New VAT rules for Online Marketplaces: Why sellers should still register for UK VAT

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The UK has introduced new regulations making Online Marketplaces (OMP) liable for VAT payments and reporting in certain situations.

According to the new rules, which take effect from 1 January 2021, OMPs will be liable for VAT payments on the sale of the following goods sold through the OMP:

  • Goods delivered from inventory stored outside the UK with a value of up to £135, and
  • Goods of any value delivered from inventory stored in the UK, where the seller is not established in the UK

The new rules place additional obligations on online marketplaces. However, it is still advisable for businesses selling goods via those OMPs to register for VAT in the UK. We take a look at why.

New VAT responsibilities for Online Marketplaces

The new rules confer additional responsibilities on OMPs. The onus is thus now on the marketplace to:

  • Identify the nature of the goods and determine the correct rate of VAT
  • Register for VAT, if the online marketplace has not already done so
  • Keep accurate records of goods sold

Why online sellers should register for UK VAT

Businesses selling goods to UK customers via online marketplaces like Amazon and eBay may now reasonably ask whether they still need to be VAT registered in the UK.

The simple answer is yes, for a number of practical and technical reasons.

At the point that an item is sold to a UK customer via the OMP,  the overseas seller will be deemed to have made a zero-supply supply of goods to that online marketplace. That is, the underlying seller of the good is technically considered to have sold its goods to the online platform.

Owing to the ‘deemed supply’, the overseas seller will be eligible to register for VAT in the UK.

That’s important, because in many cases the overseas seller remains liable for import and customs duties on goods imported into the UK. Possessing a UK VAT number will enable the seller to reclaim import VAT, in accordance with standard VAT deduction procedures.

Anticipating B2B sales

The new OMP regulations apply to B2C sales via an online marketplace.

In cases where the goods are situated in the UK, registering for VAT clearly helps account for B2B transactions. If the customer represents a UK VAT registered business and provides their VAT number, the normal rules apply for B2B transactions via an OMP. In that instance, the seller is considered to have made a standard-rated supply of goods to the customer.

Sellers should therefore register for UK VAT to account for the standard rated VAT on the sale.

Prevent costly disruptions 

If the goods are not located in the UK at the time of sale, those goods will be outside of the scope of UK VAT.

However, practically speaking, registering for UK VAT is prudent. That’s because according to the new regulations, the OMP must confirm that any VAT number provided by a seller is valid. In practice, online marketplaces may not permit businesses to sell on their platforms if they do not provide a VAT number.

In addition, UK authorities may in future require overseas sellers to be VAT registered.

Registering for UK VAT is therefore a prudent step to ensure business continuity.

In addition, customs declarations require VAT numbers as well as EORI numbers. A valid VAT number will prevent costly delays or difficulties moving goods across the border.

Disclaimer: Reproduced/Adapted with permission from VATGlobal.

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