Any Chinese importers here? Tax Implications
Discussion
Anyone see the Sunday Times article yesterday about the guys importing from China and getting hammered by their Amazon and eBay competitors not paying the VAT?
The article is behind a paywall (https://www.thetimes.co.uk/edition/ireland/are-amazon-and-ebay-the-villains-of-vat-nbq6zwkl6) but the gist was that guys like these https://www.tv-village.net are at a 20% worse off situation because their Chinese competitors don't pay tax.
One thought which occurred to me was why not setup a company in let's say Netherlands to receive the goods. This company could then invoice UK customers only and avoid having to pay VAT. Returns and customer service could be handled by a UK office. You could have a clause in your Dutch company that you will only sell to UK customers and not Dutch ones, thereby avoiding domestic VAT issues.
If the turnover is good enough (£800k in this case), it could be worth the hassle of a one-time setup.
(unless of course HMRC have already thought of this and banned it)
What do you guys thinks?
The article is behind a paywall (https://www.thetimes.co.uk/edition/ireland/are-amazon-and-ebay-the-villains-of-vat-nbq6zwkl6) but the gist was that guys like these https://www.tv-village.net are at a 20% worse off situation because their Chinese competitors don't pay tax.
One thought which occurred to me was why not setup a company in let's say Netherlands to receive the goods. This company could then invoice UK customers only and avoid having to pay VAT. Returns and customer service could be handled by a UK office. You could have a clause in your Dutch company that you will only sell to UK customers and not Dutch ones, thereby avoiding domestic VAT issues.
If the turnover is good enough (£800k in this case), it could be worth the hassle of a one-time setup.
(unless of course HMRC have already thought of this and banned it)
What do you guys thinks?
The only way it would work is if you were selling to U.K. VAT registered companies, then to don't need to charge them VAT.
Normal 'domestic' retail sales have to be charged VAT at whichever rate is applicable in the country that the selling business is based in.
I have had this exact same issue. Bought a load of stock off a Chinese supplier, who then started marketing online without the vat. For me to be competitive pretty much wiped out the already tight margins, especially after eBay and/or Amazon had taken their cut.
I gave up in the end, and then was approached by the same companies offering exclusivity to the uk market, and claiming they wouldn't try to sell direct. I haven't bothered.
Normal 'domestic' retail sales have to be charged VAT at whichever rate is applicable in the country that the selling business is based in.
I have had this exact same issue. Bought a load of stock off a Chinese supplier, who then started marketing online without the vat. For me to be competitive pretty much wiped out the already tight margins, especially after eBay and/or Amazon had taken their cut.
I gave up in the end, and then was approached by the same companies offering exclusivity to the uk market, and claiming they wouldn't try to sell direct. I haven't bothered.
essayer said:
But Dutch VAT is 21% 
You would specify that your products are only available to UK customers (and prices only in GBP) thereby negating the need to pay Dutch VAT on your imports.I remember reading back in the day that Play24/7.com (later renamed play.com) used this wheeze by having their warehouse based in one of the Channel Islands (I think Jersey).
I used to buy all my DVDs/CDs from them instead of Amazon because they were always cheaper. It was because of their VAT liability issue made them significantly cheaper.
essayer said:
But Dutch VAT is 21%
You would specify that your products are only available to UK customers (and prices only in GBP) thereby negating the need to pay Dutch VAT on your imports.I remember reading back in the day that Play24/7.com (later renamed play.com) used this wheeze by having their warehouse based in one of the Channel Islands (I think Jersey).
I used to buy all my DVDs/CDs from them instead of Amazon because they were always cheaper. It was because of their VAT liability issue made them significantly cheaper.
Edited by ATV on Thursday 21st September 20:32
ATV said:
You would specify that your products are only available to UK customers (and prices only in GBP) thereby negating the need to pay Dutch VAT on your imports.
It doesn't work like that.Your "Dutch" company would pay VAT at the point of entry to the EU regardless of who they intended to sell them to.
Sales to UK Customers (other than to UK VAT Registered businesses) would be subject to Dutch VAT at 21% ... so you'd actually make your sales price higher to UK consumers by 1%
ATV said:
I remember reading back in the day that Play24/7.com (later renamed play.com) used this wheeze by having their warehouse based in one of the Channel Islands (I think Jersey).
I used to buy all my DVDs/CDs from them instead of Amazon because they were always cheaper. It was because of their VAT liability issue made them significantly cheaper.
That was a different wheeze called Low Value Consignment Relief. Anything under £18 or so from the Channel Islands didn't attract VAT. The Govt closed that in 2012.I used to buy all my DVDs/CDs from them instead of Amazon because they were always cheaper. It was because of their VAT liability issue made them significantly cheaper.
Your idea doesn't work.
Your idea works for services. Do as Google have done and declare all AdWords customers to be businesses (even if they are not), then simply stop charging VAT.
