly how VAT (Value Added Tax) works in the eCommerce sector, from the initial registration to handling the day-to-day VAT processes. As specialist eCommerce accountants, we want to help you not only meet your eCommerce VAT obligations but also save some money along the way.
Want to make VAT work in your favour? Get in touch with our friendly team today.
Does VAT apply to all UK eCommerce businesses?
Not every eCommerce business in the UK has to deal with VAT, but many do. It all depends on your taxable turnover and the type of products you sell (some may be VAT-exempt, but we’ll get to that later).
VAT applies to UK-based eCommerce businesses earning over the VAT threshold, which currently stands at £90,000 (July 2024). This is after all VAT-exempt goods have been deducted.
Did you know you can also voluntarily register for VAT? This can give your business a little credibility boost and allow you to recoup some of the VAT you spend on business purchases.
VAT obligations for eCommerce businesses
Are your taxable sales reaching over £90,000? If so, then great news on the milestone! But you will have some new rules to follow. It is so important to stay on top of your VAT requirements to keep your business in the good books with HMRC.
Check out some of the important eCommerce VAT obligations you’ll need to keep in mind:
VAT registration
The very first step is registering for VAT with HMRC. This is a quick and easy process that can be done online. You’ll then get a unique VAT registration number (VRN), which identifies your tax records and VAT status. This number will need to be included on all future invoices.
Once you become VAT-registered, you’ll need to:
- start charging VAT on your sales
- keep records of how much VAT you pay for business expenses
- file quarterly VAT returns
- pay VAT to HMRC
VAT charges
As a VAT-registered eCommerce business, you’ll need to charge VAT on the products you sell.
VAT rates vary for different industries and products. The standard VAT rate is 20%, but certain goods and services attract a reduced rate. Children’s car seats and mobility aids for older people typically have a lower rate of 5%, while most food, books, and children’s clothes are zero-rated.
If you sell any zero-rated products, you won’t charge VAT, but you’ll still be expected to account for it. Some products may even be entirely exempt from VAT.
Paying and reclaiming VAT
Sending regular VAT returns to HMRC, usually every quarter, is all part of the parcel of being a VAT-registered business. But what does this mean?
Your VAT returns detail the amount of VAT you’ve charged on your sales and the amount you’ve paid on your purchases. So, if the VAT you’ve charged is more than you’ve paid, you’ll need to pay the difference to HMRC.
On the flip side, if you’ve paid more than you’ve charged, you can reclaim some of the costs. It’s a bit of a balancing act, but getting it right is so important for your business’s cash flow.
What VAT schemes apply to eCommerce businesses?
When you become VAT registered, you’ll be asked which VAT scheme you wish to use. Each one benefits businesses in different ways. Take a look at commonly used UK VAT schemes below to see how they could benefit your eCommerce business.
Standard VAT scheme
Most businesses use standard VAT accounting, which requires you to record the VAT you collect from sales and the VAT you pay on purchases. You’ll also need to keep track of all transactions and provide quarterly returns to HMRC.
Flat rate scheme
If your eCommerce business earns under £150,000 a year in taxable profits (July 2024), you may be able to apply for the VAT Flat Rate Scheme. This scheme simplifies VAT for smaller businesses and reduces the amount of admin work.
Instead of calculating VAT on each transaction, you’ll pay a fixed amount to HMRC based on your business.
What if your UK eCommerce business operates in the EU?
If your business sells goods outside of the UK, then there are additional VAT regulations to consider. It is essential to keep an eye on all UK and EU eCommerce VAT rules to make sure your business stays on the right side of VAT laws.
HMRC often updates tax rules and regulations, so keeping informed and working with a specialist eCommerce accountant is the best way to ensure VAT compliance.
How does import VAT work after Brexit?
Import tax is due on any goods imported from countries outside of the UK. This means you now have to pay VAT on goods coming in from anywhere outside of the UK, including the EU. However, it is still charged at the same rate as if the products came from within the UK.
The good news is that the government introduced the postponed VAT accounting scheme. This scheme allows businesses to postpone import tax until their next VAT return to help with cash flow.
Do overseas sales count towards the VAT threshold?
If you’re selling goods or services outside of the UK, then the sale may count towards your VAT threshold. It depends on what you are selling, who you are selling it to and where it is being sent.
Most overseas sales (apart from sales from Northern Ireland to any EU country) are generally zero-rated, but you will have to account for them. This usually means they will be included towards your VAT threshold. You may be able to get an exemption from registration if most or all of your products are zero-rated.
Looking for VAT guidance? Get in touch with our eCommerce specialists
We understand the struggles of getting your head around the various aspects of VAT for eCommerce businesses. But if you stick with it, your business will be much better off.
At Archimedia, we are a family-run accountancy firm with over 45 years of experience in tax and accounting. We’ve helped numerous eCommerce businesses, including Amazon sellers and dropshippers, handle the tricky tasks of eCommerce VAT.
Our eCommerce accountants are there to keep your business on the right financial track, pushing you to meet your goals and strive for more. Whether you need help with VAT registration, understanding import tax, or choosing the right scheme, we’re here to help.
Contact us today and find out how our eCommerce VAT services will work for your business.
Do you run an Amazon business? Keep your business up-to-date and compliant by following the latest VAT changes for UK Amazon sellers.
