Summary
In this episode of the Ecommerce Finance Podcast, Stephen Brown speaks with Oliver Blackmore from Elver Ecommerce Accountants about the complexities of VAT (Value Added Tax) for e-commerce businesses, particularly those looking to expand into the UK and EU markets. They discuss the differences between VAT and sales tax, the registration process for American sellers, common mistakes in VAT compliance, and the tools available for calculating and filing VAT.
The conversation also covers the implications of selling on platforms like Amazon versus direct sales, the importance of understanding filing frequencies, and the challenges of navigating GST in English-speaking countries. Oliver shares insights on best practices for managing VAT refunds and offers recommendations for businesses looking to expand internationally.
Takeaways
- VAT is a tax added at the point of sale, similar to GST.
- American e-commerce businesses must register for VAT to sell in the UK.
- The VAT registration process for overseas businesses is more complex.
- Amazon collects and remits VAT for sellers using their platform.
- It’s crucial to keep sales from different platforms separate for VAT accounting.
- Businesses can reclaim VAT on their costs, improving cash flow.
- Late filing of VAT returns can result in significant penalties.
- Drop shipping has become more challenging due to VAT regulations in the UK.
- Understanding GST in countries like Canada and Australia is essential for international sellers.
- Businesses should consider their registration and filing requirements when expanding internationally.
What We Cover:
- 00:00 Introduction to VAT and E-commerce
- 01:34 Understanding VAT: Basics and Comparisons
- 04:25 Selling in the UK: Registration Requirements
- 06:10 VAT Registration Process for International Sellers
- 10:09 Penalties and Compliance for VAT
- 14:13 Common Mistakes by International Sellers
- 16:28 Tools for VAT Calculation and Filing Frequency
- 19:22 Expanding Beyond the UK: Global Marketplaces
- 24:28 Navigating GST in English-Speaking Countries
- 27:20 Common Pitfalls in VAT for International Sellers
- 30:40 Understanding VAT Returns and Refunds
- 32:54 The Impact of Brexit on International Trade
- 38:00 Final Thoughts on Global Expansion Strategies
Guest Information
Oliver Blackmore is the Director of Elver E-Commerce Accountants, a UK-based accounting firm specializing in supporting fast-growth e-commerce brands. With over a decade of experience in accountancy and having worked with 100+ online retailers, Oliver helps businesses achieve financial clarity across complex multi-channel and international operations. His firm provides precision accounting, channel profitability insights, and global VAT/GST compliance to ensure brands can scale confidently.
Work with LedgerGurus
If you need help with your ecommerce accounting, reach out to us at LedgerGurus. We are an ecommerce-specialized accounting firm, and we can handle all your numbers so you can focus on growing your business.
Stephen Brown (00:00)
Welcome to the Ecommerce Finance Podcast. I’m Stephen Brown with LedgerGurus And today on this episode, I have Oliver Blackmore, Director at Elver Ecommerce Accountants with me to talk about VAT or Value Added Tax. Oliver, thanks for joining me.
Oliver Blackmore (00:14)
Thanks for having me, delighted to be here.
Stephen Brown (00:16)
Tell me about your journey to ecommerce. How did you and your firm get into ecommerce?
Oliver Blackmore (00:23)
So it was almost by accident, sort of six or seven years ago really, we realised we had a handful of clients already in the ecommerce space, having originally been just a general practice with no sort of specialism, but quickly recognised there was a need for a specialist in that area, and from there have really pivoted our focus towards ecommerce in the last six years or so.
Stephen Brown (00:46)
Awesome. The earlier this year with all the tariff madness coming out of the US that came up and I was like, man, we need to do a VAT episode because I don’t know a lot about VAT And to be honest, I have a feeling that most sellers don’t really understand VAT particularly if you’re here in the US here in the US we have sales tax. I can tell you they don’t understand VAT at all. Um, let’s just start with the basic question. What is VAT?
Oliver Blackmore (01:10)
So, VAT is a tax that’s added at the point of sale. generally in the UK, EU, most sales will attract VAT. It’s somewhat similar to GST, but then generally GST tends to come at the final stage of the sale rather than there being layers of VAT through the flow of goods like there is with the VAT.
