Guide to the UK VAT scheme
One of the changes prompted by the United Kingdom’s departure from the EU is the way VAT is charged and collected on low-value orders (cart subtotal of 135 GBP or less). All businesses selling goods into the UK, with a few B2B exceptions, need to collect and remit VAT to HMRC (Her Majesty’s Revenue and Customs), after Dec 31, 2020.
Since 1 January 2021, all businesses selling goods into the UK are responsible for:
- Collecting 20% VAT on all low-value orders (cart subtotal of 135 GBP or less), plus shipping and insurance.
- Registering for a VAT number with HMRC.
- Remitting the collected VAT quarterly to HMRC.
- Facing penalties and fines if you are not prepared.
This guide will explain the changes brought on by the VAT scheme, how it affects your business, and how you can be compliant with UK’s VAT laws.
Summary of changes
Prior to January 1, 2021:
- There was a 15 GBP low-value consignment relief, meaning that goods from anywhere sold into the UK were exempt from VAT if they were valued 15 GBP or less.
- VAT on low-value items imported into the UK from anywhere in the world outside of the EU was collected at the point of importation.
After January 1, 2021:
- The 15 GBP low-value consignment relief for items entering the UK no longer applies.
- VAT on low-value items (less than 135 GBP) imported into the UK from anywhere in the world, including the EU, is collected at the point of sale [by the merchant], instead of at the point of importation.
The process for orders valued above 135 GBP remains the same. You don’t need to collect and remit for these orders because UK customs will handle this.
How to calculate and collect VAT on your UK orders
All carts whose total goods are less than 135 GBP need to have a 20% VAT tax collected on the cart subtotal, shipping, and insurance or CIF (cost of goods, insurance, and freight.)
- An order with several low-value items like a 20 GBP candle and a 40 GBP blanket has a cart total of 60 GBP, which would need to be charged 20% VAT or 12 GBP at checkout.
- For an order with multiple low-value items, like 100 GBPjeans and 40 GBPt-shirt, the cart total is over 135 GBP, so VAT will be collected at customs*.
- Cart total is comprised of items sold but does not include shipping, insurance, tax, duty, or fees; the 20% VAT is calculated on the cart total, shipping, and insurance.
Don’t forget: VAT for all low-value orders must be saved and remitted to HMRC quarterly.
Currency exchange rate
If you are not a Zonos customer, be aware that if your orders are sold in a different currency than English sterling, you will need to convert the cart total into pounds to know if the order is above or below the 135 GBP GBP threshold. Ex. 135 GBP = ~180.53 USD. Exchange rates are usually calculated at the point of sale. Zonos automatically handles currency exchange rates in all our products.
How to register for a UK HMRC VAT number
If you choose to register on your own for a UK VAT number, you can do it through the HMRC website. This registration process will require a username and password, which is how you will access your account, check deadlines, and remit tax. You will want to be registered with HMRC ASAP as VAT will be due on all transactions starting January 1, 2021.
Note that some of the UK business terms used in the registration process might need to be looked-up to ensure you are answering the questions accurately. (Eg. Sole trader: self-employed; partnership: two or more people own or run a business; division: part of a business entity or part of a larger corporation.)
How to fulfill UK orders and provide VAT invoices
As a UK VAT registered business, you are required to issue and keep copies (paper or electronic) of valid invoices, even if the order is canceled or contains errors. You are also required to keep all purchase invoices for any items you buy.
If you are not a Zonos customer or 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.
UK VAT invoice requirements
For all low-value orders, if you are not using Zonos Checkout with Zonos email notifications turned on, you can use either a simplified or full invoice. Learn more about VAT invoices.
- A simplified invoice can be used for retail and other supplies under 250 GBP.
- A modified invoice can be used for retail and other supplies over 250 GBP.
- A full invoice can be used in either case.
|Invoice Requirement||Simplified Invoice||Modified Invoice||Full Invoice|
|Unique invoice number||Yes||Yes||Yes|
|Your business name + address||Yes||Yes||Yes|
|Your VAT number||Yes||Yes||Yes|
|Tax point or time of supply if different from invoice date||Yes||Yes||Yes|
|Customer name + address||No||Yes||Yes|
|Description of goods or services||Yes||Yes||Yes|
|Total amount excluding VAT||No||Yes||Yes|
|Total amount of VAT||No||Yes||Yes|
|Price per item, excluding VAT||No||Yes||Yes|
|Quantity of each type of item||No||Yes||Yes|
|Rate of any discount per item||No||Yes||Yes|
|Rate of VAT charged per item (including any different VAT rates or no VAT)||Yes||Yes||Yes|
|Total amount including VAT (Including any different VAT rates)||Yes||Yes||Yes|
You will have 30 days from the date of supply or the date of payment to issue the VAT invoice.
Invoices can be sent electronically or in paper form.
