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Cross border transactions is one of the most complex areas of VAT. If they are part of your business activities it is vital to ensure that you understand the relevant rules.
This article will centre on the distance selling rules which are key when goods are sold to non business customers in other EU countries.
When goods are sold to business customers who are VAT registered in other EU countries, these goods are zero rated for UK VAT as long as the goods leave the UK, with the customer accounting for any VAT due as an acquisition in the customer’s country.
However, the rules are different for the sale of goods to non VAT registered businesses, which may include: private individuals; some small businesses; businesses who only have exempt activities; public bodies and charities.
Sales of goods to these entities will have UK VAT charged on them until the distance selling limits are breached.
Each EU country has a choice between setting an annual distance selling limit of either €35,000 or €100,000.
A VAT registered UK business must keep a record of all sales on a calendar year basis to customers in each of the other EU countries.
Once sales to non VAT registered customers in another particular EU country breach the distance selling threshold of that country, then UK VAT should stop being charged on sales to that country and a VAT number must be obtained in that country.
So for example once sales to non registered customers in France exceeds the French distance selling limit of €100,000 in any given calendar year, there is a compulsory requirement to obtain a French VAT registration and begin charging French VAT on any further sales made to French non business customers. This treatment is mandatory and although it may be tempting for some businesses who breach the thresholds to continue charging UK VAT on all these sales in the hope that the tax authorities in that country do not discover this, this would not be recommended (as well as being against the law) as this could lead to major issues down the line if the issue is discovered. Having to obtain a late foreign VAT registration and correcting the VAT charged on sales going back would not be recommended.
Businesses that supply goods to non registered customers in other EU Countries can choose to register and account for VAT in the EU Country where their customers belong prior to exceeding the distance selling threshold if they wish.
David Graham, Assistant VAT Consultant.
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