I haven't found any post related to this.I'm talking to a friend that has a UK business that is VAT registered in the UK and currently using the flat rate scheme. The business is an IT consultancy and they now decided to start developing their own software and selling it via their web site. They are now trying to understand if and how they should charge VAT to people that buy from their online shop bearing in mind that anyone in the world could buy this software.
I have never thought about this before as this is the first time that someone asks me about this. I have done some research on the HMRC site and I came across different pages of the site that say different things.
I would base the VAT calculation on the 'place of supply' as explained on the HMRC site.
So the web site should ask the buyer (at checkout) if they are a business or private individuals and:
- charge VAT to any individual (wherever they are in the world)
- charge VAT to businesses in the UK
- charge VAT to businesses in the EU (unless they provide a valid VAT reg. number, which I don't think will happen on the website)
- do not charge VAT to businesses outside the EU.
When the VAT return is prepared only the first three scenarios will be considered (filling in the boxes on the return correctly considering EU sales) and the last scenario will be ignored as 'outside the scope of VAT'. However I found pages on the HMRC site stating that sales outside the EU should be accounted for as zero-rated (thus included in the calculation of the flat rate turnover). This distinction is quite important since the business is using the flat rate scheme and the U.S. are potentially a big market for the software on sale, so 'out of scope' vs. 'zero-rated' may make a big difference for them.
Has anyone been dealing with the VAT for online sales and can share their views? I'll not be the one recommending this business what approach to take as they will involve more qualified accountants, but I'm just curious to know how others have approached VAT on online sales.
Thanks.
Fabs
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I am just learning about all this, so bear with me if you find something isn't quite right. I have been talking with a VAT expert, and here is some of the things I am gleaning from our talks.
There is a new system coming into operation in 2015 and its best to gear up for that, earlier rather than later. You may wish to do some research on MOSS - Mini One Stop Shop. Here is one link that explains it some...
As I understand it, when you have to provide a fixed price, you gear your prices so that they include VAT at a rate that matches the country where your highest volume of sales are. This means that for some countries, with high vat, you may make a small loss on those sales.. and where a country has low vat, you will make a small gain.
The website must be geared up to take details of the client type, location, and any VAT details, and from this, be able to calculate the invoice accurately. Its entirely possible to be investigated by another countries VAT office, if they feel you are not reporting VAT correctly - they can charge you that countries penalties etc. (reverse charge means they get VAT, you see)
From a customer point of view, there are 3 types - Business, Consumer, Universities and Medical.
From a geographical point of view, there are 3 types - UK, EU, Everywhere else
At the moment, for services being sold..
Sales to business in the UK - charge 20%
Sales to business in the EU - with VAT number - no vat, reverse charge, EC sales List*
Sales to business in the EU - no VAT number - charge VAT as UK
Sales to business elsewhere - no vat
Sales to consumer in the UK - charge 20%
Sales to consumer in the EU - charge VAT as UK
Sales to consumer elsewhere - no VAT
Note that if your sales to a country exceed a limit, you have to register in that company. EG - Germany - you must register once sales hit 100K euros. Italy - once you hit 35k euros
* there is a EC reverse charge list, I am looking into this, but VAT expert said EC sales list to me.
Its a bit of a minefield, and I am having to understand this as I have quite a few different situations, where I need to advise clients, who have been happily plodding along. Luckily for now, no one has hit any limits. I imagine there are many sellers out there who have no idea of the implications!
You may notice I have a thread on here about the way software is preparing the returns when reverse charge is being used, so you can see its hard to pinpoint what exactly is the right thing to do!
thanks for the information. I do agree that there are so many UK online shops nowadays that one would think this should be clear by now. But I guess many of the online shops do not hit the threshold for VAT registration, so VAT is a non issue.
I did some more research and all the posts I found in accounting forums (e.g. Accounting WEB, etc.) contradict one another, suggesting that even accountants are not sure. There must be some accountant somewhere that does the VAT accounting for UK online shops that are registered for VAT.
The majority of the posts I found seem to suggest that the place of supply and the type of buyer are the only factors in determining the VAT, as follow:
- all consumers must be charged UK VAT
- UK businesses must be charged UK VAT
- businesses in other EU countries or overseas must not be charged VAT (and this revenue should be considered 'out of scope' for VAT, thus ignored when doing the VAT return).
Nobody mentions EC sales lists, getting VAT registration numbers from EU businesses, etc.
I also tested some UK online shops that sell to people all over the world; only a very small number of shops ask whether the buyer is a consumer or a business and I haven't found any that allows you to provide a VAT registration number (when you state that you are a business customer based in a different EU country). This is obviously not the way to investigate VAT requirements! But I was intrigued so I did it.
If you are reading this and you are an accountant doing the VAT accounting for UK online shops please do share your magic!
Fabs
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Also, in distance selling VAT is charged to an private individual based in EU. If goods are sold to a customer outside the EU then it is outside of scope for VAT purposes.
There must be some accountant somewhere that does the VAT accounting for UK online shops that are registered for VAT. 
