VATNIEU3720 - Supply and acquisition: distance selling: VAT treatment
The VAT treatment of distance sales derives from the special place of supply rules (paragraph 29 of Schedule 9ZB) that apply in these circumstances. For further information about this see the manual covering the place of supply of goods (VATPOSG).
Under the place of supply rules, distance sales are usually taxed in the state of origin until the total value of supplies to the destination member states exceeds the distance selling threshold. (But see VATNIEU3730 where distance sales involve excise goods.) The threshold operates in a similar way to a normal VAT registration threshold but relates only to distance sales.
Prior to 1 July 2021, each member state and Northern Ireland set their own distance selling threshold and required a supplier to register for VAT in the member state or in the UK, where their distance sales exceeded the threshold. From 1 January 2021, the threshold for distance sales to Northern Ireland was £70,000 (100,000 Euros). As of 1 July 2021, the EU introduced a single pan-EU wide distance selling threshold of 10,000 Euros (£8,818) in a calendar year (1 January to 31 December). This threshold applies to the total value of distance sales made to customers across the EU and Northern Ireland. Once the value of distance sales goes over this threshold, the supplier has to register for VAT in each member state where they make sales, including the UK for distance sales to Northern Ireland. Alternatively, they can use the VAT One Stop Shop (OSS) scheme to manage and report the VAT due on their distance sales and make payments all in one place.
When Northern Ireland business exceeds the distance selling threshold and makes distance sales from Northern Ireland to EU member states, the business becomes liable to register for VAT in each EU member state.
Alternatively, the business can register for the VAT OSS scheme with HMRC to report and pay the VAT due on all their distance sales to EU member states on a single quarterly OSS return. Further information on registering for the VAT OSS scheme with HMRC can be found at VAT One Stop Shop scheme - GOV.UK. UK legislation covering the VAT OSS scheme is contained within Schedule 9ZD to VATA 1994.
Paragraph 48, Part 9 of Schedule 9ZA to VATA 1994
48(1) A person who:
(a) is not registered under this Act, and
(b) is not liable to be registered under Schedule 1 or 1A, becomes liable to be registered under this Part of this Schedule.
(i) in a case where sub-paragraph (1A) applies, on a day determined in accordance with sub-paragraph (1B),or
(ii) in a case where sub-paragraph (1A) does not apply, on any day when the person makes a relevant supply.]
(1B) The person becomes liable to be registered on any day in a given year if:
(a) in the period beginning with 1 January of that year and ending with that day, the person makes a relevant supply, and
(b) in that period, or in the period beginning with 1 January and ending with 31 December of the year before the year in which that day falls, the person makes European supplies whose value exceeds £8,818.
When a business established in an EU member state exceeds the distance selling threshold and makes distance sales to Northern Ireland, the business becomes liable to register for VAT in the UK. However, if they are registered for the VAT OSS scheme in an EU member state then they will report and pay the UK VAT due on the distance sales to Northern Ireland through their quarterly OSS return. Further information on the VAT OSS scheme in the EU is available at VAT One Stop Shop - VAT e-Commerce - One Stop Shop - European Commission.
A business making distance sales to Northern Ireland may elect paragraph 48(2) of schedule 9ZA to have such sales taxed in the UK before the sales reach the threshold. This also applies if the business chooses to register for the OSS scheme in an EU member state.
48(2) A person who is not registered or liable to be registered as mentioned in sub-paragraph (1)(a) and (b) becomes liable to be registered under this Part of this Schedule where:
(a) the person has exercised any option, in accordance with the law of any member state where the person is taxable, for treating relevant supplies made by that person as taking place outside that member state,
(b) the supplies to which the option relates involve the removal of goods from that member state and, apart from the exercise of the option, would be treated, in accordance with the law of that member state, as taking place in that member state, and
(c) the person makes a relevant supply at a time when the option is in force in relation to that person.
See the VATREG manual for further information about UK registration procedures for distance sellers. Once registration is effected all distance sales to Northern Ireland by that supplier are taxed here.
The removal of goods subject to the distance selling arrangements between member states is not treated as a transfer of own goods (see VATNIEU4640).