If you're an EU business involved in distance selling to customers in the UK, find out how the VAT rules affect your sales.
Distance selling occurs when a VAT-registered business in one EU country supplies and delivers goods to a customer in another EU country who is not registered for VAT. You’re distance selling into the UK if:
- you are outside the UK but in another EU country
- you sell goods to customers in the UK or Isle of Man who are not VAT registered
- you deliver the goods or arrange for their delivery
Customers who are not VAT registered include:
- private individuals
- some small businesses
- businesses that cannot register for VAT because their activities are exempt
- public bodies
Distance selling only involves goods, not services. It only takes place when a business registered for VAT in one EU country sells and delivers goods to someone in another EU country who is not, and does not have to be registered for VAT.
If you distance sell into the UK and Isle of Man you have to register for UK VAT if the value of your distance sales exceeds £70,000 in a year. If you distance sell excise goods like alcohol and tobacco you’ll have to register for UK VAT and Excise Duty no matter how much your sales are worth. Sales you make to customers who are VAT registered do not count as distance sales.
If you are outside the EU any sales you make to the UK are not distance sales.
Threshold for distance selling
The distance selling threshold is £70,000. If the annual value of your distance sales into the UK and the Isle of Man is less than the distance selling threshold you charge VAT at the rate that applies in your own country. You account for the VAT there too.
If the value of your distance sales goes over the limit then you have to register for UK VAT. You then charge VAT on your VAT taxable sales at the UK rate instead of using your own country’s rate and account for it here.
You can apply to register for UK VAT as a distance seller voluntarily, even if you do not exceed the threshold.
Sales to the UK from outside the EU
If you are outside the EU and you sell goods to customers in the UK then this not classed as distance selling for VAT purposes. The Channel Islands are not part of the EU.
Your customers should be aware that they may have to pay UK import VAT on the goods when they arrive in the UK. They may also have to pay duty.
Separate rules apply to overseas businesses using an online marketplace to sell goods in the UK.
When to register for VAT in the UK
You must register for UK VAT if the value of your distance sales into the UK during a calendar year (1 January to 31 December) goes over the distance selling threshold. So you must keep proper records of your distance sales to the UK.
If you distance sell any excise goods like alcohol and tobacco into the UK you always have to register for UK VAT. It makes no difference how much your distance sales are worth. You also have to register for UK Excise Duty. You’ll have to account for the VAT and Excise Duty in the UK.
Working out the value of your distance sales
To work out how much your distance sales are worth, add up the total value of all the VAT taxable distance sales you make into the UK and the Isle of Man, including any zero-rated goods. But do not include the following:
- goods you install or assemble at your customer’s premises
- new means of transport (NMT), like certain vehicles and boats
- any capital assets you sell, like vehicles and equipment
When to register
As soon as the value of your distance sales goes over the distance selling threshold you have to register for UK VAT. You have 30 days from this date to send a completed form VAT 1A ‘Application for Registration - Distance Selling’ to HMRC. Your registration date is the date when the value of your distance sales went over the threshold, and this is the date from which you have to start accounting for UK VAT on your sales.
Choosing to register for UK VAT voluntarily
Even if you do not have to register for UK VAT, you may choose to do so if you think it would help your business.
If your distance sales are below the threshold
If you do not have to register for UK VAT because the value of your distance sales is not over the limit and you do not sell any excise goods, you can apply to register if you want to. You’ll have to:
- tell the tax authorities in your own country and give HMRC written evidence that you’ve told them
- apply to HMRC for UK VAT registration at least 30 days before you start charging UK VAT
- register for VAT in the UK from the date when you first charge UK VAT
- account for VAT on all the distance sales you make in the UK
- follow all the normal UK VAT rules
- normally stay registered for at least 2 years following the date when you first started charging UK VAT
If you have not started making distance sales yet
If you do not have to register for UK VAT and you do not yet make distance sales into the UK, you may still be able to register if you intend to start making distance sales. You’ll need to:
- prove to HMRC that you really do intend to make distance sales to the UK and account for VAT in the UK
- apply to HMRC for UK VAT registration
- make firm arrangements to start distance selling, and give HMRC written evidence of these arrangements
If HMRC does not think you really intend to make distance sales in the UK they may turn down your application.
How to register for UK VAT
If you have to register for UK VAT as a distance seller, or if you want to register voluntarily fill in form VAT 1A and send it to HMRC.
When you register you can notify HMRC that you’re appointing a tax representative or an agent to deal with your UK VAT affairs. Or if you prefer you can deal directly with HMRC yourself.
Waiting for your VAT registration
You may have to wait a few weeks after you send off your application before you receive your registration confirmation and details. If you’ve registered because your distance sales have gone over the threshold, you must still account for UK VAT in the meantime. However, you will not be able to issue UK VAT invoices until you receive your VAT registration number.
If you’ve applied for voluntary registration you can choose the date when you want your registration to start. If you do not receive your registration details by that date, you’ll have to start accounting for UK VAT from that date onwards, but you will not be able to issue UK VAT invoices.
How to manage your UK VAT
Once you’re registered, you’ll have to add UK VAT to your prices at the appropriate rate when you make VAT taxable distance sales. Different types of goods have different VAT rates in the UK, so you’ll need to check which rates apply to the goods you sell.
Dealing with HMRC
Appointing a representative to handle your UK VAT affairs
You may find it convenient to appoint a tax representative to deal with your VAT affairs in the UK. You’ll still have to complete form VAT 1A to apply for UK VAT registration. And you’ll have to fill in form VAT 1TR to tell HMRC that you’ve appointed a representative. Once you’ve done that, your representative will be able to deal directly with HMRC on your behalf.
Deregistering for UK VAT
If you stop making distance sales into the UK, including sales of excise goods, you must cancel your registration. You must also deregister if you previously intended to make distance sales but you did not.
If you had to register for UK VAT because the value of your distance sales into the UK went over the registration threshold, you can apply to cancel your registration if either:
- the value of your distance sales in the last calendar year did not exceed the registration threshold
- their value in the following year will not exceed the threshold
If you decided to register for UK VAT voluntarily, you may not be able to deregister straight away. You’ll normally have to wait until the end of the second calendar year following the year in which you registered.