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A guide to VAT for e-retail businesses

Should you register for VAT?

If your total sales (or turnover) during a 12-month period on VAT-taxable goods is higher than £85,000 you must register for VAT or you will be fined. If your turnover is less than this threshold, you won’t need to register and you won’t need to charge VAT. Though there is a benefit of doing so.

It’s important to note that the threshold is not based on turnover in a calendar year, but on a rolling 12-month basis – make sure you don’t get caught out by this.

If you are below the £85,000 sales threshold, the two key benefits of registering for VAT is being able to claim back the VAT you pay to other VAT-registered businesses and being able to present your business as being more established.

There’s no threshold if you and your business are based outside of the UK. You must register as soon as you sell any goods to the UK.

How does collecting VAT work?

When you charge customers VAT, you’re acting as a tax collector for HMRC. For everything you sell, you need to charge the appropriate amount of VAT to customers. In most cases this is 20%. Every three months, you simply add up all of the tax you’ve charged and give it to the HMRC. And luckily, when you buy items from VAT-registered businesses, they have to charge you VAT, which you can claim back. The amount you pay to HMRC every three months, is the VAT you have collected from your customers minus the VAT you’ve paid to other VAT-registered businesses.

VAT rates

In the UK there are three main VAT rates and for most items, it’s 20 per cent. But some goods are charged at a reduced rate of 5 per cent and others at 0 per cent, which is known as ‘zero-rated’. Finally, some are exempt from VAT altogether.

Just because an item is zero-rated, that does not make it VAT exempt – it means the item is still VAT-taxable, but the rate you must charge your customers is 0%. An example is children's clothing – even though these items are zero-rated, you still have to record all of these sales and report them on your VAT return. These goods also count towards your 12-month threshold.

The VAT schemes

There are quite a few VAT schemes that are available to you out there, so we’ve provided information on the three most popular and some other schemes relevant if you buy goods or services for resale.

Standard scheme

Here, the amount of VAT you owe will be based on the date of the invoice. If you invoice a client and add VAT, then you’ll owe that to HMRC at the end of the same quarter you raised the invoice. It’s straightforward, but beware – you’ll need to be on top of your cash flow – a lot of businesses can lose track of what invoiced was raised when, potentially leaving them short.

Cash accounting scheme

If the caveat of cash flow problems puts you off the standard scheme, then the Cash Accounting Scheme could help. Here, you’ll owe VAT to the HMRC in the quarter you were paid for the invoice. However, now it’s on you to make sure you have the necessary means to pay for VAT at the end of each quarter.

Flat rate scheme

Here, you’ll get given a flat percentage rate (dependent on industry). You’ll then charge VAT at the normal rate, but you only pay back the VAT at the flat rate, meaning you could save money.

VAT retail schemes

There are other schemes like the VAT Retail Schemes that may also be applicable if you buy goods for resale and your turnover is not more than £1 million a year. With these schemes, the threshold is based on your VAT taxable turnover – the value of everything you sell that is not VAT exempt.

Help with managing VAT

Accounting software, such as QuickBooks, can help make the VAT journey easier and supports all VAT schemes. With QuickBooks, you can easily keep track of how much VAT you have paid and received. This ensures you always know what your liability will be ahead of time and greatly speeds up the process to file your VAT return. And now for eBay sellers, QuickBooks is offering an exclusive discount. Improve your cash flow and always be ready for tax time with the world’s #1 online accounting solution.

We also recommend you speak with your accountant. If you don’t have one, find a certified QuickBooks accountant or bookkeeper near you in our accountant directory.

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Tracking your self-employed income for a quick & easy HMRC Self-Assessment
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QuickBooks for Small Businesses -
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Managing small business finances, VAT & payroll
Features include...
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QuickBooks for Small Businesses
VAT tracking made simple
First six months*
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Ideal for...
Managing small business finances, budgets, employee time & stock control
Features include...
  • Create & send invoices on the go
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  • 5 users
  • Manage VAT
  • Run payroll
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Estimate tax payments i
Quick HMRC Self-Assessment i
Separate business & personal transactions i
Auto-track deductible mileage i
Create & send invoices on the go i
Snap & sort receipts i
Download bank transactions automatically i
Free mobile app i
Number of users i
Track & calculate VAT i
Manage CIS deductions i
Manage bills & payments i
Run payroll i
Handle multiple currencies i
Create budgets & purchase orders i
Track employee time i
Manage stock i
Track costs by project, location or budget i
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*Receive 70% off the current monthly price for QuickBooks Self Employed, 50% off the currently monthly price for QuickBooks Essentials or 70% off the current monthly price for QuickBooks Online Plus for the first 6 months of service, starting from date of enrolment, followed by the then current monthly price. Your account will automatically be charged on a monthly basis until you cancel. You must select the Buy Now option. Offer valid for new QuickBooks Online customers only. No limit on the number of subscriptions ordered. You can cancel at any time by calling 0808 168 9533. Discount cannot be combined with any other QuickBooks Online offers. Terms, conditions, features, pricing, service and support are subject to change without notice. All prices shown exclude VAT.

  1. Based on average time saving. Intuit survey February 2017.
  2. Based on number of paying customers and accountants worldwide, May 2017.
  3. Based on GooglePlay rating in Jan 2016