VAT to EU customers

[Kayote]

Hey all,
I am about to setup my own business. We will import garments from S.Asia (Pakistan & India) and sell them across UK & EU.
The base will be in UK. As the garments are imported, we will have to pay Import duty and VAT. I was wondering, as we sell the garments in UK, we will charge VAT from our customers.
However, when we sell the garments across EU, we wont be charging VAT. Can we reclaim the VAT for these garments that are sold across EU from HMRC as they are not sold in UK so presumably HMRC should not be paid VAT on those garments?
Any clarification would be awesome help.
Best,

 

[alison640]

VAT is chargeable on EU sales, however, if you are dealing business to business and the EU customer is VAT registered then you do not charge VAT, you have to then complete an EU sales list requied by HMRC, presume you have already looked in to this

 

[Kayote]

Alison640,

Thanks for the feedback. Just to clarify, we are going to sell to consumers (not B2B). We intend to deal directly with the customer.

We can claim the import VAT on transactions which are non UK (i.e. UK to EU), right?

Cheers,

 

[David Richards]

Just to clarify, we are going to sell to consumers (not B2B). We intend to deal directly with the customer.

If you are selling to consumers (i.e. customers who are not VAT-registered) in other EU countries, then you will charge UK VAT.

If you reach the 'distance selling threshold' (which varies by country) you will need to register for VAT in that country. E.g. if you reach the 'distance selling threshold' to customers in Ireland (which I think is €35,000 pa), you'd need to register for VAT in Ireland and charge Irish VAT on all sales to consumers in Ireland.

You should start by looking at the relavant information on the HMRC website.

 

[Kayote]

Thanks David.

Yes I was aware of VAT thresholds upon which one has to register for VAT in those countries. I personally dont expect to reach those thresholds anytime soon so thats not my highest concern at the moment.

I am surprised that HMRC would expect VAT from transactions which did not take place in UK. I guess the logic to that is that HMRC would not refund the VAT already paid on the goods (sold to EU customers) & its up to me whether to charge that VAT in my invoice or not and 'claim it back' from the them.

Thanks again for the help with question. Definitely have to look at HMRC even if it looks mighty daunting a task.

Best,

 

[David Richards]

I am surprised that HMRC would expect VAT from transactions which did not take place in UK. I guess the logic to that is that HMRC would not refund the VAT already paid on the goods (sold to EU customers) & its up to me whether to charge that VAT in my invoice or not and 'claim it back' from the them.

I think you have a couple of big misunderstandings about how VAT works. You don't get to choose whether you charge VAT or not. And you're not out of pocket by any of this.
[*]

In very basic terms, because you are VAT registered: when you buy stuff, you pay VAT and claim it back - when you sell stuff, you charge VAT and pay it over to HMRC.

So when you import goods from outside the EU, you pay import duty and VAT - but in your next VAT return you claim back from HMRC the VAT that you paid. When you sell those goods, you charge VAT (unless you're supply them to a VAT-registered trader in another EU country or you're exporting them out of the EU) and pay it to HMRC.

When you sell to a consumer in the EU, they will be charged VAT. It's only a question of whose VAT they'll be charged.


[*] The only bit you can't claim back is the import duty - which you have to 'absorb' into your selling price.
(This is all simplified and ignores all the exceptions and exemptions from the norm.)