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Guide last updated December 14, 2020
Hello! If, like me, you’re worried about needing a VAT number in 2021 and are unsure of where to start, hopefully this guide will help. VAT is complicated and has a lot of documentation, and it’s extremely difficult to figure out if things are relevant to online, independent shops or not. I aim to walk through the basics of VAT and the criteria that would make you need to get a VAT number. I’ll include sources for my information, and links to where you can apply for a VAT number! I’m a recent economics graduate and a PTIN-registered tax preparer.
If you found this useful and want to toss a few bucks my way, I have a ko-fi!
This guide is geared at US-based businesses specifically. If you have questions and want someone to discuss things with, feel free to DM me on twitter @edelgardlesbian or on discord at maesbi#5599. Also, if you’re a small business in need of an accountant, let me know! I work with artists to make their lives easier and save time, and unlike accounting firms, I won’t ask you what an artist alley is.
What’s going on with UK VAT?
tl;dr: VAT for the UK is changing starting January 1st, 2021. If you’re a US-based small business that sells to the UK and doesn’t sell through Etsy, you will most likely have to sign up for a VAT number. It’s not hard and there are links on how to do so at the end, or I can do it for you.
→ First off, what IS VAT?
* VAT stands for Value Added Tax, and is one of the largest sources of revenue in the UK. Although having to deal with VAT seems like a huge pain (which it is!), however these new policies puts the burden of VAT on buyers instead of sellers, which will hopefully save small businesses and sellers from fees in the long run.
* It applies to OMPs (online marketplaces)
* VAT has always existed; it used to be collected on the point of importation instead of the point of sale.
* These 2021 policies apply to you if you meet the following criteria:
* You sell physical or digital goods to the UK
* You are not located in the UK
* The total retail value of any goods purchased is under £135
→ I sell through Etsy, do I have to get a VAT number?
* Probably not! Etsy is an OMP that collects VAT for you! If you have an Etsy shop, you’ve probably seen the update they put out about it. They have a ton of information available linked here.
* If you have a VAT number, here are instructions about how to add it to your Etsy
* If you meet the following criteria, Etsy will collect VAT from buyers for you
* Buyer is located in the UK
* Goods are dispatched from outside the UK
* Package’s total retail value is less than or equal to £135
→ What qualifies as an OMP?
* An OMP or Online Marketplace is a online website that is facilitated by another service. ALL online sellers qualify as OMPs, however not all OMPs are the same.
* The UK Government website defines an OMP as any website that meets ALL of the following criteria:
* In any way sets the terms and conditions on how goods are supplied to the customer
* Is involved in any way in authorising or facilitating customers’ payments
* Is involved in the ordering or delivery of the goods
* OMPs such as Etsy, Amazon, and Ebay will facilitate VAT for you. If you sell primarily via one of these websites, you will likely not have to get a VAT number. Talk to their customer service if you’re not sure!
* Shopify, Squarespace, and BigCartel do not facilitate VAT for you (as of December 14th, 2020)
→ I don’t sell through Etsy or another large shop directory. Do I need a VAT number?
* Probably, if you want to sell/ship goods to the UK!
* If you’re a seller outside the UK, there’s no threshold on the amount of income you have to make in order to get a VAT number. It’s annoying!
* From the UK Gov’s website: “There’s no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK (or if you expect to in the next 30 days).”
* VAT is based on price of goods sold, not the amount declared on customs forms
→ I don’t have physical goods in my shop; do I still need to worry about VAT?
* Yes :( Okay, well, sort of!
* IF you make over £85,000 in taxable income and you have UK sales, then yes, you have to follow rules for Making Tax Digital. You can find a full list of these rules here, but the highlights are:
* Keep digital VAT records
* Sign up for Making Tax Digital
* Submit VAT tax returns
* On the bright side, you have a ton of time to sort this out. The new Making Tax Digital rules don’t come into effect until April 2022
* If you need to fill out forms for Making Tax Digital, there’s a guide here
→ I have a VAT number or am part of an online marketplace that either collects but does not remit taxes or does not collect VAT for me. What else do I have to do?
* It’s unfortunately not over yet!
* You have to submit quarterly VAT Returns (every three months)
* These returns need to be done online through the UK Government website, and include your sales and purchases, how much VAT you owe and can reclaim, and your VAT refund (if applicable)
* If you cancel your VAT registration, you need to submit a final VAT return
* For UK orders, you need to provide customers with a VAT invoice. Keep a copy of these invoices for your records - they’re the basis for your quarterly VAT Returns, and are what makes it so you can get your refunds
* VAT Invoice Guidelines can be found here
→ This looks hard. What happens if I don’t do it?
* The UK Government may register you for VAT and you will have to pay an additional fee.
→ I need to sign up for VAT. How do I do it?
* For Making Tax Digital, follow this guide
* Ecommerce Accountants UK has a great guide on how to register for VAT, and includes an option where they will do it for you! It’s genuinely not that complicated and although it is a little time-consuming, it’s not hard. If you would like a registered VAT Tax Agent, they must be in the UK.
* Additionally, I should be able to handle registration for you for a small fee - get in touch with me via twitter (@edelgardlesbian) or Discord (maesbi#5599).
Sources and Further Reading:
* Explanatory Notes on new 2021 EU VAT e-commerce rules
* UK Gov VAT Policy Paper
* UK Gov VAT Guidance Info
* UK Gov VAT Registration Hub
* Who Should Register for VAT?