Stephen Brown (01:35)
Sales tax here in the US, it’s done at the time of sale. It’s usually determined at the state level, which creates a lot of nightmares because you have all these jurisdictions and different rates. Is VAT a standard rate in the UK?
Oliver Blackmore (01:40)
Yeah.
No, we have three different rates of VAT here in the UK. Even on top of that, you can potentially have a blended rate, although that would be quite unusual. So you’ve got 20 % sorry.
Stephen Brown (02:04)
Okay, so it’s complicated like it is here.
Oliver Blackmore (02:07)
Yeah, definitely. We don’t have the challenge of region by region VAT to deal with. At least it’s all consistent throughout the country.
Stephen Brown (02:15)
Now you said something I want to pull a thread on, the layers of VAT. Tell me about the layers of VAT.
Oliver Blackmore (02:20)
Yeah. So to draw comparison to the US, if you’re a business in the US buying from another business, as I understand it, you would get a sales tax exemption on that purchase and you wouldn’t pay GST on that purchase. The difference in the UK is that that business you’re buying from would charge you VAT, but then you would be able to reclaim that VAT to offset the VAT you pay on your sales.
Stephen Brown (02:32)
Yes. Hmm. Okay, so you can get, you can reclaim it. Yeah, that sounds like a…
Oliver Blackmore (02:50)
So there’s more ins and outs. And that’s where the layers come in. Because if you imagine that supply chain, it’s all UK. There’s layers of vats throughout that supply chain.
Stephen Brown (02:56)
Yeah. Now you mentioned something and I do want to get into it, but there’s that and there’s GST. What is GST?
Oliver Blackmore (03:07)
So GST ⁓ is what you see more in the US, Canada, Australia, and then EU is more VAT focused. But then the fundamentals aren’t all that different in that they’re both taxes charged on sales. Generally, the biggest differences around reclaiming of VAT being a possibility versus not so much with GST.
Stephen Brown (03:29)
Gotcha. I really want to hone in on selling in the UK in particular, because I’m sure you’re an extra expert in that area. And I see a lot of American brands that are like, let’s expand our sales. Let’s go to the UK. Why should an American ecommerce business care about VAT if they’re selling into the UK or internationally?
Oliver Blackmore (03:52)
Okay, so if you’re wanting to sell into the UK as an American business, there is no VAT registration threshold. So essentially you should be registering for VAT in the UK in order to make your first sale. On top of that, you would also need to register for a UK EORI number in order to be able to import into the UK.
If you didn’t register straight away and didn’t have that in place, there’s a good chance your goods are going to get held up at customs. So you’re going to have customers complaining they’re not receiving their products. So it’s really best to have everything set up from day one, really, if you’re wanting to expand into the UK.
Stephen Brown (04:35)
Interesting. You got into my next question, is when is that triggered? It sounds like first sale. You’re immediately on the hook to pay that.
Oliver Blackmore (04:46)
So that’s the case for any non-UK established business. So for a UK limited company or sole trader, they would have a £90,000 registration threshold. So you can sell within the UK up to 90k before you need to worry about registering.
Stephen Brown (05:04)
Gotcha. That’s somewhat similar with what we have here in the US with, we have, the thresholds for registration in the different States. But, okay. So let’s, let’s pull on that thread. I am, I’m an American seller. I’ve got people in the UK or the EU, but we’re going to stay UK focused just for this, this scenario. And I’m like, let’s go sell in there and I need to get registered before I can do that sale.
What is the process of getting registered to, you know, for VAT in the UK?
Oliver Blackmore (05:36)
So it’s all done online. It’s an online application process. That being said, when you are an overseas based business wanting to register for VAT in the UK, it is a more complicated and lengthier process. So about a year ago now, HMRC switched to manually reviewing every VAT registration application that comes in to their office.
Used to be the case that a good portion of them would just go straight through and get auto approved pretty quickly. So that change meant for period of time it was taking maybe two to three months just for a UK business alone to get a VAT registration in the UK. That’s probably come back down to like a month now. But then for an overseas business, as soon as that registration goes in, our application goes in, it’s going to a specialist team within HMRC. HMRC being our equivalent of the Tax Office.
