VAT & International Transactions?

[sampsonzak]

Hi all,

After completing my self assessment over the past couple of days, I saw the VAT threshold is for any business with £85,000 turnover in 12 months. I am currently ~£200 off the VAT threshold. I am a sole trader selling worldwide through my ecommerce store.

I have many questions on VAT, and it's all a bit scary. I am not making mega money at all, and from what I've read it looks like my profits are going to be eaten up entirely, plus lots of extra time with paperwork..

What I need help/guidance with (as I can't justify paying for an accountant at my current stage)

* I sell 60 percent to US/CA. 25 percent to UK, 10 percent to EU, 5 percent to ROW (estimate)
> Does this VAT threshold only apply to £85,000 turnover from my UK customers?

* 50 percent of my stock is in the UK and I ship out to customers. The other 50 percent is from China and goes direct to my customers from the factory.
> Does the VAT threshold only apply to orders I ship out from the UK?

I understand I need to get an accountant. At this stage I think I am still way under the VAT threshold due to me selling mainly international, so I would like to check this first with you all before I throw money around that I desperately need right now..

Can anyone provide some info on this? I've searched on Google and it's given me a bit of a headache.

Thanks!

 

[Mr D]

You have checked when you are about to hit the threshold? Its not just your year end to consider, its a rolling 12 month period.
Not uncommon for those unaware of it to go over it multiple months in a year.

 

[spidersong]

For VAT purposes goods are treated as supplied where they are when sold/when title passes. So if you sell them direct from China and you're not an importer of record in to the UK/EU then they don't form part of your UK turnover.

All goods sold from the UK will no matter where you ship them but might not actually have declarable VAT upon them depending on whether selling to EU businesses or anyone non-EU.

So from what you've said you're actually unlikely to be over the limit. You may however want to look at VAT notices 703: https://www.gov.uk/guidance/vat-on-goods-exported-from-the-uk-notice-703 and 725: https://www.gov.uk/guidance/vat-and-the-single-market-notice-725 to help you get a handle on what you're doing.

 

[TheCyclingProgrammer]

When calculating your turnover for the purposes of the VAT registration threshold, you can exclude any VAT-exempt items or goods or services that are supplied outside of the UK:

https://www.gov.uk/vat-registration/calculate-turnover

 

[apricot]

I would recommend you to register for Vat as you dont want to mess with HMRC. Vat is something you charge the customers anyway, dont runaway from collecting it and paying to HMRC.

You wont be paying Vat for US/CA sales anyway

you wont be paying Vat for items dispatched from China to anywhere in US/Ca

However, if you sell from China to Europe and if you reach the Europe countries treshold, you will then need to register for Eu counties Vats but if you have just reached to £85k target, you are far away from this at the moment, no need to worry.

 

[sampsonzak]

Hi, I re-read all these replies and I am a bit confused about my sales to US,Canada,Australia ETC - Non-EU.

"All goods sold from the UK will no matter where you ship them but might not actually have declarable VAT upon them depending on whether selling to EU businesses or anyone non-EU."

If I send the product from the UK, to a Non-EU country, does this count towards my VAT threshold?

Thank you to all

 

[DontAsk]

I would recommend you to register for Vat

Why complicate things when he's liely to under the thrshold?

You wont be paying Vat for US/CA sales anyway

Yes he will, on his supplies. He will not be charging VAT on those sales.

 

[Mr D]

Why complicate things when he's liely to under the thrshold?



Yes he will, on his supplies. He will not be charging VAT on those sales.

Will he be claiming VAT back on those supplies?

 

[DontAsk]

Will he be claiming VAT back on those supplies?

Not directly, no. It rather depends on his other (UK VAT-able) sales and the result of the calculation in his VAT return, as I am sure you know full well.

Paying VAT on supplies, charging VAT on his UK sales, doing his VAT return, paying HMRC or getting a refund from HMRC is not the same as "not paying VAT". Don't try arguing with an on-the-spectrum pedant

 

[Mr D]

Not directly, no. It rather depends on his other (UK VAT-able) sales and the result of the calculation in his VAT return, as I am sure you know full well.

