The rise of online marketplaces
The last few years have been tumultuous, to say the least. In the UK, we’re still living through the effects of a global pandemic, multiple lockdowns, Brexit, and the war in Ukraine – now, we must navigate the cost-of-living crisis and sky-high inflation rates too.
Despite all these struggles, the e-commerce market has thrived over the last five years. As more people shop online, the high street struggles to stay afloat, and online shops like eBay and Amazon Marketplace are taking the lion’s share of the profits.
Take the latter example, for instance. According to a report by the Centre for Economics and Business Research (CEBR) and Amazon, the number of UK businesses selling on Amazon Marketplace has increased by 75% over the last five years. In 2016, over 200,000 UK-based companies were selling on the platform, and by 2021 this number had risen to over 350,000.
If you sell goods via an online marketplace, chances are, this will come as welcome news. Perhaps your business is also on the rise, and you’ve no shortage of buyers across the globe looking to purchase your goods – no matter where you are.
But it’s important to remember your responsibilities when it comes to paying VAT on certain goods. Getting this wrong could result in serious consequences such as penalties.
Am I selling via an online marketplace?
Firstly, let’s clear one crucial issue up: how do you define an online marketplace? These are platforms that enable third parties to sell items or services online via an app or website. Some well-known examples would be eBay, Amazon Marketplace, and Treatwell. If the business sets terms and conditions on the sale of goods, handles the returns of goods, processes payments, and arranges the delivery of goods, it’s an online marketplace.
Alternatively, if the business only processes payments, advertises goods or redirects users to an entirely separate page where goods are sold, it’s not an online marketplace.
How do I know when to charge VAT on goods sold?
Now we’ve cleared that up, let’s get back to VAT. How are you supposed to know whether you’re responsible for covering this cost?
The answer to this question depends on where your goods are at the point of sale, your place of establishment (bearing in mind your registered address containing the human and technical resources to make and receive taxable supplies, and where general business decisions are made), as well as the value of each consignment sold.
Crucially, you need to discern whether you’re classed as an overseas seller. If your business doesn’t have a permanent physical presence in the UK or your management decisions and central administration happen outside the UK, you are an overseas seller. It’s important to note that a UK-registered business address, a virtual office address or serviced office address is not enough alone to quantify a UK business establishment.
As an overseas seller, you are responsible for import VAT and Customs Duty when importing your goods into the UK – you can register for VAT to reclaim this amount once the goods are sold.
As of July 2021, marketplaces will be deemed suppliers when facilitating some cross-border transactions. Therefore, they may be liable for collecting, reporting on, and remitting VAT at the point of sale. This move was designed to help prevent tax fraud and error.
Goods with a value of £135 (value of total consignment) or less that are outside the UK and sold via an online marketplace in England, Wales and Scotland) will have UK supply VAT charged at the point of sale and goods sold via online marketplaces in Northern Ireland will be liable for import VAT, unless it is a business-to-business sale and the customer is registered for VAT.
The online marketplace will be liable to account for the VAT on the sales made through its marketplace by a seller not established in the UK. Where the goods are located in Northern Ireland at the point of sale and sold to a customer in Northern Ireland, the online marketplace will be liable for the VAT where the seller is not established in the UK and EU.
At all material times, the online marketplace is liable for VAT, including goods of any value that are held in the UK, such as using Fulfilment by Amazon (FBA) service where Amazon will take care of storing, packing, and shipping your products, handling customer support and returns.
How much VAT do I charge?
So, let’s say you’re selling goods from overseas into the UK and you need to charge VAT. How do you know how much to charge? You’ll need to take the following steps:
- Different VAT rates apply to various goods and services, so you’ll need to ascertain the nature of the goods to charge the correct fee. Refer to the HMRC website for a clear list of VAT rates.
- Register to pay VAT in the UK.
- Keep accurate and up-to-date records of everything sold, including the correct VAT treatment.
If you neglect these reasonable steps or cannot prove you have taken them, HMRC will hold you liable for under-declared VAT.
What steps do I need to take after registering for VAT?
After you’ve registered for VAT, you should follow the standard procedures for the content and formatting of VAT invoices. After following the steps above, ensure you issue a paper or digital copy to your customer – although you don’t need to provide a VAT invoice for goods sold in Northern Ireland or from outside the EU.
Keep full and accurate records, such as copies of all invoices you issue, all invoices you receive, self-billing arrangements, and the name, address and VAT numbers of your suppliers. You must also check the validity of VAT numbers, debit or credit notes, proof of payments, and import/export documents for six years after any goods are sold. These records should include all VAT invoices.
Lastly, you should be aware that HMRC regularly conducts compliance checks to check if businesses are paying the right level of tax, and that they’re getting the right allowances and reliefs. These vital precautions help to prevent tax evasion and fraud and ensure the system is operating justly.
How to check a company in the UK and EU
Companies House is responsible for storing information on all limited companies operating in the UK. You can check the details of a UK company on the Companies House website. For a fee, you can sign up for the Companies House monitoring system, which emails you every time a document is filed. You can use https://www.gov.uk/government/organisations/companies-house
- You can check the details of another EU company on the European e-Justice Portal. You can use https://e-justice.europa.eu/content_find_a_company-489-en.do
- You must review and accurately cross-check all company information. It must match all relevant business information or documents provided to you such as Directors, addresses, and shareholders.
- You can check a business partner’s international bank account number (IBAN) to ensure the code numbers are correct. You can use https://www.iban.com/country/united-kingdom
- You can check a business partner’s sort code number to ensure the sort code numbers are correct. You can use https://www.sortcodes.co.uk/sort-code-checker
You must check VAT numbers for companies within the UK before and after the transaction. You can use https://www.gov.uk/check-uk-vat-number
You must check VAT numbers for companies within the EU before and after the transaction.
You can use https://ec.europa.eu/taxation_customs/vies/vatRequest.html
If you need help understanding VAT as an online marketplace operator, our expert tax agents would love to help. Appointing us to deal with HMRC on your behalf is well worth the investment because tax can be complicated – and it’s crucial that you get it right, for your business, the customer and the public pocket.
You can share your thoughts on difficulties you are experiencing to receive your VAT refunds if you are an overseas seller and registered for VAT in the UK or not registered for VAT in the UK and you buy goods in the UK.
To appoint us as your agent to deal with your tax affairs, please use HMRC’s simple form and send it to info@hmrcagents.co.uk https://rb.gy/stf01l.