Stephen Brown (06:35)
The IRS here. We have two layers of tax here. We have state tax, which is where sales tax happens. And we have federal tax, the IRS or internal revenue service. HRMC is like your IRS, right?
Oliver Blackmore (06:49)
Yeah, sort of all combined into one really, there’s separate departments within that, yeah, those two functions within the US are covered by HMRC in the UK. But then for overseas business, they’re going to get referred to the specialist team, and essentially they’ll get sent a load of extra forms by email to complete.
So HMRC want to know an awful lot more about overseas established business compared to what they would ask a UK one. It’s things like evidence in your intention to trade, verifying your identity. So it is a more onerous process for overseas business.
Stephen Brown (07:29)
Let me just catch that again. How long do you say it’s taking to do registration in the UK for an international seller?
Oliver Blackmore (07:36)
For an international seller, I would say on average a couple of months. I have seen it take a year. That would be unusual.
Stephen Brown (07:41)
Wow. Now, wow, that’s a long lead time. One of the things I’ve seen a lot of are the sellers I work with, the way they’ll get into the international markets is through Amazon. How does that change? Let’s say I’m selling on Amazon, I want to spin up Amazon UK, do I still need to go through the same process or is it different?
Oliver Blackmore (07:54)
So selling on Amazon rather than selling direct to consumer does change things in terms of how the VAT is handled. Doesn’t negate your requirement to register for VAT from day one. So most sellers looking to expand into the UK via Amazon would be holding stock in FBA. And therefore by just having that physical presence through holding stock in Amazon FBA, you’d need to register for VAT.
But the big difference in terms of how your VAT would then be handled once you’re registered is that if you’re selling through Amazon, they will collect and remit the VAT to HMRC on your behalf. So if you were selling DTC via Shopify or you were a UK established business, Amazon wouldn’t be taking your VAT away from you to pay to HMRC.
So that’s a specific circumstance for anyone that’s selling on a UK-based marketplace but established overseas.
Stephen Brown (09:02)
Gotcha. Okay, that’s very similar here in the US. I Amazon in a lot of ways is just becoming the tax service for online sales globally, because they do the same thing here in the US. Here we call it the marketplace facilitator rules. All right, so let’s go back into getting registered, because this sounds kind of gnarly.
Oliver Blackmore (09:14)
Yes.
Stephen Brown (09:24)
What type of information, you mentioned it, but tell me what type of documentation, what type of records am I going to have to produce to be registered?
Oliver Blackmore (09:31)
Yeah, so a lot of it’s around proving your intention to trade in the UK. So things like a contract with a freight forwarder or an invoice from a supplier showing that the goods are going to the UK. That’s the kind of thing that HMRC are looking for as part of that process. But they’ll also want to know if you’re selling DTC, what your web address is, they’ll want to see your Amazon storefront. So it’s certainly a more in-depth process.
Stephen Brown (10:01)
Gotcha. And here’s just a quick question. think I know what it stands for. What does HRMC stand for? That’s an acronym, right?
Oliver Blackmore (10:09)
Yeah, Her Majesty’s Revenue and Customs. Or His Majesty’s, I should say, as of a few years ago.
Stephen Brown (10:13)
I’ve had a… His, his… Yeah. Yeah. Yeah, you guys have had, ⁓ You guys had a queen for so long, it’s… It’s… You gotta change that… That acronym,
Oliver Blackmore (10:23)
Yeah, you spend your whole life saying Her Majesty’s and now you’ve got to update.
Stephen Brown (10:27)
All right. Let’s say, let’s say you want to be a pirate and it sounds like the penalty is you could get your goods held at, on import, but what are the, you know, what are the penalties? Are there other penalties? Let’s say you somehow you get past, British customs, but you get caught later. What are the penalties for violating VAT?
Oliver Blackmore (10:51)
Yeah, okay. So there’s penalties in respect of late filing. There’s also penalties in respect of late payment of VAT. And there’s also interest for late payment of VAT. So you can essentially be hit three ways over there. For not filing due to paying VAT returns on time. So you do have a bit of a grace period in terms of paying as long as you pay within 15 days of the deadline, which is one month and seven days after the end of the quarter that you’re filing for.
