Q- My client sells goods on the internet to private customers. He makes sales within the UK and outside the EU, but the bulk of his turnover is now into other EU member states. He charges UK VAT on his sales to EU customers at present – is he correct to do this? He is considering finding a small warehouse in one of the member states from which to make his EU distribution. How would that affect his VAT accounting?
A- Sales of goods to customers in the UK will be subject UK domestic VAT. Sales outside the EU can be zero-rated exports as long as the supplier has the correct evidence of goods leaving the UK and going to the customer outside the EU within 3 months of making the sale.
For sales of goods within the EU to private individuals or non-registered customers, the su
pplier normally accounts for VAT as a domestic supply in the member state from which the goods are dispatched.
Your client is therefore correct to begin by charging UK VAT on sales to the EU, and record the output tax in box 1 of his UK return and the net value of the supply in box 6. However, each member state has a distance selling threshold and once the sales to any one member state exceed that threshold in a calendar year, the supplier needs to become registered for VAT (or the equivalent) there.
If this were applicable, your client would then need to account for those sales using the appropriate VAT rate in that country, and declare the sales on their VAT return there. The value of the sales would be shown in boxes 6 and 8 of his UK VAT return. In neither case do these sales go on an EC Sales List.If your client uses a warehouse in another member state from which to make his EU sales then he will need to take advice on the need to VAT register there for the acquisition and sale of the goods.
This is likely to depend on the threshold in that country for registration, and whether the warehouse would constitute a fixed establishment of his business there. If he does become registered for VAT in another member state and ships goods to his warehouse from the UK, that transfer of his stock will be a deemed supply for VAT purposes and would be treated as a normal EU dispatch from his UK VAT registration, and acquisition by his EU VAT registration.
This transfer, based on the cost value of the goods, would go on his UK return in boxes 6 and 8 and on an EC sales list.