Flat rate VAT method for online sellers

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Good afternoon everyone.

I have a client who makes import from China and sells in the UK via online marketplaces such as Amazon. The Chinese supplier sends the goods directly to Amazon`s fulfillment center. My client does not deal with importation and do not pay import VAT on the custom. They just pay to the Chinese supplier and they deal with everything. In this case, I assume my client are not eligible to claim import VAT as they did not pay any VAT. My question is, can my client use flat rate method (Retailing not listed elsewhere - 7.5%) and calculate 7.5% output VAT on their sales? I am thinking that It might be useful because they do not have enough input VAT to claim. I hope I am not missing something.

An extra information is that the client is a NETP (Non-established taxable person) in the UK although they have a UK limited company. Shareholders and directors live in Turkey. I will apply for VAT registration soon but could not decide about the VAT method.

Thanks for your answers.

Kind regards.

Replies (7)

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By rmillaree
06th Feb 2024 15:00

My client does not deal with importation and do not pay import VAT on the custom.

are you sure they arent obliged to pay import vat pva?

It gets complicated quickly with imports where import vat exists - from memory one method is better than the other - probably the pva method although i am worried by memory might be paying tricks on me.

If they are not importing why arent they being charged vat on those goods ? by whoever is importing ?

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Replying to rmillaree:
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By Ersan
06th Feb 2024 15:23

Thanks for the reply. I`m sure they don`t use PVA as they are not VAT registered yet. You should be VAT registered to use PVA method.

I think the Chinese supplier takes all responsibility for duties and taxes as they use Delivery Duty Paid (DDP) method for shipping.

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By paulwakefield1
06th Feb 2024 15:26

Is your client a low cost trader (with low input tax, it sounds as if they might be)? In which case 7.5% would not be the relevant rate. Can't remember what it is at the moment - 16.5%? Someone will be along to correct me if necessary.

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Replying to paulwakefield1:
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By Ersan
06th Feb 2024 15:40

Thanks for reminding that rule Paul,

I think the client is not a limited cost trader as they have around purchases 50% of the turnover.

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stonks
By WinterDragon
06th Feb 2024 15:48

Don't forget about the first year discount but assuming their turnover isn't over the threshold then I can't spot any obvious problems. The NETP status of the shareholders and directors seems irrelevant if it is an established UK company.

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Replying to WinterDragon:
stonks
By WinterDragon
06th Feb 2024 23:17

Looks like I was totally wrong on this one, thank you Jason for clarifying that my gut feeling was wrong or at the very least misleading.

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VAT
By Jason Croke
06th Feb 2024 16:16

It is highly unusual for Chinese suppliers to ship goods DDP (delivered duty paid) and also unusual for the Chinese supplier to have a UK VAT number/acting as importer. Chinese suppliers usually ship ex-works and avoid anything to do with UK taxation issues such as VAT.

If your client is not VAT registered, then of course they cannot reclaim UK import VAT, but it is still not clear who actually is selling what to whom?

Have you read HMC's guidance on online selling. It is important to understand the rules change if your client is UK established or not UK established and also if the goods are in the UK at time of sale.

https://www.gov.uk/guidance/charging-vat-when-using-an-online-marketplac...

Your client may be making a deemed supply to Amazon*, which is a zero rated supply and remember that with flat rate, you declare the flat rate percentage of all sales regardless of VAT liability (ie, you would include zero and exempt sales in the flat rate calculation and therefore be paying output tax to HMRC on sales where no VAT is charged to the customer).
*where the goods are stored in a UK warehouse at the time of sale, such as being held at a Amazon warehouse ready for picking and packing.

I wouldn't begin to recommend flat rate until I knew exactly what the whole transaction was doing and your post has very little detail, lots of "I think the supplier...", you can't rely on "I think" or assume who is doing what, you need to know the facts to get this right.

Also, if your client is an NETP then they cannot rely on the £85k VAT registration threshold, an NETP has a Nil VAT registration threshold so your client may already be late in registering for VAT and HMRC are targeting those already on Amazon who have got their UK/NETP status wrong.
https://www.accountingweb.co.uk/tax/hmrc-policy/hmrc-looks-into-overseas...

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