Tax & admin · 11 August 2017

HMRC distance-selling rule changes could slap EU suppliers with VAT costs

Rule changes could ramp up VAT costs for suppliers from the EU
Rule changes could ramp up VAT costs for suppliers from the EU

An HMRC policy change has meant that more UK business owners selling and delivering goods to consumers in other EU countries may now be required to register and pay VAT in the member states of their customers.

The policy change relates to rules surrounding the place of supply of delivered goods, or so-called “distance-selling” rules.

Under a current EU-wide exemption, suppliers of delivered goods to end consumers (as opposed to businesses) do not have to register for VAT overseas in instances where their supply of goods in a given country falls below a distance-selling “threshold”.

Suppliers are liable to register for and charge VAT in their EU country of destination once the value of distance sales has gone beyond the relevant jurisdictional threshold.

Throughout the EU, the distance-selling threshold is typically €100,000, although several member states apply a threshold as low as €35,000.

The UK’s distance-selling threshold is currently set at £70,000, and HMRC’s policy change also applies to EU suppliers selling and delivering goods to UK consumers.

Under new conditions, these EU suppliers would have to charge UK VAT on the supply of goods beyond the value of £70,000.

To avoid having to register for VAT in their customer’s country, it has become commonplace for business owners throughout the EU to reduce the overall value of their supplies by arranging for the delivery goods in their customer’s country to be made a third party.

Many EU member states have, until now, taken a relaxed view towards the practice of ignoring the costs of delivering goods for the purposes of VAT registration.

However, the UK’s position has been that once the “unbundling” of goods from the costs involved in delivering those goods has taken place, the supplier is no longer required to register for VAT, because the place of supply has “become” the UK.

The uncertainty created by different treatment of distance-selling rules across the EU resulted in a unanimous agreement at the European VAT Commission earlier this year, which saw representatives from all EU member countries agree that when a supplier is directly or indirectly involved in the transport or delivery of their goods, the full value – including transport costs – would accumulate towards the distance-selling threshold of the “in” country.

According to David Wilson, VAT associate director at tax advisors RSM, HMRC’s policy change is the direct result of this EU-wide agreement.

He told Business Advice: “This is an active step to address the apparent abuse of distance-selling regulations. HMRC’s new policy is that the customer must transport the goods themselves, or arrange the delivery with a third party.

“If a business is directly or indirectly involved in the transport of their goods and the distance-selling threshold has been exceeded, then under new rules, transport costs will count towards the mandatory VAT registration in the member state of their customer.”

By increasing liability towards VAT registration, HMRC’s policy change is likely to add pressure on suppliers, with the additional costs of compliance likely to be passed on to consumers.

Wilson added: “HMRC must have realised that there are currently a lot of EU suppliers into the UK doing this: selling into the UK without paying VAT.”

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ABOUT THE EXPERT

Fred Heritage is deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London. He previously worked as a reporter at Global Trade Review magazine.

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