Steffen Hoyemsvoll

Ecommerce Accountants' COO
Hey everyone! I'm Steffen, the COO of Ecommerce Accountants. I'm looking to make it easier for the accounting side of running an ecommerce business to take less time and stress.
Hi there Ben,

There can be quite a lot of factors that will impact which is the right decision for a business importing and dropshipping goods into Europe, especially after the new European VAT rules came into effect 1 July 2021.

Get in touch withΒ Simply VATΒ who can both guide you through your options, their respective benefits and risks, and well as actually handle the VAT and EORI side of things across Europe.
Hi Imran,

Since you are a sole trader, here the answer depends on where you personally are tax resident.

If you are not UK tax resident, then your domestic VAT threshold is zero. Your sales described are domestic sales, so you need to use your first sale date or when you first purchased inventory for your UK warehouse, whichever is earlier, as your VAT registration date.

If you are UK tax resident, then you do enjoy the Β£85k threshold in respect of these domestic sales you've described.

Note, if you have other reasons to be VAT registered, then a VAT registration may still be required, e.g. shipping goods to customers in the UK where the goods are stored abroad at point of sale.
Hi Tracey,

The main question here is who is Β£5 charged to? From what you are telling me, it sounds like LuluXpress are who the consumer deals with - i.e. the customer pays LuluXpress the full cost of the calendar including your Β£5 markup. You are charging LuluXpress, the business, for your Β£5, much like charging a commission on the sale.

In this case your revenue is a business to business sale, so the normal VAT rules apply. These are not trivial so I won't go into great detail here but your accountant should be able to break this down for you by asking a straightforward set of questions.
Hi Toti,

This is covered in our UK VAT and EU VAT guide.
Hi Suz,

The appropriate scheme to choose will depend on the following:
  • how much input VAT you pay (import VAT and VAT on UK goods and services)
  • how much output VAT you need to pay (on the goods you sell)
  • where you ship goods to, as this affects the VAT rate payable

Check out our post on which VAT Scheme to use in the VAT section of our help guide.

If you register for VAT and do not have any input VAT or output VAT to declare and pay/reclaim, then you would need to file a nil return. This is something you can attempt yourself (this is not a particularly complicated task and there is plenty of guidance out there) or outsource to your accountant.
If you're testing the waters, most people would begin as a Sole Trader (assuming you are tax resident in the UK) because you then benefit from a Β£1,000 trading allowance before any tax obligations arise.

Alternatively, the other popular option is to set up a Limited Company, however, there are legal obligations you have to fulfil as a result. And yes, you can change the name of the company to match the store later.

Have a read of the getting started section for a detailed treatment of which business structure to choose.Β 
If a business charges VAT when they are not VAT registered they need to correct the position and are liable for a penalty which is based on the amount charged. The two actions a business in this position should be taking are:
  1. Contact the customer, issue a credit note, and refund the VAT charged
  2. Make a disclosure to HMRC of the mistake - which limits the penalty they are likely to apply if discovered

This is the conservative and fully compliant approach. If you do nothing and this is discovered, you may risk your business reputation with customers and face stiffer penalties (HMRC usually applies discretion to levy substantially lower penalties for unprompted disclosures).Β Β 
Hey ο»Ώ Michael Djibril ο»Ώ , this is a more complex topic related to reverse charging and digital services, and the answer is short and would require me to ask a bunch of questions, so I'm afraid this is the sort of question your account would handle on a case by case basis.

The general guidance on reverse charging is here and the technical source material is here.
Thanks Katarzyna! Glad to hear it. I've just edited that link (it shouldn't have been there as it is supposed to link to the last section of this post).