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HMRC internal manual

VAT Single Market

Supply and acquisition: distance selling: VAT treatment

The VAT treatment of distance sales derives from the special place of supply rules 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 Member State of origin until the total value of supplies to the Member State of destination exceeds the latter’s distance selling threshold. (But see VATSM3730 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. In order to prevent serious distortion of competition, each Member State can set its own threshold within parameters laid down in EC legislation. At present, the threshold must be set at either 35,000 or 100,000 ECUs. The UK threshold, as laid down in the VAT Act 1994 Schedule 2 paragraph 1, is £70,000 which roughly equates to the 100,000 ECUs limit.

When a business established in another Member State exceeds the distance selling threshold in the UK, they become liable to register here. Also, by opting to make the place of supply the UK, a business making distance sales to the UK may elect to have such sales taxed in the UK before they reach the threshold. See the manual covering registration for further information about UK registration procedures for distance sellers. Once registration is effected all distance sales to the UK 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 VATSM4640).