Value Added Tax, in the UK, is similar to GST in Australia or Canada and Sales Tax in South Africa or the US. There are two schemes that non-UK online sellers should choose from: a Flat Rate Scheme or Standard Rate Scheme. A Flat Rate Scheme is suitable for small businesses, while the Standard Rate Scheme means you not only need to pay the VAT to HMRC but also claim any VAT-bearing cost that your business incurred.
When to register for UK VAT?
According to the latest circular, any non-UK online seller must register for VAT from 1st January 2021. Before you search for the registration applications, hold your thought and know the regulations that come with it. First of all, there are two scenarios for non-UK online sellers:
• You are an EEA or EU-based company and it ships products to or from the UK. Alternatively, your company ships products beyond the selling threshold in the UK which is £70,000 within a calendar year.
• The second scenario involves when you are not an EU or EEA-based company. This is usually applicable to companies who store their goods in the UK. For example, Amazon’s European Fulfilment Network. If you run one of these companies, you should also register for VAT, irrespective of how much your company makes within a calendar year.
UK VAT service for non-UK online sellers
Here is the step-by-step method to register for VAT as a non-UK online seller:
You first need to consider which scheme you should register in. If your business fits any of the two options mentioned above, you should apply for that scheme only. Make sure you go through the details asked in the registration form. You can also consult a specialist eCommerce business advisory agency to explain the registration process and tell you which scheme your business belongs to.
Answer the questions that the advisory agency asks. That helps them figure out approximately how much VAT you may need to pay and the amount of money you can claim as a refund. Once you finalise your VAT scheme, you must fill out the application carefully. Submit your application to the HMRC. They take around 7 to 20 working days to process your application and come back with a VAT number.
2. Submitting your returns
Non-UK online sellers should prepare and submit their VAT returns to the HMRC every three months. Of course, filing for returns depends on your sales data and the applicable costs of VAT for your business. You may or may not file for returns if your business doesn’t make £70,000 within three months.
If you are not sure how to submit your returns, you can get help from an eCommerce business advisory agency. The experts will go through your documents and submit them online. In fact, according to the UK’s Making Tax Digital rules, every business owner should submit their returns online to avoid losing hard-copy documents. The deadline to file and pay your VAT is one month and seven days after the VAT quarter ends.
UK VAT Rates
In the UK when registering for VAT you have the option of either registering for the Standard Rate which is a rate worked out by subtracting turnover less taxable costs or the Flat Rate System which is based solely on turnover (however it is a lower rate).
The percentage for Standard Rate Scheme depends on what you are selling. There are three slabs of VAT for different products:
• 20% for most of the goods and services
• 5% for products like women’s sanitary products and fuel used in charitable homes
• 0% for goods like children’s shoes and clothing, newspapers, books, most foods (except hot takeaways like beverages or meals in restaurants and cafés), and most public transport.
For Flat Rate Scheme there are different rates (retail is 7.5%) for different industries which you can check here: https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay
You can get started with your UK VAT registration process by contacting Infinity22. We are an experienced eCommerce business advisory agency that not only offers current industry strategies but also explains the registration process to non-UK online sellers. Get in touch with us today to get the ball rolling for your new VAT registration so that you don’t get into tax fraud cases later.
If you are interested in registering for VAT or would like to talk to one of our consultants feel free to get in contact directly here: Free Strategy Session