Understanding VAT is crucial for businesses selling internationally, but it can often feel overwhelming.
We sat down with corporate and indirect tax manager, Andy Kirkaldy, to discuss some of the most common questions and challenges surrounding international VAT for UK sellers.
1. In respect of the sale of goods, “Do I just zero-rate the sale?”
This is one of the most common questions I hear. The answer is usually yes—but only if specific conditions outlined in VAT Notice 703 are met.
A common issue I encounter is businesses often only consider the outbound part of the sale, however, with every export, there is a corresponding import into the place of destination. Exporters should consider who is responsible for import taxes due on arrival of the goods in your customer’s location, and this can often be driven by whether the sale is Business to Business (B2B) or Business to Consumer (B2C).
If you’re responsible for the import, you may need to register for VAT overseas.
2.Keeping accurate records
We have seen HMRC focus on this recently and failure to hold the right documents can result in significant tax liabilities. For example, HMRC recently charged a company £88,000 on the basis output tax should have been charged at 20% not 0% as they couldn’t provide evidence that goods had left the UK.
To avoid a similar issue – maintain invoices, shipping documents, and proof of delivery to mitigate the risk of HMRC challenging your position.
Be cautious with Ex-Works sales (indirect exports), as you lack control over whether goods leave the UK. If you sell on these terms, ensure you have the necessary evidence to support your position.
3.How does it work if I’m a dropshipper?
As the goods will move from a supplier to the end customer, there will be import VAT due in the place of destination. Post Brexit, the UK intermediary (i.e. dropshipper) will have to register for VAT in the place of destination to take account of import taxes. If both supplier and customer were based in Europe, the UK intermediary may decide to register in the member state of the supplier instead, and make an onward intra-community supply.
4.What if the seller supplies services rather than goods?
In this case, the VAT treatment will follow the place of supply rules set out in VAT Notice 741A.
In most cases:
B2B sales: Usually outside the scope of UK VAT
B2C sales: Usually taxed where the supplier is based, meaning UK VAT applies.
There are a number of exceptions to the general rule, particularly in respect of B2C sales, therefore understanding what you’re selling and how you’re selling it is crucial. Common exceptions include land related services, performances held overseas, digital services and services taxed where used and enjoyed.
5.What compliance challenges do businesses face?
If you need to register for VAT overseas, you should remember to factor the cost in to your selling price. As members of Praxity, we have access to a network of professional advisers throughout Europe and beyond who can assist with compliance, such as VAT submissions, and provide advice on the best, and most tax-efficient, route forward for your business.
6.Are there any simplifications for selling to Europe post Brexit?
When selling B2C, the EU provide simplifications for non-EU businesses to sell to consumers throughout Europe. These are:
- Import One Stop Shop (IOSS) – If you sell goods valued under €150 from your own website to consumers across Europe, you would typically need to register for VAT in each EU member state where you make a sale. However, with the IOSS, you can register for the scheme in a single EU country and handle the collection and remittance of local VAT from that location for all your sales throughout Europe.
- One Stop Shop (OSS) – If you store goods in Europe and distribute them across the EU from this location, the OSS allows you to register for the scheme in that country and manage the collection and remittance of local VAT accordingly. The OSS also applies to services.
- Marketplace rules – If you sell through marketplaces like Amazon, they often account for VAT on your behalf. However, you’ll still need local VAT registration if you store goods in an EU warehouse.
7.If my sale includes an element of installation and assembly, can I still just zero rate?
Although the sale will still be zero rated from the UK, its likely you will have an VAT obligation in the place of destination. Ownership for VAT purposes doesn’t usually pass until the work is complete, therefore you may need to charge local VAT to your customer.
8.What are the VAT implications for businesses with only a UK branch?
If your business is based overseas but has a UK branch, VAT depends on the supply chain structure. The main question is whether it is the overseas company or the UK branch making the supply.
9.Can you clarify common VAT terminology?
Although not specifically related to international trade, sellers are often confused by terms like ‘outside the scope’, ‘exempt’, and ‘zero-rated’. While none involve charging VAT, they impact VAT recovery differently:
- Outside the scope of UK VAT: Sales of services to an overseas business customer are likely to fall into this category, in addition to some B2C services. These sales do not contribute to your VAT threshold (for those businesses who are not VAT registered yet) but they do permit a business to recover input tax on the costs of sale.
- Exempt transactions: Exempt sales mean VAT recovery is generally blocked. Sales made to overseas customers are not exempt.
- Zero-rated transactions: As noted above, exports are zero rated if the appropriate conditions are met. Associated input tax is also recoverable.
10.How long does VAT registration take?
The process will vary country by country, so it’s important to be proactive. If you are looking to sell overseas, plan ahead to mitigate the risk and ensure compliance.
11.Why is an EORI number important?
An EORI (Economic Operator Registration and Identification) number is required when exporting (and/or importing) goods. It’s essential for businesses involved in cross-border trade and should be applied for alongside VAT registration. A UK seller will need a GB EORI number as a minimum, but may also need an EU EORI number if they are the importer in Europe.
Get in touch
If you’re facing VAT challenges or have questions about your specific requirements, reach out to Andy by clicking the button below.
