Whilst the changes to the way VAT is collected on sales for sellers on online marketplaces has been met with mostly positive reviews, one area of contention has been how the Flat Rate Scheme fits in to this. We have received many questions such as:
As an overseas online seller, once left the FRS, how could I claim my input VAT?
I am on FRS and have stock on hand since 1st Jan 2020, but online marketplace is liable to account for the VAT at standard rate, am I able to claim back import VAT for those stock on hand?
Hopefully, the following information could provide you some guidance.
The FRS & Online Marketplaces
From the beginning of 2021, the UK VAT regulation for overseas online sellers has been changed. However, for those traders under the Flat Rate Scheme, it might not be beneficial in terms of the input VAT claim restrictions. It is mainly because of the new VAT collection responsibly of Online Marketplaces (OMPs).
Some traders mentioned that HMRC might allow online sellers to claim back VAT on the stock on hand value when the OMP’s started to deduct VAT. However, so far, there is no written guidance regarding this specific VAT treatment.
What We Know So Far
The following information about FRS might help you to understand better the current situation. These are for reference only. Traders are advised to contact HMRC for any specific VAT enquiries.
- Under Flat Rate Scheme, an allowance for input tax is built into the flat rates. You cannot recover input tax or VAT on imports or acquisitions. This is because the flat rates are calculated to represent the net VAT you need to pay to HMRC.
You must leave the Flat Rate scheme if:
- you’re no longer eligible to be in it.
- on the anniversary of joining, your turnover in the last 12 months was more than £230,000 (including VAT) – or you expect it to be in the next 12 months.
- you expect your total income in the next 30 days alone to be more than £230,000 (including VAT)
- If the value of your stock has increased while you have been on the scheme, you may be eligible to recover additional VAT on stock which you have on hand when you leave the scheme. For details of if and how you could make an adjustment, please refer to the VAT notice 733 section 12.9
- For non-UK online sellers, from the 1st Jan 2021, Online Marketplace (OMP) has been treated as deemed supplier, and so liable to account for the VAT on sales facilitated through its marketplace. This means that for VAT purposes the seller, operating through an OMP, will no longer be making a supply to consumers in the UK.
At the point the goods are sold to the customer, the overseas seller will be deemed to make a zero-rated supply of the goods to the OMP.
How Does Import VAT Fit Into This?
Overseas sellers who are registered for VAT, can reclaim any import VAT they had to account for when the goods were first imported into the UK. The normal rules about what VAT can be reclaimed as input tax will apply. Find further information about input tax in VAT Notice 700.
- HMRC has advised that any sales a seller makes through an online marketplace, where the online marketplace is liable to account for the VAT, will not be included in the Flat Rate Scheme calculation from 1 January 2021.
Sellers who decided to remain in the scheme will continue to be subject to its conditions, including the restrictions on recovering VAT.
Should You Leave The FRS?
A seller can decide to leave the scheme at any time.
That means FRS will still be available for any eligible UK VAT registered business. However, it might not make any significant benefits for overseas online traders. In some situation, applying FRS will be worse than the standard VAT rate.
You can still contact J&P to claim your Input VAT via regular VAT returns by leaving the FRS. However, you must provide valid import VAT documents, any UK acquisition VAT invoices, or stock on hand valuation records in case HMRC query the figures. Traders must also comply with UK VAT regulations and make an accurate customs declaration under their own UK VAT registration number.
Our long history of working with ecommerce sellers, means we can offer you expert advice – so please do not hesitate to give us a call on or send an e-mail to firstname.lastname@example.org. As well as help with the upcoming EU Ecommerce VAT Package and registering you for the OSS, we would be more than happy to file your EU VAT returns, and help you comply with VAT in case your account faces any issues. Get in touch to receive a quote today.