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Blog - Published 16th August 2016

Watch out! HMRC targets online retailers operating under the VAT threshold

online shopping vat

HMRC is upping its game on tackling revenue loss to non-compliance among online retailers. If you are operating a business below the current VAT threshold it’s time to weigh up your options before you suffer a hefty fine. 

What has changed?

Some eBay sellers, which are currently operating below the current UK VAT threshold, may not be aware that (since 1 August 2017) they should be charging VAT on all sales to UK businesses and private individuals and to businesses in the EU.

If they voluntarily choose to register for VAT, they can recover any VAT payable on their operating costs from HMRC. If they choose not to register, they will have to suffer the additional cost; deciding whether to absorb it or increase prices to cover it.

While private individuals are not required to pay VAT on their eBay fees, some sellers who use the online platform to sell goods on an occasional or ad hoc basis may not be aware that HMRC might regard them as operating a business. If they fail to pay up, they could be hit with a hefty fine.

Take action

online stores
Sellers operating below the current VAT threshold should seek advice immediately about whether their activity would be regarded as business use by HMRC. In recent years, HMRC has become increasingly aware of revenue lost to non-compliance among online retailers and it is aiming to introduce measures to tackle it. With this in mind, sellers who are unsure about whether their activities would qualify as business use would be wise to err on the side of caution and pay what is due.

VAT registration advantages

All those deemed to be operating a business below the current VAT threshold should weigh up carefully whether it would be financially beneficial for them to register for VAT voluntarily. If they are doing a high volume of export sales to businesses in other EU countries, which are zero-rated for tax purposes, registering for VAT could be advantageous because they could recover VAT on their operating costs. If they are selling goods mainly to buyers in the UK, however, the VAT payable on sales would probably far outweigh the value of anything they could recover in costs.

For more information on the above and to seek advice on the best options available to you, please contact Sarah Barron below:

Find out more about Menzies VAT advisory services.

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