VAT and Online Businesses

When tax time rolls around, you can hear the collective groan of all the business people who have to start sorting their financial records.  Chances are that even though you operate an online business, you’re feeling pretty much the same way as the dreaded tax season approaches.

If your online business is going from strength to strength, you might need to start charging VAT.  Thankfully, selling goods online is covered by many of the same rules as selling goods from a physical store.

A business that charges its customers VAT is acting as an unpaid tax collector on behalf of the taxman.  Each quarter you must hand the takings over to HMRC.  In terms of VAT there is no difference between online and physical retailing.  As long as you aren’t selling digital goods such as e-books and music downloads, which are covered by a separate set of VAT rules.

If you are an e-retailer selling goods online, you are using the internet purely as a tool for communication and distribution – just as if you were handing over the item and accepting their money in a physical shop.

If you are VAT-registered, you need to make this clear to customers on your e-retail site. The prices you display can be shown as VAT inclusive – you do not need to list the VAT separately.

Should you be registered for VAT?

If your turnover during a 12-month period on VAT-taxable goods is higher than £85,000 (as at 1 April 2017) you must register or you will be fined. If your turnover is less than the threshold, you do not need to register and you do not need to charge VAT. Note that the threshold is not based on turnover in a calendar year, but on a rolling 12-month basis. The HMRC’s VAT advice line offers helpful information on registering.

What about international VAT charges?

If you are based in the UK and selling goods to EU customers, you charge at the rate of VAT here. However, if a customer is VAT-registered you might be able to ‘zero-rate’ the goods. If you are selling goods to a customer outside the EU, VAT is not charged. However there are exceptions, so make sure you check with the HMRC.