Why so great? Because in Ireland (say), you declare the sales as business purposes (no need for the other side to be VAT registered for that to work), and so you say "VAT is subject to reverse charge - customer pays." UK SME customer under VAT threshold doesn't have to pay this (although there's an edge-case gotcha around reverse charge purchases contributing to VAT threshold calcs), so is effectively buying VAT-free.
UK supplier selling to the same UK (non VAT-registered) businesses has to charge 20% UK VAT, so cannot hope to compete.
In terms of goods, the VAT *should* be paid by the customer of the Chinese company at the border, except that it doesn't work like that and the VAT is never paid.
Why don't you set up in a non-EU country and try it that way?
Why so great? Because in Ireland (say), you declare the sales as business purposes (no need for the other side to be VAT registered for that to work), and so you say "VAT is subject to reverse charge - customer pays." UK SME customer under VAT threshold doesn't have to pay this (although there's an edge-case gotcha around reverse charge purchases contributing to VAT threshold calcs), so is effectively buying VAT-free.
UK supplier selling to the same UK (non VAT-registered) businesses has to charge 20% UK VAT, so cannot hope to compete.
In terms of goods, the VAT *should* be paid by the customer of the Chinese company at the border, except that it doesn't work like that and the VAT is never paid.
Why don't you set up in a non-EU country and try it that way?
skwdenyer said:
Your idea works for services. Do as Google have done and declare all AdWords customers to be businesses (even if they are not), then simply stop charging VAT.
Why so great? Because in Ireland (say), you declare the sales as business purposes (no need for the other side to be VAT registered for that to work), and so you say "VAT is subject to reverse charge - customer pays." UK SME customer under VAT threshold doesn't have to pay this (although there's an edge-case gotcha around reverse charge purchases contributing to VAT threshold calcs), so is effectively buying VAT-free.
VAT is only reverse charged if the customer is VAT registered. If not, Google simply charges the VAT.Why so great? Because in Ireland (say), you declare the sales as business purposes (no need for the other side to be VAT registered for that to work), and so you say "VAT is subject to reverse charge - customer pays." UK SME customer under VAT threshold doesn't have to pay this (although there's an edge-case gotcha around reverse charge purchases contributing to VAT threshold calcs), so is effectively buying VAT-free.
RM said:
skwdenyer said:
Your idea works for services. Do as Google have done and declare all AdWords customers to be businesses (even if they are not), then simply stop charging VAT.
Why so great? Because in Ireland (say), you declare the sales as business purposes (no need for the other side to be VAT registered for that to work), and so you say "VAT is subject to reverse charge - customer pays." UK SME customer under VAT threshold doesn't have to pay this (although there's an edge-case gotcha around reverse charge purchases contributing to VAT threshold calcs), so is effectively buying VAT-free.
VAT is only reverse charged if the customer is VAT registered. If not, Google simply charges the VAT.Why so great? Because in Ireland (say), you declare the sales as business purposes (no need for the other side to be VAT registered for that to work), and so you say "VAT is subject to reverse charge - customer pays." UK SME customer under VAT threshold doesn't have to pay this (although there's an edge-case gotcha around reverse charge purchases contributing to VAT threshold calcs), so is effectively buying VAT-free.
No VAT charged to a non-VAT-registered UK business.
skwdenyer said:
No, Google doesn't. Look at this: http://www.taylorcocks.co.uk/services/tax/vat/adwo... and [url]/url] for instance.
No VAT charged to a non-VAT-registered UK business.
Both links refer to a VAT ID. I can assure you they do apply VAT. Been there, done that. Give AdWords your VAT reg number, VAT doesn't appear in the invoice. Don't give them one, and VAT appears. HMRC insist B2B suppliers confirm a VAT reg number of the customer before they reverse charge. It's an EU wide ruling.No VAT charged to a non-VAT-registered UK business.
RM said:
skwdenyer said:
No, Google doesn't. Look at this: http://www.taylorcocks.co.uk/services/tax/vat/adwo... and [url]/url] for instance.
No VAT charged to a non-VAT-registered UK business.
Both links refer to a VAT ID. I can assure you they do apply VAT. Been there, done that. Give AdWords your VAT reg number, VAT doesn't appear in the invoice. Don't give them one, and VAT appears. HMRC insist B2B suppliers confirm a VAT reg number of the customer before they reverse charge. It's an EU wide ruling.No VAT charged to a non-VAT-registered UK business.
A VAT ID is prima-face evidence of a business use, but all that is required in law is evidence of business use (a declaration by the customer will suffice). This is not the same as for physical product.
From the second link above:
Brighton Accountants said:
Business is NOT registered for VAT in the UK
If the business cannot supply a VAT registration number, Google might consider that the advertising is being used for non-business purposes, and charge Irish VAT at 21%. The UK business cannot reclaim this by a direct claim to the Irish tax authorities. To avoid this happening, the business should contact Google to get the account status changed to ‘business’. This should also generate a refund from Google of any past VAT that has been incorrectly charged.