So in the UK, would typically file quarterly returns. Then if you tip over 30 days late on filing, you’re getting a further 3 % penalty. And then for the rest of the year, you’re essentially getting a 10 % pro rata penalty, depending on how late you are beyond the 30 days. And then in terms of late filing, you’ve got a penalty point system and that gets pretty messy. But the gist of it for most sellers would be that unless you’re filing four returns late in a row, you shouldn’t need to worry about getting a penalty for late filing.
Then the big thing to watch for that is probably more scary than HMRC coming for you really is if Amazon get wind that you’re not that compliant, you will be immediately suspended and until that’s all resolved, you’re not going to get back online. And biggest threat.
Stephen Brown (12:23)
I should probably know this, but do they check when you’re spinning up an international store for VAT compliance before you can launch it or are you able to get around that?
Oliver Blackmore (12:39)
Yes, they ask you for your VAT numbers through an online system. They can validate that those VAT numbers are live and genuine. So there’s not really a way to get around that.
Stephen Brown (12:55)
So what are some of the biggest mistakes you’ve seen with international sellers and VAT? It sounds like there’s some barriers that prevent you from getting into the marketplace without VAT registration, but what are some of the issues you’ve seen with international sellers?
Oliver Blackmore (13:13)
Yeah, so ⁓ a lot of the issues really would be relevant for UK businesses as well. So focusing on Amazon in particular, it’s not unheard of to see people being unaware of that the marketplace rules in the UK and not realizing that Amazon have paid the VAT on their behalf. Equally, and probably actually more common, is the reverse of that. If you were to form a UK limited company to establish your trade in the UK and start selling on Amazon, that seems to be quite a common approach. But the problem there, if you’re owning and managing and operating that business from overseas, you’re still treated as an overseas business in terms of the rules. So the big risk there is that if you’re not getting the marketplace rules applied to you, because Amazon haven’t picked up that you’re an overseas established business, they will be giving you the vat to pay over to HMRC as though you are a UK business.
Then the day they realize that you are not a UK owned and operated business, they’re going to be wanting all that VAT back to pay it over to HMRC themselves. But then of course you don’t have the VAT anymore because you’ve already paid it over to HMRC. And that’s the other headache.
Stephen Brown (14:30)
Okay. Let’s pull a thread on somebody who wants to spin up a… So Amazon makes selling in other marketplaces easier. That’s the same here in the US. The facilitator rules. If I spun up my own Shopify store, let’s say I had a UK store, I just, enable my existing store to sell into the UK. Now I don’t get the benefits of a marketplace where they are collecting and remitting the tax. Let’s talk a little bit about the collection and remission process. I’m going you know, here in the US it’s all about Avalara, not all there’s other alternatives, but they’re the big dog. They are the tax engine that a lot of sellers use to calculate sales tax.
How do people, what are the tools that people are using in the UK for calculating VAT on their online stores?
Oliver Blackmore (15:33)
So if you’re a UK established business looking to file your UK VAT return, you would typically want to do that from directly from within your accounting software. So Xero and QuickBooks Online in the UK has that functionality baked in. would submit the VAT return directly from there. For overseas sellers looking to file their UK VAT returns, in the UK, hypothetically that’s way of doing it as well. But in reality, options like Avalara probably come more into play if you’re an overseas based business wanting to file UK VAT.
Stephen Brown (16:09)
Let me ask another basic question. How often do you have to file VAT? Is it monthly, quarterly, annually?
Oliver Blackmore (16:17)
You can do all three. But that being said, the default is quarterly. Monthly is appealing if you are expecting to be in a refund position for VAT. So that’s unlikely to be the case for an overseas based seller, but for a UK business with a chunk of international trade that they don’t need to pay UK VAT on and heavy UK costs could end up in a VAT refund position. And therefore, for cash flow purposes, you want to get those refunds in faster. And you would file monthly rather than quarterly. Annual VAT scheme option. Very few businesses would choose to use that in reality. You’re essentially paying coarsely throughout the year anyway and doing a trip at year end. mean, the reality of that is come year end, your books are in a bit of a mess because you’ve not had paying quarterly throughout the year anyway and doing a true up at year end. that the reality of that is come year end, your books are in a bit of a mess because you’ve not had the consistency or the routine of needing to file monthly or quarterly VAT returns. And then you’re playing catch up on your books to be able to file that year end VAT return.
