Expanding in Europe and entering new markets is what most online sellers using FBA want to achieve. If your are based outside the UK and sell a lot of your products to it, you might need a UK VAT number. This is the case if your sales to the UK reach the annual threshold.
Antonia KlattLast Updated on 15 July 2021
When selling from the EU into the UK, there is no VAT threshold that has to be considered anymore. You will need to register for VAT in the UK for the reasons mentioned in section G. Furthermore, EU thresholds are not relevant for UK sellers anymore so when selling from the UK into the EU, the goods are subject to import VAT and in most cases UK sellers need to get a VAT number in the (EU) country of import.
What is VAT?
Before we dig deeper into the threshold limits, what they are and which limits you need to keep in mind, let’s start with some basic information about VAT.
The value-added tax, this is what VAT stands for, is a consumption tax which is assessed on the value that is added to goods and services bought and sold within the European Union. Up until 2021, the UK was part of this tax and customs untion and therefore applied similar rules and regulations when it comes to VAT on distance selling as the other countries.
VAT applies to all commercial activities involving the production and distribution of goods and the provision of services. Depending on the sector, the product/service, standard VAT rates, reduced or even zero rates can apply.
VAT rates in the UK
All EU countries have their own VAT rates and for different product categories, there are also different rates that can apply.
The three different VAT rates in the UK are the following:
- Standard VAT rate: 20%
- Reduced VAT rate: 5%
- Zero VAT rate: 0%
>Here< you can find which VAT rate applies for which category.
When to register for VAT in the UK?
There are several reasons that make a VAT registration in the UK mandatory, e.g. setting up a business, storing goods or, up until 2021, reaching the annual threshold limit for distance selling.
If you were selling from a EU country to the UK via distance selling, the VAT number of the country of residence of your business was used as long as you didn’t reach the annual threshold limit of a country of import. So your sales weren’t supposed exceed a certain turnover limit within one year.
Those regulations were changed EU-wide in July 2021. Country-specific thresholds were abolished and instead a new EU-wide threshold of 10,000€ was implemented. However, as the UK is no longer part of the the european tax and customs union, this threshold does not apply.
How do I register for VAT?
Most likely it is possible for you and your business to register online. If you don’t want to deal with the authorities and are looking for a service provider who takes care of all these task, our VAT software and our UK accountants are happy to take care of that!
What records do I need to keep?
You should keep all information related to your VAT returns, such as invoices and receipts, for at least six years. Further, in 2019 the Making Tax Digital (MTD) form was introduced in the UK which makes digital storage of your tax records mandatory.
What else do I need?
When selling on online platform, you will probably need the VAT certificate to prove you are registered for VAT and pay your taxes. This is similar to the F22 certificate in Germany, which was replaced by the VAT identfication number in July 2021.
VAT Threshold Limits in the United Kingdom
Storing inventory in one of Amazon’s fulfilment centers? You will need a VAT number in this country. Setting up a business in a country? You will need a VAT number as well. Also required to have a VAT number were distance sellers whose turnover reached the annual threshold limit of a country.
However, the annual threshold limits were replaced by a EU-wide threshold of 10,000€ in July 2021, which is not applicable to the UK.
Up until 2021 EU-sellers based outside the UK needed to register for VAT when they reached the annual VAT threshold limit in the UK ( £70 000). For sellers in the UK, this limit was £85 000.
The following table gives an overview of the previous limits to (de-)register for VAT in the UK:
|previous threshold Limit
|Selling in the UK
|Selling from the EU to the UK
|Bringing goods from the EU into the UK
What happened once I met the VAT threshold?
If your taxable turnover reached the annual VAT registration threshold, you needed to register for VAT (and also inform the HMRC) about that within 30 days.
After the registration process is completed, you needed to:
- Charge VAT on the goods/services you are selling
- Pay VAT on the goods/services you are buying for your business
- Submit annual VAT Returns
- Keep your VAT records (also digital due to MTD)
- Submit your EC Sales List
But what did that actually mean?
Let’s try it with an example. If a seller from Germany who is only VAT registered in Germany is selling goods to various countries in Europe. As he is selling via mail order, e.g. as an Amazon FBA seller, this process is called distance selling.
Distance selling within Europe means that the sellers need to get a VAT number in the country of import as soon as the annual threshold limit is reached.
Continuing the example, let’s say that people from Italy love the product, the seller already reached the threshold limit of Italy and had registered for VAT there. Now he wants to try selling on the British market and it’s an immediate success. People from the UK order the article and the turnover within one calendar year (exclusively to clients in the UK) is 120 000€.
With the previous annual threshold limit of the UK being only about 81 000€ ( £70 000), the sellers needed to be registered for VAT in the UK.
However, the EU-wide VAT threshold of € 10,000 has been in effect since July 2021. This refers to all turnover from distance sales within the EU. Since the UK is no longer part of the Union, sales to the UK are no longer included. The sales to the UK need to be dealt with with the british tax office, the HMRC, directly
Since the new EU-wide delivery threshold is lower than the previous Italian delivery threshold, which has already been reached, VAT registration is due in Italy and in all other European countries to which sales are made. The first € 10,000 sales are taxed at the German sales tax rate in Germany. However, the 10,001e and each additional € must be taxed at the country-specific sales tax rate and paid in the respective sales countries.
What happened if my business had already reached the VAT threshold?
If your turnover was temporarily above the VAT threshold, you didn’t have to get a VAT ID in the UK (exception from registration).
The taxable turnover was only temporarily over the VAT threshold (which you had to prove to the HMRC) and as long as your taxable sales were staying below the VAT deregistration threshold (£83,000) over the next 12 months, this was fine.
Example: You were selling products worth £90,000 in 2019 and you were able to proove that you were going to sell products worth £81,000 in 2020 (let’s keep the COVID-19 situation aside in this scenario), you were considered to have exceeded the threshold only temporarily. So, the HMRC made an exception from registration.
What’s new in 2021
Since the UK is no longer part of the european tax and customs union, thresholds, be they country-specific or EU-wide, no longer apply. Instead, all VAT and import VAT related issues are now dealt with by the british tax office, the HMRC. For distance sellers this means, that they are now selling to a non-European foreign country.
The UK also introduced a new VAT reform in 2021, which changed the following regulations, that distance sellers should be aware of:
- All products are subject to VAT. Previously, the UK granted a VAT exemption for products that cost less than £ 15. This no longer applies.
- Products costing less than £ 135 will be charged with regular UK VAT instead of import VAT. This tax burden is borne by the UK end buyer and must be declared and paid by the overseas or domestic seller as part of a regular VAT return. A simplified customs declaration is still required
- Online marketplaces that have facilitated the purchase of a product under £ 135 that is already stored in the UK are responsible for reporting the applicable VAT.
Still confused? No worries. The team at hellotax includes specialized tax accountants well prepared for all your VAT and BREXIT related questions. hellotax also offers specialized software that makes VAT compliance easy and manageable.