Taxing times

Louise Dicks, Marketing Manager at Richard Designs, reveals everything you need to know about VAT when purchasing from suppliers in the European Union (EU).

Louise Dicks, Marketing Manager at Richard Designs, reveals everything you need to know about VAT when purchasing from suppliers in the European Union (EU).

With many suppliers looking to increase their business overseas, there has been an influx of European companies selling within the UK bridal market.

Unfortunately, it seems that some EU companies are advising their customers that they do not need to pay VAT on their purchases - this is simply not true. As a UK retailer you need to be aware of tax rules and how they affect you and your business. Indeed, if you do not pay the correct VAT on your purchases, you could be liable to an investigation.

Facts and stats

When buying goods from a UK supplier, you will be charged VAT at the current rate of 20 per cent on each product you purchase. If you are VAT registered with HM Revenue and Customs, you can reclaim this VAT and VAT you pay on any other business purchases. Any UK business can voluntarily become VAT registered, and it is compulsory to register if your turnover for the last 12 months exceeds the VAT threshold (currently £79,000).

This is a simple system which allows you to charge VAT to your customers, and reclaim VAT on your business purchases. If you are VAT registered you will regularly submit a VAT return to HMRC, which will show both input and output tax, and HMRC will either charge or refund you if there is a deficit.

Buying from the EU

When buying from a company based in the EU, you still have to pay tax on your purchases. If you are VAT registered, you must give your VAT registration number to the supplier. Due to the differing rates of tax across the EU, instead of reclaiming VAT as you would in the UK, there's an understanding between EU countries that VAT will not be charged if the purchaser is VAT registered. This means you will pay, in total, the same amount as you would from a company in the UK, as in the UK you will reclaim the VAT charged.

If you are not VAT registered, the EU company is required by law to charge you VAT at the rate of tax in their country. As with VAT charged to you by a UK company, you cannot reclaim this if you are not VAT registered.

If you are not VAT registered and a supplier from the EU does not charge you VAT, they are committing an offence and are breaking EU laws.

Should you be VAT registered?

As I have outlined previously, if you are not VAT registered you will not be able to reclaim VAT charged on business purchases, no matter where your supplier is based. Depending on your level of turnover, it may be worthwhile considering voluntarily registering for VAT. However, being VAT registered comes with responsibility and you should be aware of these before you commit. Benefits include a better cash flow, and a refund if the VAT on your purchases exceeds that on your sales, however you will be required to keep all VAT receipts and invoices and submit a VAT return regularly.

When buying from another EU country you will not benefit from any reduction in VAT; any supplier who tells you otherwise may be misleading you in an attempt to make their product look cheaper. In order to create a fair market, without one EU country having a competitive advantage over another, the VAT you pay must be the same whether you are buying from a UK supplier or an EU supplier. Inform the supplier if you are VAT registered and ensure they have your registration number, check with the supplier whether or not they will charge you VAT, and make appropriate preparations to deal with this. There is plenty of easy to read information on the HMRC website

The EU currently includes: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.

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