We have noticed increasingly that UK businesses are finding that they have not been accounting correctly for VAT on sales of goods to individuals in other EU countries. This may be down to an increase in such sales via the internet but also is a reflection of a lack of understanding of the VAT rules relating to these “distance sales”. This article references UK businesses making sales to other EU countries but is equally relevant to supplies between other member states.
What is a Distance Sale?
Distance sales occur when a business supplies and delivers goods from one EU country to a customer in another EU country who is not registered for VAT. Simply put, when you sell consumer goods to EU member states other than your own, a distance sale occurs. In simple terms you are distance selling to another EU member state is:
- You are based in the UK
- you sell goods that are located in the UK to customers in another EU member state who are not VAT registered
- you deliver the goods or arrange for their delivery
Customers who are not VAT registered include:
- private individuals
- some small businesses
- businesses that cannot register for VAT because their activities are exempt
- public bodies
Distance selling only involves goods, not services.
The rules around distance selling are not overly complex but in order to comply with the rules, businesses need to take some extra steps to monitor sales of this type. This blog covers the general points, in headline terms, but if you have a specific issue regarding distance sales then please do not hesitate to get in touch.
When and Where to Register
Just like domestic VAT registration thresholds, each EU member state has a distance sales threshold; when this threshold is breached, any business making distance sales must register in that country for VAT. However, the distance sales thresholds apply to calendar years, not rolling twelve-month periods. For example, if a UK business is selling goods to French consumers, UK VAT is charged on those sales until the French distance sales threshold is breached. At this stage, the UK business must register for TVA in France and begin charging and accounting for TVA in France. It is also possible to register for distance selling on a voluntary basis before the threshold is breached.
This means that a business which makes consumer sales from the UK to other EU member states needs to monitor its supplies into each individual member state. Different thresholds exist in different member states, adding to the complexity. There are two prevalent distance sales thresholds which member states can employ; the lower threshold (€35,000) and the higher threshold (€100,000). However, some of the countries, like the UK, do not use the Euro. Therefore it is necessary to have regard to each country individually when monitoring sales to EU countries; a list of these thresholds is viewable here.
It should be noted that if a stock of goods is held by a UK business in another member state, the business is likely to become liable to register for VAT in that country if it makes any supplies of these goods.
Prior to breaching a distance sales threshold in a particular member state, the sales should be recorded as usual on your UK VAT return. This means that, in the UK, UK VAT is charged, and entries are made in Boxes 1 and 6 of the UK VAT return. Using the example from above, once the sales from the UK company to French consumers exceed €35,000, the reporting changes and entries must be made in Boxes 6 and 8; the VAT due on these supplies is payable in France so there is no Box 1 entry on the UK VAT return for these supplies.
It will be necessary to submit VAT returns in every country in which the threshold has been breached within any calendar year. Constable VAT works closely with cross-border VAT experts who will be able to assist with any overseas compliance issues as a result of breaching the distance sales threshold.
What Should I Do?
When the UK leaves the EU VAT regime (currently due to take place on 31 December 2020), distance selling thresholds may no longer apply to the sales outlined in this blog. The goods are likely to be subject to import VAT in the country to which they are delivered, and UK sellers will have to consider their VAT position. However, in the meantime, businesses must continue to monitor distance sales to the EU and VAT register in other EU countries where applicable.
If you feel that you may have made an error with your businesses VAT obligations as a result of making distance sales, Constable VAT can assist in making a declaration to HMRC and trying to mitigate any potential penalties. If you have not made any errors but you are involved in distance selling and would like to discuss any of the rules or issues then please do not hesitate to contact Constable VAT.