UK VAT schemeLearn how to manage UK VAT.
The United Kingdom (UK) implemented a Value-Added Tax (VAT) scheme (resulting from its exit from the European Union) that went into effect January 1, 2021. This scheme makes every order into the UK, regardless of value, subject to VAT.
This tax scheme requires 20% value-added tax (VAT) to be collected at the point of sale on all low-value orders (less than 135 GBP) entering the UK. This means it is the retailer’s responsibility to do the following:
- Collect VAT at checkout
- Register for a VAT number with His Majesty's Revenue and Customs (HMRC)
- Remit VAT from these orders to HMRC.
There is no minimum VAT threshold, meaning that you must register for VAT once you’re selling any order less than 135 GBP into the UK. Penalties apply for noncompliance.
Let’s decode this law to help you understand if you're impacted [and if so], what you need to do, and how Zonos can help you.
This law impacts your business if you export any low-value orders (less than 135 GBP) to the UK.
If you have shipped any low-value orders to the UK since January 1, 2021, you are required to register for a UK VAT number and remit the collected VAT to HMRC by the end of the quarter.
If your company does not sell items valued at less than 135 GBP, it is likely you will not need to register for a VAT number, and your business processes will not be affected.
Zonos can help you manage UK VAT orders if your business is impacted.
As a Zonos customer, many of the UK VAT requirements are automatically covered in our products and services.
UK VAT settings
In the Dashboard settings, there are two options for handling UK VAT with your orders.
Option 1: Collect and remit VAT (recommended)
- Collect 20% VAT on all low-value orders beginning January 1, 2021.
- Register for a VAT number through HMRC.
- Issue VAT invoices (Dashboard can help you issue and reissue VAT invoices, and will auto-populate your VAT number once you have it).
- Remit the collected VAT quarterly to HMRC through your account on their website.
Zonos Landed Cost products will collect UK VAT on low-value orders for you, which can be turned on in Dashboard. Dashboard makes running VAT reports easy, so you know how much to remit each quarter.
Option 2: Turn off low-value orders
- Only sell orders where the cart's subtotal is greater than 135 GBP. If the cart total is above 135 GBP, then you do not need to collect VAT, it will be collected by customs at importation.
- You may still allow prepayment of duty and tax at checkout on these orders (Delivered Duty Paid DDP) but you will not remit those monies to HMRC. The shipper will pay customs on your customer's behalf, and then bill you for the amount paid.
You may still be wondering how to choose between these options. Let's take a deeper dive into which option might be the best fit for your business.
What do I do if…
I don't ship low-value orders to the UK?
Nothing. You can continue business as usual, but you need to be certain this is the case. Just to be safe, you can turn off the ability to sell low-value orders into the UK if you're using Dashboard.
I haven't sold any low-value orders into the UK since January 1, 2021?
If you haven't sold any low-value orders into the UK since January 1, 2021, two options can work for you:
- If you want to keep all of your products available to the UK market (including those of low-value), you should register for a VAT number (option 1).
- If you want to avoid having to register for a VAT number and remitting to HMRC, you can turn off low-value orders in Dashboard (option 2).
I want to sell low-value orders into the UK, but I'm not sure how to manage them or calculate the VAT.
For Zonos customers, all you need to do is turn on UK VAT for low-value orders in your Dashboard settings, Zonos takes care of the rest. We detect low-value orders and automatically calculate the VAT and other charges!
I have already sold low-value orders into the UK since January 1, 2021, but I don't want to remit VAT quarterly.
If you have sold any orders valued at less than 135 GBP through Dashboard, then you've collected VAT and you must register for a VAT number and remit the VAT you've collected to HMRC. You can still turn off low-value orders to avoid having to remit quarterly in the future, but quarterly remittance is not as daunting with Zonos Tax Remittance (see below).
If you continue to sell low-value orders to the UK and would like Zonos' help, see our additional solutions below.
Zonos Checkout customers using Zonos email confirmations on their international orders will have these invoices automatically generated and sent to their customers. You can turn this feature on in your settings in Dashboard by going to Settings -> Checkout settings -> Notifications. If you do not use our email confirmations you will need to make sure the invoices you are supplying to your customers follow the guidelines laid out below.
Landed Cost guarantee (recommended)
The easiest and most convenient option is to sign up for the Zonos Landed Cost guarantee service. Landed Cost guarantee ensures landed cost accuracy for every international sale, and will also manage non-resident country taxation schemes (UK, EU, AU, NZ, NO) by tracking country thresholds and collecting taxes for you only when the threshold is met, so you never over-or-under collect on taxes.
Failure to register and pay VAT in the UK is tax evasion.
The UK is committed to keeping the playing field even between sellers at home and abroad and has enacted legislation that allows HMRC to hold sellers liable for unpaid VAT.
If you continue to sell into the UK without remitting VAT on low-value orders you will be faced with penalties and fines, and will still be required to pay taxes owed to the UK on all previous items sold, whether you collected the VAT for those orders from customers or not.
When you remit, do not leave out the VAT from the orders you exported to the UK before you got your VAT number. HMRC requires you to remit all VAT collected from January 1, 2021, even if you don't have a VAT number yet.
With all of the options made available to you by Zonos, you can choose how you want your business to operate under the UK VAT scheme, and we will manage it for you! See our UK VAT guide for more detailed information on this tax scheme.
Do I need to register with HMRC before I can start collecting VAT on low-value orders?
No, you will just need to be registered prior to the end of the first quarter that your remittance is due.
If I have a customer with one order, but two shipments (the first being low-value and the second being high-value), how do we manage VAT collection on the two shipments in the single order?
You can do either of the following:
- Collect the VAT on the shipment under 135 GBP and have the customer pay VAT on the other shipment upon entry.
- Combine and ship them together, and have the consumer pay VAT on the entire order upon entry.
Can I collect and remit VAT on all orders, including those above 135 GBP, so I don't have to track order amounts?
No, any shipment where the total of goods is greater than 135 GBP must have VAT and duty paid upon import. Our Dashboard reporting makes it easy to keep track of which orders you need to remit on.
How do I turn off orders under 135 GBP in Dashboard? What is the customer experience like?
It's easy to turn low-value orders under 135 GBP off, so HMRC VAT remittance is not needed. Read more at UK VAT Dashboard settings.
Once low-value orders are turned off, if you have the Zonos Hello pop-up on your site, your customers will be greeted with helpful information about shipping into the UK, including language that your business does not currently ship orders below 135 GBP.
Do I need a bank account in the UK?
A UK bank account is not required for Zonos products.
Do I need a UK bank account to register with HMRC?
A UK bank account is not required for a VAT number, but bank information is needed to wire your VAT remittance quarterly.