VAT Distance Selling

With the age of the internet and sites such as eBay everyone can now make a living selling online....
posted 4 years ago

With the age of the internet and sites such as eBay everyone can now make a living selling online. But have you ever considered what the implications of carrying out such an activity are particularly from VAT in the EU point of view.  There is something called Distance Selling which covers this very topic, the main points are highlighted below.

If you have more interesting things to do (I can think of a hundred things but this is your business we are talking about) and would rather not read the detail please look at our VAT Distance Selling flowchart which will guide you through the process.

What does VAT distance selling cover?

Sales of goods over the internet, digital television and mail order to other EU member states.

What is VAT distance selling?

Distance selling is when a taxable person in one EU member state supplies goods to a customer in another EU member state and the customer is not registered for VAT or liable to be registered for VAT (non-taxable person).  Examples may include private individuals, some small businesses, businesses that cannot register for VAT because their activities are exempt, public bodies and charities.

How does VAT distance selling work?

If you are registered for VAT in one EU member state and make supplies to customers in another EU member state, you account for VAT as normal until the value of your sales exceed the distance selling threshold in the other member state (EU distance selling thresholds).  Beware that the threshold rates apply to a calendar year not your financial year.

You will then have to register for VAT in that EU member state and account for VAT using that EU member states rules and regulations.  Once the distance selling threshold has been reached your distance sales are treated as being supplied in that country.

How do you account for VAT distance selling?

Once registered you must comply with all the usual requirements of that country.  If you supply goods to more than one EU member state then you will need to keep separate records for each member state to ensure that you register at the right time.  Once sales go over the distance selling threshold of that member state you must register there separately.

Your sales invoices most then include VAT at the rate applicable for the EU member state for which you have registered for VAT.  If your sales are below the distance selling threshold for another EU member state then you should continue to apply VAT in the normal way using the UK regulations.

How to complete the VATreturn?

The sales that have been made in your return period should be recorded in Box 6 as normal with the amount relating to EU sales that have exceeded the distance sales threshold being entered into Box 8.  Sales made to unregistered VAT customers in another EC member state where the supplies are not distance sales should not be included in Box 8.

How to account for these sales on the EC sales list?

By the very nature that you have entered sales into Box 8 on your VAT return you will now be expected to complete an EC Sales List.  The issue here being that you have no VAT numbers as the customers are not VAT registered so you cannot complete the EC Sales List!  Our advice here is that when you receive an EC Sales List Questionnaire from HMRC for non-compliance you tick the box on the questionnaire 'relates to EU transactions that do not require to be reported on an EC Sales List for the following reason:' and simply state they were for distance sales.

This is a complex area and I do suggest that you seek professional advice on this area if you have any concerns.

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