If you run an eCommerce business, you’ll have to learn about VAT sooner or later. It’s a complex tax, especially when it comes to sales sent overseas, so remaining compliant with all the rules is a tough task.
This blog post will guide you through everything you need to know about VAT, including registration thresholds, cross-border rules, and effective tax-saving strategies that will ensure your online business thrives and you aren’t overwhelmed.
VAT registration thresholds
In the UK, VAT-registered businesses must charge VAT on certain goods and services, and then pay that money to HMRC in quarterly VAT returns. In that sense, businesses act as a tax collector for HMRC – rather than paying the tax out of their own pocket. Different rates of VAT apply to different types of goods and services.
UK businesses must register for VAT if their annual taxable turnover exceeds the VAT registration threshold, which is currently set at £90,000. If you think you may exceed this threshold within the next 30 days, you must also register for VAT.
If you’re close to the threshold, it’s important to monitor your sales closely, as failing to register on time can lead to penalties and backdated VAT liabilities.
Key tax-saving opportunities
If your turnover remains below the threshold, you can choose to register voluntarily, which comes with several benefits – mostly the fact that you can reclaim VAT on business expenses, including:
- Inventory costs: Purchasing inventory is typically subject to VAT, which you can reclaim if you’re VAT-registered.
- Marketing and advertising: Expenses incurred for promoting your eCommerce business often include VAT.
- Professional services: Fees paid to accountants, legal advisors, and consultants are generally reclaimable.
Identifying and claiming these expenses can provide substantial tax savings that non-registered businesses won’t be able to claim.
Accurate record-keeping
Maintaining accurate and organised records is crucial for any eCommerce business so they can remain compliant with their VAT duties. It also helps them file accurate returns, which in turn ensures businesses pay the correct amount of VAT and don’t end up overpaying. The key documents to keep are:
- Sales invoices: Keep copies of all invoices issued and received to substantiate your VAT claims.
- Transaction records: Document every sale, including details about the customer’s location, to ensure you apply the correct VAT rate.
Handling cross-border VAT rules
Cross-border VAT rules can be particularly complex, as businesses should generally not apply UK VAT but should follow the rules of the country to which they’re selling goods – the reason being that VAT is a consumption tax, so UK VAT cannot be applied when a good is consumed in, say, France.
When selling to EU businesses, you need to consider the distance selling threshold of €10,000 (approximately £8,600). If your sales to EU customers exceed this amount, you will need to register for VAT in the EU country where your customers reside, and apply the appropriate rates.
Under the Import One-Stop Shop (IOSS) scheme, businesses selling goods worth up to €150 to EU customers can simplify VAT registration by registering in one EU country and declaring VAT for all sales through that portal. This streamlines the process, making cross-border sales more efficient.
VAT accountants
VAT is a complex topic, so we haven’t been able to explain everything to you in detail. But we will be able to if you give us a call.
At Cottons, we specialise in VAT accounting for eCommerce businesses. Our experienced team understands the intricacies of VAT registration, cross-border sales, and tax-saving strategies tailored to your unique needs. We’re passionate about helping businesses like yours navigate the challenging landscape of VAT compliance.
Imagine having the peace of mind that comes from knowing your VAT obligations are expertly managed, allowing you to focus on growing your online business. We take the stress out of VAT, turning a complicated necessity into a streamlined process that works seamlessly within your operations.
Don’t let VAT complexities hold your business back. Get in touch with us today, and together we’ll unlock the full potential of your eCommerce venture. With Cottons by your side, you can turn VAT from a hurdle into an opportunity for growth and efficiency. Together, we’ll help your business flourish without the hassle.
For more eCommerce VAT and tax tips, contact Cottons today.