Invoices do not need to be in sterling or GBP, you can issue them in a different currency or language; however, you must show the total VAT in sterling if the supply takes place in the UK, or provide an English translation if asked to do so by a VAT officer.
Exceptions to providing a VAT invoice
You are exempted from providing a VAT invoice if any of the following apply:
- You’re giving goods as gifts.
- You use a VAT second-hand margin scheme to sell goods.
- Your customer uses a self-billing arrangement.
- your invoice is only for zero-rated sales within the UK.
Should I collect VAT while I’m waiting for my VAT number?
Yes! The initial transition period at the beginning of 2021 will likely have some hiccups and delays. Regardless of when you register for or receive a VAT number from HMRC, your business will be responsible for collecting VAT and issuing VAT invoices.
VAT invoices will need to be reissued once you receive your VAT number from HMRC, for all low-value transactions starting January 1, 2021, until your VAT number is received.
How to remit VAT to HMRC
- Log in to your VAT online account.
- Check your VAT Return and payment deadlines, which could fall anytime during the quarter and will be assigned to you once you register. Pay attention to when the payment needs to clear, but return submission and HMRC payment dates are usually the same.
- Payment to HMRC is done electronically as checks are not accepted. Payment is done through your VAT online account.
If your business sells goods under 135 GBP to UK VAT registered businesses, the responsibility to remit tax falls to the customer; however, the customer’s VAT number MUST be included on the invoice, along with a note must also be added to the invoice making it clear that the customer’s business is responsible for VAT, ie “reverse charge: customer to account for VAT to HMRC.”
You will still need to register for your own VAT number unless 100% of your business is B2B, and your invoicing is always accurate.
Postponed VAT Accounting (PVA)
Effective January 1, 2021, Postponed VAT Accounting is available for UK imports valued at over 135 GBP. This means that UK VAT-registered businesses are able to declare and recover import VAT on the same return instead of paying it each time and then later recovering it. Businesses using PVA will need digital statements, which are provided by HMRC. PVA applies to the following imports:
- Imports into Great Britain from anywhere outside of the UK.
- Imports into Northern Ireland from anywhere outside of NI, UK, and EU.
How does this affect my business?
PVA can benefit your business in the following ways:
- Better cash flow
- Shipments are not held at customs awaiting VAT payment
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 didn’t have a VAT number yet.
Now that you’re familiar with the VAT guidelines for UK low-value imports, you’re ready to sell into the UK! See our UK VAT doc to learn how Zonos manages your UK VAT orders for you.
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.
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.
Do I still need to collect VAT on low-value orders if I am shipping B2B (to a distributor or retailer)?
Yes, unless: your customer provides you with their UK VAT number and you include it on the VAT invoice, which then shifts the responsibility to pay VAT to them. A VAT number must be included on all B2B sales invoices. If you don’t have a VAT number on the invoice, you are responsible for VAT.
Do I need an EORI to register for VAT with HMRC?
If you are a business in the EU importing into the UK, you will need an EORI and a VAT number to do business.
An EORI number is required for any business located in the EU, that does business outside the EU. If you are a business in the EU that does business in the UK (England, Scotland, Wales, Isle of Man), you will need an EORI. A separate EORI may be needed for shipments into Northern Ireland. Not having an EORI will result in your shipments being held and stored in customs, resulting in fees and delays.
UK VAT registration through HMRC is a different process from getting an EORI number. However, if you apply for an EORI as a UK VAT registered business HMRC will link all imports to your VAT number. UK VAT registration is only needed if you import goods valued under 135 GBP.
If my business has a UK VAT and an EORI number, do I need to find a UK resident IOR (importer of record) to represent me as well?
No, a UK IOR is not usually required, unless you are a tech company or bank with an overseas data center, or a manufacturer sending sales reps or potential customers, samples, or promotional items.
How do I turn off orders under 135 GBP in the Zonos 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 popup 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.
Is there a fee to register with HMRC?
HMRC does not require a registration fee.
Do I need a bank account in the UK if I am using Zonos?
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.
Do I have to collect VAT for all UK orders?
No, you only collect and remit VAT for orders valued at 135 GBP or less. VAT for orders above 135 GBP will be collected at UK customs.
How can I get a VAT number?
Visit the HMRC website and register for a VAT ID number.
How do I calculate VAT?
20% VAT is applied to the dutiable value of the items, along with any shipping charges or insurance.
If I export my goods from Northern Ireland, do I still have to pay duty and VAT?
Yes. While Northern Ireland will retain some EU customs agreements, they are still subject to the UK for duty and VAT.
Can Zonos assist me with VAT calculation?
Yes! Our Landed Cost Guarantee will help you with VAT calculations.
How is the 135 GBP amount defined?
The value should be based on the “intrinsic value” of the goods, which equates to the price at which the goods are sold, excluding the following: transport and insurance costs; any other taxes and charges.
Related tax schemes
Other countries with non-resident country tax schemes include: