Running your own online store comes with plenty of regulations; VAT rates are just one aspect to consider.
Knowing whether you need to add VAT to a product, as well as how much to apply, can save you costly fines from HMRC. But when there are so many rules applying to different products and delivery areas, it can be confusing to make sense of which applies to you.
To make selling your products that much easier, we’ll go through exactly how online VAT works, including whether customers need to pay it, as well as how much VAT to charge.
Do You Pay VAT on Online Purchases?
Yes, HMRC states VAT may apply to purchases made online from businesses based inside and outside the UK, depending on where the goods are supplied from and delivered to.
For sellers, that means you need to be sure you’re registered to charge VAT on your online goods, as well as charge your customers the correct amount.
If you’re not VAT registered, you can’t charge VAT. Not being registered for VAT but charging it anyway is breaking the law, which may lead to hefty penalties. If you’re registered for VAT but overcharge customers, you’ll have to reimburse them, and may still face penalties from HMRC.
Regulations are slightly different for charity organisations. However, it’s just as important to be aware of the rules that apply to you to avoid any fines. Our charity accountants make managing your taxes simple. Alternatively, head over to our guide to VAT for charities for more information.
Charging VAT on Online Goods
Certain goods sold both inside and outside the UK require VAT to be charged. However, the rate you can apply to these items will differ depending on the shipping location and product.
To be sure you’re charging your customers the correct amount, let’s break down VAT for goods sold inside the UK, as well as goods sold outside of the UK.
Selling Online Goods Inside the UK
When you sell goods online to customers in the UK, you need to ensure VAT is added to the total amount, including product price, shipping costs, delivery fees, and any additional charges.
Most online goods and services are subject to the standard tax rate of 20%, including items such as clothes or video games. However, some items fall under the reduced rate of 5% VAT. These items include:
- Mobility aids
- Nicotine patches and gum
- Children’s car seats
- Energy-saving materials (solar panels, insulation, etc.)
Sanitary products, such as tampons, sanitary towels, or maternity pads, are in the zero-rate band, meaning 0% VAT is added onto the total cost.
Selling Online Goods Outside the UK
Most goods exported from Great Britain to countries outside the UK have the zero-rate tax applied.
To qualify for a zero-rate tax on goods sold to countries outside of the UK, you must keep hold of evidence of the sale to provide proof should HMRC request it. However, if the customer purchases from outside the UK, but asks you to deliver it to a UK address, the zero-rate tax will not apply – the UK standard rate applies.
In the UK, VAT is based on the place of supply, not the area of purchase. Meaning the VAT depends on where the goods are sent to, not where the buyer is located.
DH Business Support Makes VAT for Your Online Store Simple
With so many rules, terms & conditions, and regulations to consider, running your own business can feel difficult at times.
Here at DH Business Support, we want to make selling your own products simple, stress-free, and seamless. Our eCommerce Accountants help you make sense of the VAT rules and regulations, so you can get straight to business without a delay caused by any confusion.
Get in touch with us today to see how we can help you. You can contact us by phone on 0330 088 1701 or send an email to hello@dhbusinesssupport.com. Alternatively, you can start a live chat online at any time. Simply click the ‘chat to an expert’ button anywhere on our website.
Ready to learn more about managing your business’s VAT? For tips on how to file a VAT return or what you need to know about a guide to VAT for UK eCommerce brands, head over to our blog.