Understanding VAT obligations
What is VAT?
VAT – Value Added Tax – is applied to most things ‘consumed’ (sold or supplied) in the United Kingdom. This consumption tax applies to anything counted as a taxable supply which includes:
- Goods
- Services
- Loaning products to someone
- Selling business assets
- Commission
- Gifts
Since January 2011, the standard rate of VAT has been 20%. Some services such as home energy enjoy a reduced rate of 5%, and a few are exempt completely. All companies that meet the requirements for VAT are legally obligated to charge the correct rates on taxable sales in the business.
VAT and your business
Registration threshold
The UK VAT registration threshold is currently £90,000, having increased by £5,000 in April 2024. This means that if your annual turnover is or will be more than £90,000, you must be registered for and charging appropriate VAT.
Registration can be voluntary or following a request from HMRC, but it’s compulsory for those earning over the threshold.
VAT and Brexit
Before Brexit regulations were enforced, EU e-commerce businesses could sell goods in the UK following a simplified VAT plan. However, UK and EU companies must now follow standard VAT guidelines when importing goods from beyond the UK.
A zero rating remains on all exports as these products and services are consumed outside of the UK.
E-commerce regulations
Businesses selling goods and services online must include VAT in the price of all products. When selling overseas goods to UK customers, you must add VAT to consignments of goods valued at £135 or less.
If you’re selling through an online marketplace such as Amazon or Etsy to customers based in Great Britain, UK supply VAT must be applied at the point of sale. Import VAT should be charged to customers in Northern Ireland. Online marketplaces are liable for including the VAT.
Strategies for staying compliant
Advice and accounting
Understanding the rules and requirements of UK VAT is the first step to staying compliant. You should seek advice from a professional accounting firm that knows the financial legalities of cross-border e-commerce. Alternatively, invest in an in-house accounting and legal team with a department dedicated to tax.
Keep good records
You must submit information to HMRC via a VAT Return. Make sure to keep good records so that this form is easy to fill in and to avoid being hit with penalties further down the line. Additionally, any refunds/relief you’re eligible for will be easier to claim if you’re able to give accurate details.
Good records should include:
- The VAT charged on all sales
- The VAT you pay on business purchases
- The VAT on goods imported into the UK
- Any VAT paid to other businesses
- Any VAT you owe to HMRC
Use specialist software
It’s easier than ever to stay compliant with UK business laws – even complex regulations such as VAT. You can use specialist software to process your accounts and automatically calculate appropriate VAT charges. This software can also create detailed VAT reports that will help you complete your quarterly returns for HMRC.
