I have a client who has set up a e-commerce shop selling men's clothing. He anticipates that the majority of his sales will be outside the EU to private individuals. My question is, how does he account for output VAT on his sales? The items will be manufactured in the far east and shipped to the UK. I have been researching the various retail schemes but I cannot decide on which scheme, if any, would be beneficial. Any advice would be much appreciated.
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The sitation can be summarised as follows:-
i. If selling to UK, then VAT able supply at standard rate
ii. If selling to businesses in to a VAT registered customer in another EU Member State, or other overseas customer, AS LONG as the supplier has the required evidence of removal and proof that he selling to a VAT Regstered cusotmer if EU
iii. If selling to unregistered customers by mail order anywhere in the EU, charge UK VAT until the sales in a calendar year in any Member State reaches the distance selling limit of that Member State. Then the business must register there. Warning, the member states levels may be much lower than the UK's!
Your client needs to consider Customs Duty as well as VAT. If he is importing goods into the UK from the Far East he will be paying Customs Duty on the landed value and will then pay VAT on the value plus Customs Duty.
The Customs Duty is an additional cost and you need to consider ways of legitimately avoiding paying the Customs Duty by using available reliefs or varying the movement of goods. Otherwise, the Input Tax incurred on importation will be recoverable and there will be an export of goods Zero rated provided the client holds acceptable evidence that the goods have left the UK for a destination outside the EU. If the goods are destined for private customers in the EU then you will need to consider Distance Selling.
Agreed
I have a client who imports walking poles - excellent ones, for any walkers out there, miles better than Leki! - made to their design in Taiwan. These are packaged in Uk and exported to 40 countries worldwide via website selling.
UK - 20% VAT
EU - 20% VAT as distance selling, never knew exactly which countries were in EU until this client came along!
non EU - 0% VAT.
In terms of costing and pricing models, other posters are correct. Getting the duty rates and postage rates right is critical, especially when considering new product areas. This is one aspect where you can add value and ensure you make a decent profit - or alternatively, knock a product on the head where the market won't support the price you need.