Do You Need to Charge VAT to Your UK Customers? Part Two

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I'm sharing a transcript of the second episode of my discussion about the UK VAT requirements for foreign vendors selling goods to consumers in the UK.

???????? ?? is also available on YouTube. Check it out: https://www.youtube.com/watch?v=5NFfqEIvuRE

Just in case you missed ???????? ??, you can read the transcript on LinkedIn: https://www.dhirubhai.net/pulse/do-you-need-charge-vat-your-uk-customers-part-one-grigory-shchichko-orkhf/

Or watch ???????? ?? on YouTube: https://www.youtube.com/watch?v=9zLHrfYH4f4

?Leo Tucker: Hi, and welcome to World of Tax. I'm your host, Leo Tucker. Today, we will continue our previous discussion and talk about VAT registration for businesses selling into the UK. Grigory, welcome back.

Grigory Shchichko: Nice to see you again, Leo.

What is the Registration Threshold for VAT in the UK?

Leo: Okay. So, there's that obvious threshold for cart value that we're calculating, you know, whether you charge that tax or not. So, there's that threshold. Let's also talk a little bit about the registration threshold.

Grigory: It's a great question because many people interested in this topic start googling. They start googling and enter something like ‘VAT registration threshold in the UK’. And the first thing that they will get is the threshold of ￡85,000.

And it's actually the registration threshold for UK businesses for VAT. However, you should distinguish between businesses based in the UK and foreign businesses, or as the HMRC calls them, non-established taxable persons.

So, this VAT registration threshold of ￡85,000 applies only to UK-based businesses. But when you are a foreign merchant, you have to calculate and collect VAT from the first sale.?

Leo: Alright. So, if I understand this correctly, if you are a UK-based merchant and you're selling in the UK entirely, then that ￡85,000 threshold applies.

However, if you're outside of the UK selling into the UK, the first thing you sell, you have to collect tax on it regardless of how much it is, assuming the cart value is under ￡135.

Grigory: That's 100% correct. Yeah.

How Do I Obtain VAT Registration in the UK?

Leo: Okay. That makes a lot of sense. It's always a good idea to consult a tax expert, not necessarily get your information from Google. It can be tricky.

Let's use our existing example. We've got a European merchant based in Germany who will sell into the UK. So, what do they need to do to become fully compliant?

Grigory: As we've just discussed, this German merchant needs to obtain a VAT registration in the UK. In full transparency, the registration process is not too complex. However, it might take time. So, I mean, there is no guarantee of a timeframe.

From my experience obtaining many VAT registrations in the UK for foreign companies, the process might take from 1 month to 6 months. So, you need to consider this if you want to start doing business.

Can I Start Selling Online to the UK Before Getting VAT Registration?

Leo: So, filing for that sort of thing, is that usually done quarterly or yearly? I'm asking because if it takes up to 6 months to get registered for a VAT number in the UK and your business is selling tomorrow, then there could potentially be 6 months between your first sale and when you have a registration, you know, to file against. So, what's the strategy there??

Grigory: There is one very complicated strategy. I wouldn’t like to elaborate too much on that. In short, you start selling and wait for a VAT registration, which might take up to 6 months, as you rightly mentioned. But in this scenario, once you obtain the registration, you will need to reissue all the invoices that you issued previously because you cannot put any VAT on the invoice before you're registered for VAT. This strategy is more like a nightmare, to be honest.

If I were the merchant and wanted to handle this in-house, which is one possible option, I would recommend obtaining this registration before starting to do business.

Leo: Oh, so getting the registration ahead of time?

Grigory: Yes. Even HMRC suggests that if you expect to have any sales to the consumers in the UK in the next 30 days, you should start this registration process in the next 30 days. So, they are not even talking about the sales that might have already been done.

What are the UK HMRC Reporting Requirements for VAT?

Grigory: But it's not just about obtaining the registration. You rightly mentioned that after you're registered for VAT in the UK, this immediately triggers reporting requirements.

The bad news, guys, is that in the UK, there is no simplified registration for foreign e-commerce providers. So compared to, say, Singapore, Australia, or New Zealand, all those countries also require foreign merchants to calculate and collect taxes on low-value goods. At the same time, these countries offer a simplified registration regime with simplified reporting.

For the UK, it's the standard UK VAT return that you need to fill out.

?

How Do I Digitally Remit VAT to the UK government?

I’d also like to discuss reporting requirements. It's very important to be aware of this.

A couple of years back, the UK finished the transition to this special digital tax regime called MTD, which means ‘making tax digital’. What it means is that you can no longer submit VAT returns on paper. Previously, there was an option.

Now, all VAT returns must be submitted electronically, but there’s more to it. You need to prepare them using special software, which is authorized by HMRC. This software creates a so-called audit trail. So, you need to pull all those numbers into the software, use the software to prepare this VAT return, and then transmit the information from this VAT return to HMRC in a special format. I think from memory, it's XML format.

So, this also adds some complexity to UK compliance. And speaking about reporting frequency, it is usually quarterly.?

How Can My Business Handle Cross-Border Tax to the UK?

But, as we discussed, doing all of these taxes in-house is one of the options. Right? In this episode, we discussed the UK alone. But, as we mentioned earlier, 40 different countries across the world require foreign e-commerce retailers selling physical goods to calculate and collect taxes at the point of sale. So, it shows not just the UK.

Leo: So, imagine that I've got essentially 40 other countries for which I need a whole page of the notes that you just gave me to be able to do that in-house.

Grigory: Also, the time to market, in my opinion, is paramount. I firmly believe that using a reputable Merchant of Record for tax calculation and supporting low-value goods across the world, including the UK, is an option that ecommerce merchants shouldn’t ignore.

Outro

Leo: Absolutely. That's great advice. Grigory, thanks for being on the show today. It was nice to talk about UK tax requirements today.

For the world of tax, I'm Leo Tucker. Thanks a bunch. If you like this content, go ahead and like and subscribe. And if you want to see more of what we have coming, hit that little bell at the bottom. Thanks. Brought to you by the Reach network.

You can watch Part 1 and Part 2 on YouTube:

1. https://www.youtube.com/watch?v=9zLHrfYH4f4
2. https://www.youtube.com/watch?v=5NFfqEIvuRE