Stephen Brown (17:22)
So do businesses get to choose their filing frequency?
Oliver Blackmore (17:26)
Yeah, exactly. So by default, it would be quarterly. Just to upgrade to monthly, you need to be expecting to be in a refund position. And then, ⁓ again, annually is an option as well. And it’s intended to simplify things, but my experience is it probably causes more headaches and mess to come year end rather than actually being useful.
Stephen Brown (17:41)
Interesting, here in the states, one of the things that happens is you are dictated at times that you’re filing frequency based on sales volume. So if you start selling a large volume, a large revenue volume, a state can say, okay, you’re required to file quarterly now. Now you’re required to monthly because they want to make sure they get their money.
Stephen Brown (18:16)
So we focused really heavily on the UK. Let’s broaden. Tell me, how much are you dealing with sellers that are selling in other marketplaces like EU or other places?
Oliver Blackmore (18:31)
Yeah, so the main marketplaces for our UK based clients are really EU, US, Canada and Australia. And we support them with VAT and GST compliance in all of those regions.
Stephen Brown (18:45)
So let’s talk a little bit about not just the UK, but let’s say you were crazy enough to want to bite the bullet and go to the EU. Usually you have to deal with foreign language stuff, but you also have to deal with other VAT. Is VAT in the EU, is it country by country, or is it treated basically as a block?
Oliver Blackmore (18:55)
It can be both. So you can register in individual countries. You can also register for the one stop shop scheme, which would be appropriate if you wanted to sell across the EU and hold your stock somewhere in the EU. And then there’s also a import one stop shop scheme where you can sell across the EU under one registration. But then you wouldn’t hold your stock in the EU.
For that scheme you would be importing order by order and there is a 150 euro order value limit for that import one-stop-shop scheme. The reality though is that sellers will often end up with a blend of all those options. So it would be quite popular to hold your goods in the Netherlands in particular because they have quite favourable postponed VAT options.
Essentially you can postpone paying the VAT when you import your goods into the Netherlands. So it’s a cash flow benefit. So then if you were to hold your goods in the Netherlands, you’re triggering the requirement to register individually in that country by virtue of the fact you’ve got stock there. And then if you wanted to sell into the rest of the EU, to fulfill from the Netherlands, you would register for the one-stop shop scheme and file one additional return in respect of all other EU countries.
Stephen Brown (20:40)
Okay, gotcha. Let me broaden it. What I see more commonly is American businesses going to English speaking countries because you don’t have to change the labels and all that stuff. I don’t know about you, but I see a lot of people going, let’s go to the UK, let’s go to Canada, Australia, New Zealand, right? That’s easy.
Oliver Blackmore (21:00)
Yeah, I think we see a similar pattern for UK sellers really. The go-to market wanting to move beyond the UK would be the US ⁓ and then either of Australia fairly equally really. We do see some sellers wanting to jump straight into the EU, but it’s rare to see a business getting the same level of traction with their sales in the EU compared to the US, Australia, or Canada, just as you say, of the language barrier and all the extra translation work you’re going to have to worry about, that kind of thing. It’s actually rare to see a business expanding into the EU and doing it profitably.
Stephen Brown (21:47)
Okay. So let’s, let’s focus on the English speaking world. That’s where we’re going to get into GST. So let’s say I’m going to Canada, Australia, or New Zealand. That’s part of the Commonwealth. they’re part more, there’s probably more understanding about their tax systems by UK than there are by US. You know, we’re kind of inward focus. We don’t always think about how things work outside of the US, but if I’m dealing with GST in, let’s talk about those three marketplaces, because they tend to be larger marketplaces for the English-speaking world. What are some of the nuances of GST in Canada, Australia, New Zealand, if I’m an international seller?
Oliver Blackmore (22:30)
So the principles that we’ve talked about in respect to the UK, EU and US, they’re not all that different in that you’ve got registration thresholds to worry about like you would do in the US and then you’ve potentially got registration requirements triggered by holding stock in those countries as well.
