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Like every area of business these days, e-commerce is surrounded by a
maze of red tape, rules and regulations. In fact, selling online tends to be
worse because of the international dimension. And any slip-ups you
make are there for the world to see - so it’s doubly important to be legal
and decent. These tips try to pull together some of the areas that you
need to think about and understand. They shouldn’t be taken as
definitive - it’s your responsibility to comply with the law - but they are a
good place to start.
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You must be VAT registered if your annual sales exceed the
current VAT threshold, which changes every year but is around £64,000
(Search on Google UK for “vat registration threshold” to get the most
up-to-date figure). If you’re not VAT registered, you don’t have to worry
about charging VAT and it would actually be against the law to do so.
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People often don’t understand the finer points of VAT. For
instance, if your products are a mixture of VATable and non-VATable, then
the VAT charged on shipping should be in proportion to the mixture of
VATable and non-VATable goods. Make sure your e-commerce website
can handle all of the VAT rules.
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If your customer is a non-UK business in the EU and is registered
for VAT in their own country, they are allowed to quote their VAT
registration number to you in order to be exempted from tax. If you can’t
accommodate this, those customers are likely to look elsewhere.
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Not many people know this, but if your online store is wildly
successful and you are starting to turn over serious bucks selling into
other EU countries, you hit some additional regulations. If you exceed
the individual VAT threshold for Germany, France, etc. then you should
charge VAT at the appropriate country VAT rate when selling into that
country, not the usual UK 17.5% rate.
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We’re in the EU so we are bound by EU rules. It’s not the same
when handling US buyers. US states might want to charge tax on sales
into their area, but it’s their responsibility to levy this tax. You don’t have
to charge this “use tax” which is between the buyer and the state where
they live. So as a UK business you can sell into the US tax free.
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E-commerce rules and regulations
