Vat on website sales

BizzyBlog

Hi all,


Mod Note- DO NOT GIVE ME ADVICE- I DID NOT READ THE CHARTER

I've read UK businesses doing similar where they charge the same price for products online as they do in-store, yet there is NO VAT charged on their online sales.

Is anyone here availing of the same?

Another interesting example is that many UK companies are now setting up business in Jersey and using fulfillment centres there to avail of ZERO VAT on sales as the Channel Islands are not part of the EU. This is based on orders which cost no more than €22 and are shipped from Jersey. There is NO VAT threshold in this case.

BB

J.Ryan

That is very specialised advise, which I doubt you will get for free, I would also be careful of the compliance costs in the Channel Islands, I know of people when set up unlimited companies around an Isle of Man group to avoid publishing their accounts in the CRO, now getting hit with compliance fee invoices of STG£15K+ PA.

J.Ryan

Also, if the non vat registered entity is buying the goods, they will have to suffer the VAT on those purchases, as they are not VAT registered, they can't reclaim it.

BizzyBlog

Also, if the non vat registered entity is buying the goods, they will have to suffer the VAT on those purchases, as they are not VAT registered, they can't reclaim it.

True but the savings on ZERO VAT returns on sales far outweigh the VAT charged/not claimed on goods coming in.

As far as I see it, its perfectly legit to do as you/the company then pays income/corporation tax on profits including profit on the savings otherwise paid out on VAT. Either way the taxman gets his share. You just have to weigh up if there are significant advantages/savings to be made by splitting up online /in-store sales as Insurance, Accounting costs etc would also have to be separated.

It seems to be a grey area when it comes to tax charging with webshops. Also (AFAIK) you are not obliged to charge VAT on sales being shipped outside Europe.

J.Ryan

BizzyBlog wrote: »

True but the savings on ZERO VAT returns on sales far outweigh the VAT charged/not claimed on goods coming in.

What about VAT on light, heat power, Phone, Fax Internet, Website development, Credit Card Machine rental, computer purchase, accounts and legal fee's, Courier fees etc, all would have to be suffered by the VAT exempt company.

BizzyBlog wrote: »

As far as I see it, its perfectly legit to do as you/the company then pays income/corporation tax on profits including profit on the savings otherwise paid out on VAT. Either way the taxman gets his share. You just have to weigh up if there are significant advantages/savings to be made by splitting up online /in-store sales as Insurance, Accounting costs etc would also have to be separated.

I never disputed that it was legal, I'm just of the opinion that you are taking a simplistic view, if you have considered all the downsides, then the decision is yours to make

BizzyBlog wrote: »

It seems to be a grey area when it comes to tax charging with webshops. Also (AFAIK) you are not obliged to charge VAT on sales being shipped outside Europe.

That is correct, however there are distance selling rules on EU sales to other countries that depending on your turnover to those countries may require you to register for VAT there (ie UK STG£77,000.00) and account for those sales to HMRC.

smeharg

Is this what you mean:
You have a business with conventional sales and online sales.
The level of conventional sales will exceed the VAT threshold.
The level of online sales will not exceed the VAT threshold.
You want to operate the online business as a separate entity to the offline business.
The online entity will charge the same price, but as it is not VAT registered, the profits will be higher.

Firstly, there's anti-avoidance provisions to prevent this sort of arrangement. It may be possible to put some sort of complex structure in place to get around it, but is it worth it?

Secondly, you will incur VAT on your purchases and overheads that you won't be able to reclaim, thus reducing your profits.

BizzyBlog wrote: »

...
I've read UK businesses doing similar where they charge the same price for products online as they do in-store, yet there is NO VAT charged on their online sales.

Where have you read this? If you've any links I'd like to look into it further.

BizzyBlog wrote: »

...
Another interesting example is that many UK companies are now setting up business in Jersey and using fulfillment centres there to avail of ZERO VAT on sales as the Channel Islands are not part of the EU. This is based on orders which cost no more than €22 and are shipped from Jersey. There is NO VAT threshold in this case.

The UK is taking measures to prevent this.

BizzyBlog

What about VAT on light, heat power, Phone, Fax Internet, Website development, Credit Card Machine rental, computer purchase, accounts and legal fee's, Courier fees etc, all would have to be suffered by the VAT exempt company.