Stephen Brown (22:50)
is it the same thing where I need to be registered right out the gate to sell into those marketplaces or are there thresholds that allow me to test the waters first?
Oliver Blackmore (23:02)
Yeah, so if you’re not going to hold your stock in those countries, then they all have registration thresholds. So that makes things a little bit easier to test the water. But generally, if you’re wanting to actually hold stock somewhere, that’s when you are generally required to register a bit sooner.
Stephen Brown (23:21)
Gotcha. What are some of the biggest, what’s like one of the biggest horror stories you’ve ever seen around an international seller and VAT?
Oliver Blackmore (23:31)
If I were to pick one in particular, would probably be around VAT treatment of Amazon sales. So if you’re not using a tool like A2X to analyze your Amazon payouts, it’s not uncommon to see sellers accounting for their Amazon cash deposit as being their sale. As a result, they’re…quite significantly, know, with we have to be able to sell things probably 40 % understating the sales and therefore underpaying VAT on those sales. So let’s have an issue now that the marketplace rules are in place because Amazon are handling that on your behalf, but pre marketplace rules, that was probably the biggest mess up you’d see sellers making.
Stephen Brown (24:28)
And just to clarify that if somebody is a seller and has made it through this detailed discussion on VAT, you’re calculating VAT on the total amount of the sale and what we get paid out on these marketplaces is after all those fees. And so the past mistake was you’d calculate your VAT on what you received from Amazon, not what was actually paid to Amazon by the seller, or by the end customer.
Oliver Blackmore (24:59)
exactly, yeah.
Stephen Brown (25:00)
Okay. Um, another thing, let’s say you’re a sophisticated seller and you get in there and you start with Amazon and then you branch out and you spin up a Shopify store, you enable your Shopify store. And so now you have two streams of revenue. This is complicated here for us in the US when we support them with sales tax, because they’re like, Oh, Amazon’s, you know, they’re, they’re doing all the revenue collection, but you’re like, yeah, but there’s also your own store. And then when you’re calculating sales volume, you have to take both markets into consideration. Are there any nuances if somebody is selling both on Amazon as well as a Shopify store that changes the dynamics for VAT?
Oliver Blackmore (25:44)
The main thing to watch for there is that you would be accounting for and paying VAT on your sales to HMRC on any Shopify sales, whereas Amazon would be paying the VAT on your behalf on the Amazon sales. So you do need to be able to keep those sales separate from an accounting perspective to know how much sales you actually need to pay VAT on when you come to file on your VAT return.
Stephen Brown (26:14)
With the VAT return, now let’s, I wanna, I was just thinking there might be a mistake that a lot of people make, cause they do it here in the US. They’re like, hey, I’m registered, Amazon’s collecting, they’re submitting the VAT for me, but they’re not submitting the return, right? They’re just submitting the taxes, but you are still on the hook to actually file a return that says, here’s what we’ve done.
Oliver Blackmore (26:41)
Yes. So you would still be filing a return to report your sales, not paying more VAT on them, but reporting that you’ve made those sales. It essentially be Xero rated on the VAT return. So no additional VAT due. But then on that VAT return, that’s your opportunity to claim back any VAT you’ve incurred on your costs. Equally with regards to importing your goods into the UK.
If you haven’t postponed your VAT, then you would be reclaiming the import VAT you’d incurred at the point of import on your VAT return. So thus triggering actually a VAT refund to you as a result of filing that VAT return. Touching on postpone VAT, that’s something really that everyone’s selling in to the UK and bringing goods into the UK in bulk should be looking to do because it’s improving your cash flow position by doing so. If you’re paying VAT on import then waiting to file your VAT return and you might not get your VAT refund until a month after quarter end. Potentially that VAT is out of your bank for four months. If you postpone it you don’t pay at the point of import. You just report that you’ve postponed that VAT.
When you come to file your VAT return, it’s essentially in and out, has no actual impact on the VAT liability. So you’re keeping that VAT in the bank for four months by postponing the VAT.
Stephen Brown (28:13)
Let me pull on this a little bit further. So this is where we get into the layers that VAT has that you know, a sales tax like we’re used to in the US does not. When I import, I’m on the hook for VAT. Is that correct?
