Last November, Dual Wield Studio opened shipping to the UK & EU after completing the long process of registering for VAT. What is VAT, you might ask? And how does it work? We spoke with our accountant Sydney Brown to break down what it all means, and some details about the process for registering!
What exactly is VAT? Who does it apply to?
VAT stands for Value Added Tax, and it applies to everyone! Sort of. So there’s a lot of confusion about what VAT is. Many people think that it just applies to the UK and that no other place has VAT. This isn’t correct! Pretty much every country has VAT, including the US. All that VAT means is that there’s a tax on goods.
There are two types of VAT we are going to talk about today: UK VAT and EU IOSS. UK VAT applies to only the UK, and EU VAT/IOSS applies to all countries in the European Union.
First off, we will go over UK VAT, as that’s significantly more complicated!
UK VAT applies to all OMPs (online marketplaces) and sellers who are sending goods from the US to the UK. UK VAT has always existed; it just used to be collected at the point of importation instead of the point of sale. You have to collect VAT if you fit the following criteria:
- You sell physical or digital goods to the UK
- You and/or your business are not located in the UK
- The total retail value of any goods purchased is under £135
This does not mean that you can’t accept digital art commissions from clients in the UK! For digital goods, there is a threshold of £85,000 or $106,896.85 USD as of the time of this posting to register. So if you make over £85,000/$106,896 in total revenue (not just funds from commissions), then you are required to register for Making Tax Digital. If you make under that amount, you don’t need to worry about taking commissions from the UK!
A few OMPs (online marketplaces) will facilitate VAT for you. Included in this are Etsy, Amazon, and Ebay, all of which will collect and remit VAT without any action required on your part as of the time of this post. Shopify, Squarespace, and BigCartel do not facilitate VAT for you, and if you sell through them you will potentially need to get a VAT number.
There are some exemptions to registering for VAT! Certain types of goods are exempt, so if you are selling specialized products please make sure to investigate further on their website! The list of all VAT-exempt products can be found here. The only one that has been historically relevant to my work is that books (like fanzines!) are VAT-exempt, but there may be other exemptions that could help your business.
For EU VAT, it is much simpler! The basic difference is that UK VAT is required, whereas EU IOSS/VAT is not. IOSS stands for Import One Stop Shop, and is a service you can register for if you are outside of the EU and sell to countries in the EU.
This registration is technically optional! If you don’t register, taxes get levied at customs and are paid by the buyer at time of import, which can result in:
- Increased fees for the customer
- Delays in delivery
- Deliveries being returned because the recipient did not realize they would owe taxes and they refuse to pay
- Missed deliveries
If you are registered for IOSS, the customer pays import fees at time of check out, which makes it that much easier for them to get their package delivered in a timely manner! If you do not do a large amount of business to the EU or your shop is only open for limited times, it may not be worthwhile.
What’s the purpose of registering for VAT?
Expanding your client base, for one! I also think it’s incredibly valuable to get this experience and understand the laws a little better. Tax laws are constantly changing and deeply confusing, and being an online seller often means that you need to wear many different hats. Although it may seem like a lot of work, being able to sell all over the world is huge for your client base, especially since so many UK buyers are unable to purchase from their favorite sellers!
Walk me through the process of registering for VAT - what all does it entail, how do you file, how long does it take, what does it grant access to, etc.
Technically, you can register on your own. However, I really, really don’t recommend this. The HMRC website through which UK VAT is run is optimized for larger businesses, not independent small creators, and that makes it confusing and difficult to navigate. In addition, it’s just much easier to register if you have someone in the UK register for you.
Dual Wield Studio used a company called SimplyVAT to register, and although I don’t want to blindly recommend them, I will say that we have been using them for several months now and have had no issues! With them, we provided all our documentation through their online portal, which they then coordinated with the UK to get filed. It was super easy and pretty painless, and the process was the same for both UK VAT and EU IOSS. It took about a two-week turnaround for us to be fully registered for EU IOSS, and about two to three months to be registered in the UK.
This service also files for us! Even if you decide to register on your own, I would recommend finding a third party service to handle filing, as the government requires very specific formatting that can be easily messed up.
Do you have any advice or recommendations for businesses looking to register for VAT?
Dual Wield Studio uses a third-party that facilitates VAT registration for us, but I still manually go through our Shopify account each month and check that the amounts are correct. Even if you end up going the route we did and using a third party, I strongly recommend looking into your transactions and ensuring you know where your products have gone. If you manage your own fulfillment, this is easier, as you’ll have a better idea of how much you’ve sent internationally.
In general, VAT isn’t as confusing as everyone makes it out to be! It can be a bit of a pain, but there are a lot of resources and information that are available to help you determine if registering is worthwhile for you.