The Coronavirus pandemic may have resulted in many High Street stores having to close, but it did little to dampen the British people’s love of retail therapy. According to insight from the Office of National Statistics (ONS), in September 2020, online sales were up by nearly half at the start of 2020. So, if you dream of selling your own products online, your future prospects look excellent. However, you must understand your e-commerce tax obligations.
Do I have to pay tax for everything I sell online?
You may have heard that you do not have to pay business taxes on goods sold online. This is incorrect. However, this does not mean you have to pay tax every time you sell something online (i.e. on eBay or Etsy). As of 2017, the UK Government provided a tax-free threshold of £1,000 for online sales.
How do I register to pay tax on my e-commerce sales?
If you are a Sole Trader, you need to register as such with HMRC and complete an annual Self Assessment Tax Return.
Should you decide to incorporate your business into a Limitedompany, you must choose a name for your business and register it with Companies House. You will then need to provide annual financial statements and pay the prevailing tax rate on any profits.
A Company and Commercial Solicitor can advise you on the best structure for your business and if you choose to form a company, register it at the Companies House.
Do I pay VAT as an e-commerce business?
If your turnover is below £85,000 / year, you do not need to register for VAT. This applies to both Sole Traders and Limited Companies.
You collect VAT on behalf of the Government and payments are managed digitally. You must register with the HMRC and they will issue your VAT number. You can publish this on all your invoices and supply the VAT number to those delivering services to you.
You MUST NOT charge VAT if you are not registered to do so. There are severe penalties.
If you are a business supplying digital services to UK consumers, these are liable to UK VAT. If you supplied to consumers outside the UK these are not liable to UK VAT. They may be liable to VAT in the country where the consumer is based
The treatment of VAT for the supply of services to the EU changed on 1st July 2021. Now, any goods delivered to an EU country will attract value-added tax.
The rules for e-commerce transactions with the EU have also changed at the same time. It is an area of some complexity. An accountant or commercial solicitor will be able to explain the rules applying to your particular business.
What other types of tax might I have to pay if I have an e-commerce business?
If you are a Sole Trader, you will need to pay income tax on your revenues. Companies must pay corporation tax on their profits.
The other types of tax your business may need to pay include:
- National Insurance contributions
- PAYE (Pay as you Earn) - Income Tax deduced from an employee salary
- Dividend’s tax
You can get legal assistance from LawBite
To ensure you are paying the right amount of tax, talk to one of our Company and Commercial Solicitors who have had years of experience in advising eCommerce traders.
We believe that great legal advice is a fundamental business right. We are committed to providing your business with expert legal advice that is easier to access, clearer to understand and more affordable.
Many businesses find traditional law cumbersome; complex to navigate, difficult to navigate and often full of hidden charges. Therefore, it is no surprise that SMEs instinctively turn to LawBite to solve their business legal problems, giving us a 98% service rating on feefo.
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