08 Feb 2018

Going the distance: VAT on selling overseas

Publications

Much has been written about the VAT that is lost to HMRC by non-UK based businesses that sell over the internet to UK consumers and fail to meet UK VAT obligations.  Few of those businesses receive our tax briefings and this briefing is not directed at them.

Rather, this note is about the mirror image: UK businesses that sell over the internet and include among their customers consumers who are resident (or, in VAT-speak, “belong”) in another EU member state.  Assuming the sales to be over the VAT registration limit, such businesses will be registered for VAT in the UK and accounting for VAT in the usual way.  What’s wrong with that?

What’s wrong with that is that if the value of the business’s sales to consumers in a particular member state exceed the “distance selling threshold” for that member state, the business should be registered in that member state.   If what you are selling are, broadly, digital services, then it is possible to simplify matters by registering for HMRC’s improbably-named Mini One Stop Shop (“MOSS”) service, whereby you make a single return to HMRC of relevant supplies accounting for tax at the appropriate rates rather than registering in each member state.

But there is no equivalent to MOSS for non-digital services:  broadly, if you are selling physical rather than virtual things you have no choice; if you exceed a relevant distance selling threshold you must register in the relevant member state.

You might reasonably ask – so what?  If I am accounting to HMRC for UK VAT in respect of sales on which I ought strictly to be accounting for, say, German USt or French TVA, who cares?

Probably not HMRC, granted, given that they will be collecting tax to which they are not entitled.  But the Bundeszentralamt für Steuern or the Direction Générale des Finances Publiques may feel entitled to take a different view. We are now starting to see HMRC, acting under formal request from foreign tax authorities under “mutual administrative assistance” agreements, using its powers to require details of consumer sales to other member states.

At best, it is an inconvenience to have to demonstrate that sales to a particular country are below the registration threshold: at worst, it may lead to demands for back tax, interest and penalties in respect of sales on which VAT (rather than the relevant local equivalent) has been improperly accounted for.

In most cases the relevant limit is around €35,000 (or something like its local equivalent in non-Eurozone countries).  In one or two countries it is as high as €100,000.  So if your eBay or Amazon trading is mainly to UK customers with only the occasional overseas customer (and your records support that) you need have no concern.  But if you are selling significant volumes to consumers in any single member state, take care.

For more, please get in touch with your usual BKL contact or use our enquiry form.