When a business engages in distance sales, the stakes are high on exceeding thresholds. We know that companies struggle to keep up to date on country specific VAT rules and registrations, and we know what this can cost – in sanity and sterling. We recently helped a multinational client who had unknowingly exceeded distances sales thresholds and was liable for VAT in several EU member states. Our action plan got them correctly registered, reduced impact and recovered VAT.
Distance selling (DS) involves delivering goods from a supplier in one EU Member State to a non-VAT registered customer based in a different Member State.
This encompasses a large number of the sales made by online retailers. Tax authorities pay particular attention to online selling and are now able to use data received from payment providers to determine sales in a particular country. This is because of the massive growth of cross-border e-commerce in the last few years. Identifying and obtaining revenue from distance sellers is a core objective of the European Commission’s VAT Action Plan.
Managing VAT obligations
When commencing DS, a supplier needs to account for local VAT on its supplies. But only until the value of them exceeds the DS threshold. Once this happens, it must stop accounting for local VAT. Instead a supplier should register and start accounting for VAT in the country of delivery. The value of distance sales VAT thresholds differs across the EU; with each EU Member State able to set its own value. This means that it is easy for businesses to miss the value of its supplies. They exceed the thresholds creating the need to be VAT registered.
We recently helped a large multi-national client making DS. The client missed its exceeding of the thresholds. By analysing their sales data we identified the need to register for VAT in four other EU Member States. These obligations were created at various points during the previous year. This news came as a shock to the client and created some worry for them. However using our expertise we were able to correct its position with the minimum of inconvenience. Our assistance consisted of firstly reviewing the sales data to determine the effective date of our client’s need to register in those other countries. Once this work was complete, we used our in-house registration team to commence the registration process of submitting applications to the relevant tax authorities.
Once underway, we compiled the information required to make a successful claim to HMRC. This was for repayment of VAT that had been wrongly declared to them. Obtaining this refund of VAT in as efficient manner as possible was critical. It enabled our client to fund the payment of VAT due in the other EU Member States. Our experience means that we are able to minimise the time between making a request and receiving the refund. This led to a much improved cash flow position for the client.
Having corrected its position, we continue to support our client. Our multilingual compliance team submits VAT returns in the four countries which required registrations. We also set up a regular review process identifying requirements to register at the right time. This gave our client confidence in its VAT position. It freed up resource for it to concentrate on its core business of making and increasing sales.