Paying VAT on supplies, charging VAT on his UK sales, doing his VAT return, paying HMRC or getting a refund from HMRC is not the same as "not paying VAT". Don't try arguing with an on-the-spectrum pedant

The business will be paying out VAT regardless. As indeed most people do from a very early age. Whether the business is claiming the money back months later or not is the relevant issue.
Nice to find someone else on the spectrum.

 

[sampsonzak]

Hi guys, thanks for the comments. I am very stuck on the following, could anyone confirm for me please - that would be a massive help.

Do my US/CA sales count towards my VAT threshold? I figure that I do not charge Non-EU VAT (or 0%), but does this add to my threshold or not?

Thanks!

 

[Scalloway]

From here

https://www.gov.uk/vat-registration/calculate-turnover

Include any zero-rated items - only exclude VAT-exempt sales, and goods or services you supply outside of the UK.

 

[sampsonzak]

I am pretty sure I was told EU sales add to my VAT threshold, so now I'm even more confused.


UK VAT THRESHOLD:

1) For UK sales only
2) For UK + EU sales
3) For UK, EU + ROW sales

Could somebody help me out? Which is right or which is wrong? I have been told multiple things now..

EDIT: The products I sell aren't VAT exempt (babies clothes, etc)


I didn't know a thing about VAT until I did my self assessment a few weeks back and I still have no idea.

 

[sampsonzak]

Also, I have another question:

From GOV UK:
VAT taxable turnover is the total value of everything you sell that is not exempt from VAT.

Value:
1) The price I sold the item for?
or
2) Cost price of the item I bought it for?

 

[Scalloway]

From the link I gave earlier.

Include any zero-rated items - only exclude VAT-exempt sales, and goods or services you supply outside of the UK.

So only UK sales count.

VAT taxable turnover is the total value of everything you sell that is not exempt from VAT at the price you sold it at. Cost has nothing to do with it. It is the value of your sales.

 

[sampsonzak]

Thank you, I am really glad to hear it's just UK sales then! I will be way under the threshold then which is great.

 

[spidersong]

Just to confirm that's all sales made from the UK not to the UK, so if the goods are in the UK and you sell them to UK or Poland, or US, or Australia, those are all supplies in the UK even though the goods are eventually exported.

So from what you said earlier in the post 50% of your turnover (UK stock) will be part of the threshold and 50% (China stock) won't.

So the best way to read the sentence is to insert a 'from' and not a 'to': only exclude VAT-exempt sales, and goods or services you supply FROM outside of the UK.

 

[Argentum Tax]

Just to confirm that's all sales made from the UK not to the UK, so if the goods are in the UK and you sell them to UK or Poland, or US, or Australia, those are all supplies in the UK even though the goods are eventually exported.

So from what you said earlier in the post 50% of your turnover (UK stock) will be part of the threshold and 50% (China stock) won't.

So the best way to read the sentence is to insert a 'from' and not a 'to': only exclude VAT-exempt sales, and goods or services you supply FROM outside of the UK.

Agreed spidersong. The HMRC guidance, as quoted by Scalloway's link, is very unclear and could be misleading.
My view is that it is goods supplied by the business from stocks held outside of the UK that should be excluded from the calculation of VAT taxable turnover. Goods supplied from stocks held within the UK by the business, wherever they go to, are included in the calculation of taxable turnover of the business. It is not only sales within the UK that count.

 

[sampsonzak]

Agreed spidersong. The HMRC guidance, as quoted by Scalloway's link, is very unclear and could be misleading.
My view is that it is goods supplied by the business from stocks held outside of the UK that should be excluded from the calculation of VAT taxable turnover. Goods supplied from stocks held within the UK by the business, wherever they go to, are included in the calculation of taxable turnover of the business. It is not only sales within the UK that count.

So every single product I sell from my UK stock is needed to be counted down as this VAT threshold?

I really hope this isn't right, as this will cause me a nightmare seeing as I

* Send from multiple locations, for the same order(s)
* Take payment in all major currencies (What currency rates would I use? Can I tell them I took XX USD, XX EUR, XX GBP?)

Is there any work arounds for this?

Am I able to register 2 companies - one for my UK sales only, and one for ROW sales to lower the VAT threshold so I have more time without it?

 

[Scalloway]

Am I able to register 2 companies - one for my UK sales only, and one for ROW sales to lower the VAT threshold so I have more time without it?

HMRC may not allow this as being disaggregation.

https://www.crunch.co.uk/knowledge/tax/vat-disaggregation-artificial-separation-business/

 

[UK Contractor Accountant]

https://www.ukbusinessforums.co.uk/...nt-towards-the-vat-turnover-threshold.314586/

 

[sampsonzak]

Looks like everybody on that thread are also confused about the answer to this question too

 

[UK Contractor Accountant]

no confusion from the vat experts - Goods supplied from stocks held within the UK by the business, wherever they go to, are included in the calculation of taxable turnover of the business. It is not only sales within the UK that count.

The confusion arises over the term 'exempt' supply.

Vat Notice 700 is you reference - see below for 5.5 & 5.6

5.5 Exported goods
If you export goods to a customer outside the UK or EU, your supply is normally zero-rated provided that you meet the appropriate conditions.

There are a number of notices which deal with exports. You will find out more about these, and the conditions which you must meet to zero rate your supplies, in Goods exported from the UK (VAT Notice 703).

5.6 Exported services
Some supplies of services to overseas customers are zero-rated, but many are standard-rated. For more information see section 29.

 

[sampsonzak]

If I change from my current sole trader status to a Ltd Company, does my VAT threshold/claims start from then?

I read earlier something about it resets to 0 once incorporated, but I could still claim back the VAT I have paid for up to 3 years. Is this correct ?

I could claim up to 3 years VAT past of purchases from my suppliers, and only have to pay VAT since the date I incorporate? Is this correct?

Thank you. I think I will need to do a massive change around seeing as I don't charge any of my customers tax with the prices. I would have to just give 20% of most of it away to VAT?

What is causing me a nightmare is how I am going to calculate this. Thousands of small order values, with multiple products sent from different countries. Some orders of 5 items will have 1 item VAT eligible, while the others don't, and vice versa. This is a nightmare as I already have too much on my plate seeing as It's just me running the whole show..

Does anyone have any recommendations on what I can do?

 

[UK Contractor Accountant]

If I change from my current sole trader status to a Ltd Company, does my VAT threshold/claims start from then?

yes if you haven't already exceeded the taxable vat threshold (TVT) as a sole trader.

If you have exceeded the TVT as a sole trader the company needs to be vat registered from Day1.

https://www.ukbusinessforums.co.uk/articles/compact-by-design-riding-the-vat-threshold.936/

 

[spidersong]

I could claim up to 3 years VAT past of purchases from my suppliers, and only have to pay VAT since the date I incorporate? Is this correct?

It's not quite that simple 1) it's actually 4 years for goods and 6 months for services, 2) for goods they have to be on hand at the date of registration and for services they have to have not been 'used up' in making supplies before registration 3) There can be complications when things have been bought by a sole prop for use in a sole prop business but you are then trying to recover them in a limited company.

The simplest thing to remember is that HMRC don't tend to give money away unless they get something out of it so you can only normally recover VAT where there is a direct link to some future or current taxable supply (or that would be taxable if made in the UK), and taxable supplies include zero rated supplies such as exports.

As you're dealing with international supplies, pre-registration and pre-incorporation VAT recovery, and have no experience in this area I really do think that you would be best talking to an accountant experienced with such issues rather than trying it yourself, as penalties for careless errors can be 15% of the error and if HMRC take the view that you didn't know what you were doing and went ahead knowing this so that it's a deliberate error then penalties can be 70% of tax claimed in error/not paid.