Oliver Blackmore (28:29)
Yeah, so if you’re the importer on record, which you typically would be, then you would be responsible for paying the VAT at the point of import. The way to get around that is to ask your freight forwarder or shipping provider to postpone the VAT. All they need from you to be able to do that is your UK VAT number and your UK EORI number.
Stephen Brown (28:54)
Gotcha. So best practice would be postpone the VAT and then pay on the sale to the consumer of your product. so that your cashflow is, you’re not having to go and get those refunds.
Oliver Blackmore (29:07)
Exactly. Yeah, you’d still be expecting probably to get some refunds if you’re incurring any costs in the UK. Maybe you’re using a 3PL and they’re billing you for warehousing. You don’t have VAT charged on that service and you’re going to want to claim that back regardless. So really most overseas sellers selling into the UK, if they’re marketplace only, are probably going to be in a VAT refund position. Then it might flick to being a payable position if a significant portion of your sales are not via marketplace.
Stephen Brown (29:38)
So I want to talk about all these refunds. So all, all the places that an international seller might be paying VAT would be like upon import the 3PL. And if I, if I’m hearing you right, I could ask for a refund on that VAT. Is that correct? Okay.
Oliver Blackmore (29:55)
Exactly, yeah, and you absolutely should be asking for a refund as part of your return filing process.
Stephen Brown (30:01)
That sounds like a nightmare. How is all this process typically handled? Obviously, people could work with firms like yourselves. Is there software that makes it easier to do? What’s the best practice? Like, hey, you need to find a VAT expert to help you and they’ll use the software? What’s the best practice in your recommendation?
Oliver Blackmore (30:14)
Yeah, so really, if you’re going to be incurring a significant volume of costs that you need to track within the UK, actually just setting up a Xero or QuickBooks just for the purpose of getting your UK VAT accurate and complete isn’t such a bad idea really. This just means you’ve got a place to track all those costs and then you can get the VAT categorization correct in Xero and then you’re going to get the relevant VAT reclaimed when you come to file your return.
Stephen Brown (30:51)
Is there a volume that you see, because I think a lot of international sellers, they’re just trying to grab some extra revenue and they’re like, hey, it’s all free money. But do you find that at a certain amount of sales, it makes sense to take that strategy of let’s set up our own set of accounting books for this country?
Oliver Blackmore (31:01)
Yeah, suppose really you’ve just got to weigh up the costs versus benefit of doing that. So if you’re being billed a thousand pound a month by your 3PL for warehousing and then you miss off one of those invoices on your VAT return, you you’ve lost 200 pound of VAT reclaimed there, that’s paid for a Xero subscription for five months.
So it’s not hard to see how it would be worthwhile to have something in place to make sure you’re capturing all those VAT costs.
Stephen Brown (31:50)
Gotcha. Let’s talk a little bit about where things are in the future. International trade’s a mess here in the US because of this tariff regime and it’s just been horrible. Are you seeing similar tariff changes in the UK because of what’s happening in the US or is it fairly similar right now? You guys aren’t really making the chaos that like our country’s making.
Oliver Blackmore (32:18)
Yeah, I think we had our chaos in 2021 when we Brexited, yeah. And alongside that, we got rid of the low value consignment relief, which was sort of our rough equivalent of your de minimis thresholds, which also recently gone. Yeah. That was the…
Stephen Brown (32:23)
Brexit. De minimus yeah De minimus is dead here. And is it dead in the UK? that, what did you call it, low consignment relief?
Oliver Blackmore (32:49)
Low value consignment relief. So it’s interesting, I think, to draw a comparison between what happened then and what’s happening in the US now.
Stephen Brown (32:57)
Yeah, tell us what, it sounds like you guys were a little bit ahead of us in that regard. What did you see was the consequence of that change in the UK for sellers?
Oliver Blackmore (33:07)
Well, the headline was drop shipping is dead. But the backdrop to that was really that, so the low value consignment relief was actually only a £15 threshold. So very different actually to the US. However,
Stephen Brown (33:11)
Yeah. Okay, that’s really low. Yeah, ours was like $800, so you could put a lot of product in on that threshold.
