Our client is a small retailer specialising in bespoke clothes, and all sales to date have been within the UK. To expand her customer base, she is launching a website and planning to sell through Amazon.
What VAT consequences does she need to consider?
To establish the VAT treatment of her sales, she will need to consider where her goods are dispatched to the customer from (the place of supply), their final destination and, in the EU, whether the sale is to a VAT registered business customer.
The place of supply of goods is where the goods are located at the time of supply, and where this is the UK, the following apply:
Sales to UK customers are subject to standard rate VAT;
Sales to customers in non-EU destinations are zero-rated as exports provided the goods are removed, and proof of export is obtained, within 3 months. The sale is reported in box 6 of the VAT return. VAT Notice 703: “Goods exported from the UK” provides detailed guidance on export procedures and requirements.
Sales to EU business customers that are VAT registered in another member state are zero-rated as EU dispatches. The customer accounts for the VAT as an acquisition in the destination member state. Sales are reported in box 6 and 8 of the VAT return and declared on the EC sales list.
Suppliers may also be required to complete separate Intrastat declarations. These detail the movement (dispatches) of the goods from their home state to the state of their customer. They are only required once the value of the dispatches goes over a certain threshold currently £250,000.
For sales to private individuals and unregistered businesses, your client would treat this as a domestic supply in the UK until she exceeds the distance-selling threshold in the other member state. She will need to monitor the sales to each member state throughout the year. Member states set their own thresholds, which are between €35000 and €100,000 measured over a calendar year.
Once the distance-selling threshold is reached, a business is required to register as a non-resident trader in that country and charge local VAT. Once VAT registered in a new country, there will be local compliance rules to follow, which will include ensuring invoices are issued according to local requirements and submitting regular VAT returns.
Once registered for distance-selling, the movements from the UK are treated as supplies of her own goods at cost. These are shown in boxes 6 and 8 of the UK VAT return. They should not be entered on an EC sales list but are included on an Intrastat declaration if one is required. She will account for the acquisition in the destination member state and charge local VAT on the sale, declaring it on her VAT return there.
Where our client sells goods to consumers via Pan European Fulfilment by Amazon (‘FBA’), if she is not already registered in the country where she holds goods she will need to register with effect from her first supply from that stock. This is because, as mentioned previously, the place of supply of goods is where the goods are located at the time of supply, and most, if not all, member states have a nil threshold for sales by businesses not established in the country. In this situation, the place of supply of the goods will be the member state where the warehouse holding the consignment stocks is located. Sales to customers in that same country will be subject to local VAT.
If our client starts selling goods from the foreign warehouse to customers in other EU countries, she will need to follow local rules for reporting dispatches and distance-sales.
We strongly recommend that businesses making supplies in other member states take VAT advice locally to ensure that they can comply fully with local requirements.
Distance selling thresholds and links to other member states’ VAT rules can be found on the EU Commission website: https://ec.europa.eu/taxation_customs/business/vat/eu-country-specific-information-vat_en