Welcome to our complete guide to VAT for e-commerce entrepreneurs. VAT is often considered a trepidatious area, but we’re here to clear up matters once and for all and give you all the information you need to make the right decisions.
E-commerce entrepreneurs often start as solopreneurs and that leads to you wearing many different hats. This may be your first business, and if that’s the case, you may feel overwhelmed by the needs of your business. You are its sales team, marketer, and accountant. Use this guide whenever you have a VAT headache. We will be covering the basics but also giving you information on when to register, what VAT scheme is best for your business and upcoming legislature.
What is VAT?
VAT is short for Value Added Tax. We pay VAT every time we purchase goods from a VAT registered business, whether through a business or for personal purposes. The current VAT standard rate is 20%. When a business registers for VAT, either voluntarily or because they have hit the VAT threshold and are required to do so, you can claim back VAT on purchases, but you must also charge your customers VAT and pay the difference between the two amounts as tax.
As mentioned above, the standard VAT rate is 20% but many goods fall outside of this remit. Some goods fall under the reduced rate of 5%, while others, such as children’s clothes, are zero-rated. To ascertain which category your goods fall under, please check the HMRC guidance or get in touch with our team.
You can register your e-commerce business for VAT voluntarily at any time or wait until you are required to do so:
When you register you will need to choose between the available VAT schemes:
Some more reading on VAT basics:
- Post-Brexit VAT on overseas goods
- What happens if you don’t register for VAT?
- What is the VAT registration threshold for 2021?
- How to view your VAT certificate online
Since 2019 all VAT returns have been required to be submitted digitally through a Making Tax Digital (MTD) approved portal such as Xero:
You can choose to submit your VAT return yourself or do so through your accountant:
VAT on e-commerce expenses
VAT on e-commerce expenses can be tricky. You may be importing stock, you may be selling internationally and you will likely be using international apps and platforms such as Shopify and Amazon FBA. At times it may feel like each expense has its own rules, but if you ever need clarification on a particular expense, our team are there to help:
- Amazon VAT changes post-Brexit
- How to calculate VAT on Amazon sales
- Can you sell on Amazon without being VAT registered?
- Should you register for VAT in the EU as a foreign Amazon seller?
- Do you pay VAT on Shopify fees?
- Do you pay VAT on eBay fees?
- VAT on product samples and gifts
- Changes to VAT on refunds
VAT in other countries
Few e-commerce businesses deal solely with the UK. Even those who sell exclusively to the UK are likely importing goods from another nation. International VAT can be tricky to navigate so please ensure you get help if you need it, to avoid penalties that could be detrimental to your business if you fail to comply.
American Sales Tax:
Other International VAT reading:
We hope you have found everything you needed to know about VAT for e-commerce. If you are looking for more guidance regarding VAT for your e-commerce business, or want to start accounting for growth, get in touch with our team of dedicated e-commerce accountants.
The best time to start is now.