Oliver Blackmore (33:24)
Yeah, but the reality was that people were, if you think about drop shipping landscape, most people are drop shipping from suppliers probably in China. There was a lot of under declaration of value of goods going on to slip through under that £15 threshold.
Stephen Brown (33:40)
Mm-hmm.
Oliver Blackmore (33:49)
So that was one of the main reasons why that threshold was removed really to cut out that opportunity to under-declare the value of goods. And really as a consequence, at the same time, there was a change in the rules around VAT and accounting for VAT at the point of sale. Whereas previously, a drop shipper could essentially bring goods in under the £15 threshold, not pay VAT on them, not pay VAT on the VAT return either, because the VAT wasn’t accounted for in the same way in terms of the point of sale rules. So the two things happening combined sort of knocked drop shipping on its head.
Stephen Brown (34:33)
Did that change effectively kill drop shipping the UK?
Oliver Blackmore (34:39)
I would say so and really practically the same time, the same thing was going on in the EU. yeah, the portion of our clients that are dropshipping now is practically zero versus a years ago would have been a significant chunk of our clients.
Stephen Brown (34:57)
Personally, I have not been sad to see the changes of that rule here in the US. The only thing I don’t like is they did it very abruptly. And I never like, I like to see businesses have a chance to change. But the thing that we were seeing here in the US was I’m competing against Chinese based sellers who are able to take advantage of the de minimis rule here.
And so it became a competitive disadvantage. The other thing that we would see is these sellers and we see it from time to time. They, they try and get around the registration rules because we’re a little bit more loose in terms of importing. so these sellers could go in, especially on Amazon, because we have the volume thresholds here for sales tax. So you could be an international seller and selling on Amazon under that volume threshold and, not be registered, not paying sales tax, not filing sales tax returns. And so I’m actually, think long-term it makes things a little bit more fair. ⁓ In the short term, I just think it’s, if you had built a dropshipping business here in the US that was based on international dropshipping, obviously domestic dropshipping still is fine here.
Oliver Blackmore (36:03)
Yeah, that makes sense. Yeah.
Stephen Brown (36:16)
But if you’re really dependent on international dropshipping, they just ripped that band-aid right off and pulled the rug out from under you.
Oliver Blackmore (36:23)
Yeah, least in the UK we had a bit more notice of that, mean.
Stephen Brown (36:28)
We were supposed to, and then as the case with our current political administration, they just changed it. It was going to be like, I want to say like a 12 month wind down and they’re like, no, we’re getting rid of it tomorrow. I was like, what? You know, I went from like this, this wind down period to, no, band-aids ripped off, we’re done. And now we’re dealing with the chaos of our Supreme court is talking about the legality of the tariffs that have been implemented and what happens if they say that was not implemented under the constitution. The chaos that that’s gonna create is gonna be incredible. So it’s a crazy time to be doing international business. And unfortunately, think ecommerce is inherently international in one way the other because you’re usually dealing with manufacturers internationally. Well, final thoughts.
Somebody was wanting to expand globally with their marketplaces. You’ve given a lot of really good insights, but give me a summary. What would you recommend they should be considering as they go international?
Oliver Blackmore (37:34)
Yeah, I think the main thing to have at the forefront of your mind is that when you’re wanting to expand into any new territory, you want to be stopping and thinking what are the implications of doing so, because invariably there are likely to be some registration and filing requirements triggered by that expansion. Being mindful of both selling to a new country, but also holding inventory in a new country as well, using those as sort of points to stop and think, do I need to do something as a result of that change in the way I’m selling?
Stephen Brown (38:10)
Awesome. That’s some sage advice. On that note, if somebody wanted to connect with you, what’s the best way to do that?
Oliver Blackmore (38:17)
You can find me on LinkedIn. I’m Oliver Blackmore on LinkedIn. Also you can find us via our website, it’s elverecommerceaccountants.co.uk.
Stephen Brown (38:25)
Awesome. Thanks for joining me today, Oliver. I hope to have you on again sometime.
Oliver Blackmore (38:30)
Yeah, thank you for having me. It’s been a real pleasure.