What are the VAT Rules for Online Businesses Selling Goods in the UK?

VAT Rules for Online Businesses

October 07, 2021

E-commerce that first was a tentative venture has now achieved its full bloom. There are many more businesses keen to expand to the digital markets as customers now prefer to buy online than actually go shop to shop to browse goods. As people have become more familiar with online platforms as well as more trusting, online traders have definitely seen a boost in their sales over the past few years. And this trend definitely seems here to stay. Considering this, the new VAT rules that have sprung up in relation to e-commerce require some serious thought especially in the ramifications to VAT online.

The aforementioned VAT rules should have actually come into effect from January 1, 2021 but due to socio-financial situations out of the government’s control, things were later postponed to July 1, 2021. UK VAT duties no longer can be shirked and thus, sellers will have to own up to their responsibilities when selling goods in the UK even if it is only online. Thus, getting a good VAT accountant should assist as far as compliance issues go.

Who falls under these rules?

A UK seller who is selling goods at present on a point-of-sale basis to customers in the UK.

Or, an overseas based seller or the UK representative of the same for whom any one of the following applies:

  • - who is selling goods at present on a point of sale basis to customers in the UK
  • - who is based outs ide UK but sells to UK customers and even imports to the UK
  • - who sells goods that are located at an European Union member state to customers in the UK.

What is an online marketplace as defined by the HMRC?

This definition is used for a business than uses a website or a mobile phone-based application so as to cater to the sale of goods to customers for which all the following conditions hold true:

  • - Which in any way is setting the terms as well as the conditions as to how the goods will be later supplied to the customer
  • - Which is by any way involved in the authorising as well as facilitating of customer payments
  • - Which is in any way connected to the order or delivery of the said goods.

What would not be classified as an online marketplace as defined by the HMRC?

VAT Return Services pertaining to online marketplaces, may not be required for the listed services if the business provides only one of the below in terms of services:

  • - The processing of the payments in order to initiate the supply of the goods to the end customer
  • - The listing or the advertisement of goods
  • - The redirection or the transfer of the customer to another website (or even mobile phone application) where goods are offered for sale in which the former business has no further involvement (in the latter directed website or application).

Full records towards VAT would have to be kept by the online marketplace for 6 years dated from the time the goods were actually sold. These records would need to keep the VAT invoices too. The reason for this is where goods are sold using the medium of an online marketplace then it is expected that the online marketplace be liable for the VAT that has been incurred. The same even applies to goods that are of any value and located within the UK at point of sale when sold by an overseas business through the platform of the online marketplace.