Any VAT on expenses would be claimed through the Limited company as they would be used by the Limited company only.

The largest chunk regarding VAT charged to the online business which may not be claimed back is VAT charged on the goods entering the EU from outside ie China including VAT charged on shipping.

However this is considerably low at circa €0.20 VAT per item coming in versus circa €1.30 VAT per item going out.

Other VAT outlay which the "online" business would be subject to would be accountancy, insurance, shipping, merchant account and web hosting.

Is this what you mean:
You have a business with conventional sales and online sales.
The level of conventional sales will exceed the VAT threshold.
The level of online sales will not exceed the VAT threshold.
You want to operate the online business as a separate entity to the offline business.
The online entity will charge the same price, but as it is not VAT registered, the profits will be higher.

Yes

Where have you read this? If you've any links I'd like to look into it further.

Please see the following

http://www.out-law.com/page-7425

http://www.tax-news.com/jersey/E-Commerce_Opportunities_in_the_Island_of_Jersey.asp

Appreciate the feedback

smeharg

This is a pointless conversation.

There are anti-fragmentation rules where the turnover for 2 or more connected parties, supplying the same or similar goods, is aggregated for the purposes of determining whether the VAT threshold has been exceeded.

There's also a basic princple of VAT that the there must be a direct link between the input and the output. Some of the overheads of the limited company must be linked to the online sales, unless there are separate premises, employees etc etc, resulting in that proportion not being allowed for VAT purposes.

When I asked for links to articles you have read I was referring to this statement:

...
I've read UK businesses doing similar where they charge the same price for products online as they do in-store, yet there is NO VAT charged on their online sales.

I am familiar with the Channel Islands scheme, which was, incidently, removed in the UK as and from April this year. Which demonstrates the risks in basing your whole business model around current tax rules.

BizzyBlog

If it is pointless then Boards may as well shut down... I thought the point of seeking the information one wishes to know is to ask the question to those in the know...

There are anti-fragmentation rules where the turnover for 2 or more connected parties, supplying the same or similar goods, is aggregated for the purposes of determining whether the VAT threshold has been exceeded.

True but not in the case of two separate companies i.e One company/wholesaler in Ireland and a separate company/webshop in Jersey.

When I asked for links to articles you have read I was referring to this statement:

Quote:
...
I've read UK businesses doing similar where they charge the same price for products online as they do in-store, yet there is NO VAT charged on their online sales.

Thats why I provided the link which contained below...

The business advantages of offshore fulfilment can be significant. In competitive, price-sensitive markets, such as CD retailing, being able to pass on a discount of 17.5% can make a serious difference to a company’s prospects. Other firms might choose not to pass on the discount but to boost their own profits by the 17.5%. That, again, will make an enormous difference to any company.

Mr. Incognito

I think it's interesting,

Not something I knew.

Good online article here: http://www.brighton-accountants.com/blog/vat-jersey/

smeharg

BizzyBlog wrote: »

If it is pointless then Boards may as well shut down... I thought the point of seeking the information one wishes to know is to ask the question to those in the know...




True but not in the case of two separate companies i.e One company/wholesaler in Ireland and a separate company/webshop in Jersey.



Thats why I provided the link which contained below...

I beg your pardon I thought you were referring to 2 different things.

smeharg

BizzyBlog wrote: »

If it is pointless then Boards may as well shut down... I thought the point of seeking the information one wishes to know is to ask the question to those in the know...



True but not in the case of two separate companies i.e One company/wholesaler in Ireland and a separate company/webshop in Jersey.


...

I wasn't referring to the thread in it's entirety. You've asked questions and are getting answers, so I hope it's not all pointless from your perspective

The discussion about deductibility of input VAT is pointless for 2 reasons:

1. If they were 2 connected Irish entities then both would have to register for VAT if their combined turnover exceeded the registration threshold.

2. If there was one Irish entity and one CI entity for online sales there wouldn't be any question of deducting Irish VAT in respect of the CI entity provided the whole online operation was conducted from there.

Furthermore, as previously stated, the small consignment scheme in the UK no longer exists.