What You Need To Know About VAT For Online Retail Stores
- 24 Jun 2019
Quick Note: Only business registered for VAT can include such a charge in their sales.
Below is a guide from VATIT on VAT compliance and how it applies to online retailers.
Selling Online Or From A Shop?
When it comes to the sale of most goods, retailing them online or physically makes no significant difference when it comes to VAT. Only digital services and products are exempted and are governed by a different set of VAT rules.
In as much as the internet may be a tool that you use to market and distribute your products or services, you expect to receive payment for what you offer. For the HMRC, there is no distinct element that makes handing over goods to consumers at an agreed payable fee in a physical shop any different from selling the same online.
You will charge VAT if you registered your business for VAT, and this is applicable whether you are selling from a physical premise or online.
Should You Be Registered For VAT?
You must register your company for VAT is it has a VAT taxable turnover that is more than £85,000. The VAT taxable turnover is the total sale of all the goods that are VAT exempted. Therefore, you need not register if your turnover is below that threshold, meaning you will not need to charge VAT. Keep in mind that that threshold is not a monthly total but the turnover in a calendar year.
What Rate Of VAT Should You Charge?
The UK has different VAT rates, and they are as follows:
• Most products have a 20% VAT rate.
• A 5% VAT rate is slapped on health and welfare-related items, goods associated with energy conservation, as well as mobility aids.
• Some items such as baby products and kids’ clothes are zero-rated meaning 0% VAT.
You should check with the HMRC to know which goods and services are exempted, which are not, and what the VAT rates are on such items. Go online to the HMRC site to know more.
What Is The Difference Between Zero-Rated And VAT Exempt?
VAT exempt and Zero-rated VAT are two very different things. Zero-rated products are still VAT taxable; what it means is that you will not charge your consumers VAT. You nonetheless will have to record the sale and present it in your annual VAT returns report. Therefore, the sales of any zero-rated product will still count towards the annual turnover threshold of £85,000.
On the flip side, the sale of exempt goods and service means that you will not have to record the transactions and present them in your VAT return, nor will such details count towards the VAT turnover threshold.
You should make this known to your customers or clients on your e-retail store if your business is registered for VAT.
What About International VAT Charges?
If your company is based in the United Kingdom and you are doing business with customers in the EU, you can charge the UK VAT rate. You may zero-rate the sale items if the customer or client is registered for VAT. You will not charge VAT to those outside the EU; however, you should be familiar with the exceptions for this as dictated by the HMRC.
Does VAT Affect Delivery Costs?
The VAT on the item will be the same as that charged on deliveries. That means the delivery charge for goods with a 20% VAT will be at 20%, and zero-rated items will have 0% delivery charge. If you offer free deliveries, then you will not place extra VAT because the fees are included in the sale price.
Let Your Customers Know
Keep in mind that you should let your customers or client know that your online retail business is VAT registered, give details for this on your e-retail store website. For instance, you can do this by listing the prices of the goods or services a VAT inclusive as opposed to listing the VAT separately.
What To Do Next
You should keep track of the VAT taxable turnover so that you registered for VAT once it gets over £85,000. Make use of accounting software to help you monitor the VAT charged as well as the tax payable to HMRC. Such measures will be in line with HMRC’s Making Tax Digital initiative.