EU VAT is a bit of a minefield and will no doubt change next March but the current situation is as follows…..
If a UK business physically stores goods for resale in another EU country, then it is almost certain that they will have to register for VAT in that country. This is the case for example in Germany, Italy, and France. This is a different scenario from selling to these countries from the UK – more about this later. This may sound unlikely to apply, but we’ve had a situation in the past where a client was indeed doing this via “Fulfilled by Amazon” and had no idea about the VAT requirements to register. It didn’t occur to them to tell us either so there were late returns and late filing fees. There is no stock level threshold for the requirement to register, although some countries have one off exemptions.
Amazon etc. are starting to offer basic guidance to their sellers and are currently offering to register companies in relevant EU countries and file VAT returns for the first year of registration for free. There are other companies providing this service such as Avalara, RM Boulanger etc who will organise registration and on-going filing for a fee.
As you’d expect, the returns are in the relevant country’s language and translation fees may be incurred in understanding what figures have to go where, although the returns are often very similar to the UK VAT return. It will take 2-8 weeks for the VAT number to be issued after the application has been made and once this is received, VAT should start being charged.
So for example, the supplies made from e.g. a German warehouse to a German consumer are included on the German return at the current rate of German VAT (19%) and do not appear on the UK VAT return at all. This will create a disparity between accounting turnover and turnover per the UK returns which HMRC may well query. It is vitally important that the correct VAT codes are used in Xero from the start of the supplies in Germany. These supplies are considered “outside the scope” for UK VAT and should be classed as such in Xero (or the accounting software you use) by using the ‘No VAT’ code.
Distance selling is different and is where a UK business sells goods that have been stored in the UK to a consumer (not a VAT registered person/business) in another EU country by mail order or digitally. The business doesn’t have to automatically register unlike the above where the stock is stored in the EU country. Instead, there are thresholds where registration is only compulsory once these have been reached. The most common limit is €35,000, but Germany, Luxembourg, and the Netherlands have a limit of €100,000. Once this limit is reached, the business must register in each affected country. These thresholds are calculated per the calendar year, not per the accounting year.
If goods are moved around the EU of a value in excess of £250,000 then an Intrastat form needs to be completed. This is used by the EU for mainly statistical purposes but is also available to the taxation authorities in each country as a cross-check to filed returns.
If you need any help on this topic please do give us a call.