April 8, 2016

New stricter VAT rules for North American companies selling online to customers in Europe

The United Kingdom (UK) has realized that many North American companies are not following the local VAT regulations when selling goods in the UK via online marketplaces. In attempt to make non UK companies VAT compliant, the UK has decided to take action by giving HM Revenue & Customs (“HMRC”) the power to make an overseas business appoint a UK VAT representative. Together they will be responsible and liable for any unpaid UK VAT. In addition, the newly introduced UK VAT laws will also allow HMRC to hold an online marketplace liable for any unpaid VAT on behalf of an overseas company that sells goods in the UK via the online marketplace’s website.

The reason for these new VAT laws within the UK is that HMRC has noticed that overseas businesses that sell goods that are located in a UK warehouse at the time of sale to UK costumers via online marketplaces such as Amazon, Ebay and others are not registered for VAT, and are also not paying VAT on the full retail price. This makes it challenging for non UK companies that are legally registered for VAT since goods that shipped and stored in a UK fulfilment warehouses by non VAT registered companies before being sold to UK consumers are offered a lower price.

These new measures will begin in 2017, and HMRC will be on the lookout for any North American company that is not VAT compliant. These companies will be tracked down one by one to appoint them with a UK tax representative, or have them register for a local VAT number. In order to avoid back taxes and penalties, and to find out if your company is required to register and charge VAT within the EU, please contact our VAT experts.


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