The value of the AdWords expense will need to be included in the turnover of the UK business in determining whether it needs to register for VAT.
Google and Yelp (for instance) simply state that the use is business. Google makes it a condition of using AdWords - if you are not a business, you may not use AdWords. Yelp's contract does the same.If the business cannot supply a VAT registration number, Google might consider that the advertising is being used for non-business purposes, and charge Irish VAT at 21%. The UK business cannot reclaim this by a direct claim to the Irish tax authorities. To avoid this happening, the business should contact Google to get the account status changed to ‘business’. This should also generate a refund from Google of any past VAT that has been incorrectly charged.
The value of the AdWords expense will need to be included in the turnover of the UK business in determining whether it needs to register for VAT.
In each case, therefore, Google and Yelp can undercut a UK supplier of the same service to below-threshold businesses.
Since SMEs / micro-businesses make up a fair proportion of the customer base of both, that's quite an impact. In countries where VAT thresholds are much lower, the distortion is not apparent.
I'm not sure how they get away with it with big ticket items, but with smaller, low value product, you will often find Chinese merchants importing the products as 'parcels' in to the UK, all to the same address (often a fulfilment house).
When I say parcels, I don't mean airmail. I mean they will load a container or airpallet with thousands of pre-polybagged items with nothing more than barcode on the poly bag to identify the product.
For customs purposes, the company and contents will be declared as incoming mail/mail forwarding services for onward shipment, and each parcel will be declared under £15 or so, and therefore avoid VAT.
Of course all of the 'parcels' end up at the same address (fulfilment house) and the goods are therefore imported without paying VAT.
When I say parcels, I don't mean airmail. I mean they will load a container or airpallet with thousands of pre-polybagged items with nothing more than barcode on the poly bag to identify the product.
For customs purposes, the company and contents will be declared as incoming mail/mail forwarding services for onward shipment, and each parcel will be declared under £15 or so, and therefore avoid VAT.
Of course all of the 'parcels' end up at the same address (fulfilment house) and the goods are therefore imported without paying VAT.
skwdenyer said:
RM said:
skwdenyer said:
No, Google doesn't. Look at this: http://www.taylorcocks.co.uk/services/tax/vat/adwo... and [url]/url] for instance.
No VAT charged to a non-VAT-registered UK business.
Both links refer to a VAT ID. I can assure you they do apply VAT. Been there, done that. Give AdWords your VAT reg number, VAT doesn't appear in the invoice. Don't give them one, and VAT appears. HMRC insist B2B suppliers confirm a VAT reg number of the customer before they reverse charge. It's an EU wide ruling.No VAT charged to a non-VAT-registered UK business.
A VAT ID is prima-face evidence of a business use, but all that is required in law is evidence of business use (a declaration by the customer will suffice). This is not the same as for physical product.
From the second link above:
Brighton Accountants said:
Business is NOT registered for VAT in the UK
If the business cannot supply a VAT registration number, Google might consider that the advertising is being used for non-business purposes, and charge Irish VAT at 21%. The UK business cannot reclaim this by a direct claim to the Irish tax authorities. To avoid this happening, the business should contact Google to get the account status changed to ‘business’. This should also generate a refund from Google of any past VAT that has been incorrectly charged.
The value of the AdWords expense will need to be included in the turnover of the UK business in determining whether it needs to register for VAT.
Google and Yelp (for instance) simply state that the use is business. Google makes it a condition of using AdWords - if you are not a business, you may not use AdWords. Yelp's contract does the same.If the business cannot supply a VAT registration number, Google might consider that the advertising is being used for non-business purposes, and charge Irish VAT at 21%. The UK business cannot reclaim this by a direct claim to the Irish tax authorities. To avoid this happening, the business should contact Google to get the account status changed to ‘business’. This should also generate a refund from Google of any past VAT that has been incorrectly charged.
The value of the AdWords expense will need to be included in the turnover of the UK business in determining whether it needs to register for VAT.
In each case, therefore, Google and Yelp can undercut a UK supplier of the same service to below-threshold businesses.
Since SMEs / micro-businesses make up a fair proportion of the customer base of both, that's quite an impact. In countries where VAT thresholds are much lower, the distortion is not apparent.
HMRC Notice 741a said:
Where the B2B rule applies you should obtain commercial evidence showing that your customer is in business and belongs outside the UK. VAT registration numbers are the best evidence that your EU customer is in business. If your customer is unable to provide a VAT number you can accept alternative evidence. This includes certificates from fiscal authorities or other commercial documents indicating the nature of the customer’s activities in their home country. Such evidence should be kept as part of your records.
Link: https://www.gov.uk/government/publications/vat-not.... VAT number is only one means of establishing that the supply is B2B.Gassing Station | Business | Top of Page | What's New | My Stuff