Can someone explain VAT to me

[Keith Barker]

I am trying to discover how VAT works in the UK.

When I buy my 6mm Napoleonics from Baccus there are two different prices for a pack – UK: £7.20 and Elsewhere: £6.00

This is because Baccus must pay VAT (20%) for items sold in UK.

So now after Brexit when I buy (from Sweden), I get them 20% cheaper, but then I get hit with Swedish VAT when they arrive here (25%). So basically no real difference.

But now I am looking at 15mm WotR and these companies seem to have the same price in both UK and Elsewhere.

How does this work? It seems weird. I see two alternatives, neither of which I really understand.

1. The companies that don’t deduct VAT when selling Elsewhere are trying to cheat the foreign customers.
2. The companies that don’t deduct VAT aren’t paying VAT. But that would make the competition within the UK really weird; some sellers must add 20% to their prices while others don’t. So the companies not adding VAT must either be much cheaper or have a much higher marginal.

There is of course a third alternative, and that is that I don’t understand how VAT works. This I think is most likely. And hence this post.

 

[Whirlwind]

It is basically number 2.  Businesses with an annual turnover of less than a specified amount (currently £85,000) don’t have to collect and give over VAT.  Some do anyway, for various reasons (e.g.because they intend to grow past the level very quickly; they want to recoup VAT payments against certain start-up costs).  So here Baccus probably has a turnover of more than than amount and the 15mm trader probably doesn’t.  I am not in business, but I presume that helps the small resellers of plastic box sets and GW stuff make a profit too.

[PaintingLittleSoldiers]

Some UK sellers reduce VAT on non-UK buys, others don’t (but still list VAT on invoices).  I usually buy from those that do price reductions

 

 

[Ian Marsh]

There are several possibilities.

First, as Whirlwind writes, a business is not registered for VAT. Many small U.K. wargames businesses do not turn over enough (£85,000 per rolling 12 months) to require them to register. This very generous VAT threshold is unlike the situation in a number of EU countries, where there is no such threshold. So, as they are not registered for VAT there is no VAT to charge. This confused the heck out of many USA wargamers before Brexit; now the confusion has spread to the EU. 🙂

Second, a business is registered for VAT but does not deduct it for sales outside the U.K. This is perfectly legal provided that the VAT is declared to HM Revenue & Customs. In order to deduct VAT for sales outside the U.K. a business must provide proof of export. The effort of providing proof of export is too much for some businesses, so they do not deduct VAT.

Third, from 1 July it gets more complicated. From then, U.K. businesses (in fact, any non-EU business) will be able to register for and use the EU’s IOSS system to charge and collect VAT at the point of sale and declare it in just one EU country in which they are registered for VAT. They will then submit a VAT return to that country, detailing sales to all 27 EU member states, which will obviously require a lot of paperwork. However, businesses that choose to go this route will be able to send out orders flagged as VAT paid, and their packages should should go through EU customs without a hitch (in theory!). I should add that this EU system is optional, and it is still possible for businesses to send parcels that have VAT collected by the delivery service. That’s where the EU system differs from the new U.K. system that came into effect on 1 January, despite both systems being children of the same EU parentage.

I will add that Fighting 15s is VAT-registered, doesn’t find it too much trouble to get proof of export, and accordingly deducts VAT on orders going outside the U.K. but that deduction doesn’t show until the customer enters the delivery country in the shopping cart, for example, for estimated shipping costs.

Ian
Fighting 15s
www.fighting15s.com

[Darkest Star Games]

….and now businesses in other non-EU countries must register for VAT and remand VAT payments to the UK, making things for those of us in the US even more more more confused.

"I saw this in a cartoon once, but I'm pretty sure I can do it..."

[Tony Hughes]

A country that has 51 different taxation systems calls VAT confusing !!!!

 

 

[Mr. Average]

True, that’s the nature of federalism in the USA – the states hold on to a lot of sovereign power. But generally speaking you’re only really subject to two tax laws at any given time – the federal and the state in which you reside. And since federal excise rarely impacts small purchases for personal use it’s mainly sufficient to know your state law and follow that.

Of course, just try to fill out one of our 1040A forms every year! Nobody escapes the Fortress of the Moles!

[Deleted User]

Sooooo, will HMRC seize packages from companies that didn’t register/pay VAT, holding it hostage until customs charge + £8 handling fee is paid as usual.

Or can we expect the much downsized British Army to invade countries and enforce this law?

[Ian Marsh]

Deleted User wrote:

Sooooo, will HMRC seize packages from companies that didn’t register/pay VAT, holding it hostage until customs charge + £8 handling fee is paid as usual. Or can we expect the much downsized British Army to invade countries and enforce this law?

The one thing we don’t know at present is what happens to a parcel worth under £135 that is non-compliant. It could easily be refused entry and sent back to the seller, or it could be destroyed as non-compliant, especially if no return address is given, on the grounds that by not complying with the law the seller is committing tax evasion. Complaints from the sellers that they don’t know the law will fall on deaf ears.

It’s conceivable that UK customs may carry on using the old system for all imports that fail to comply. The old system of charging tax on import is still valid for shipments sent between private individuals, rather than business to consumer.

But this thread is not about items coming into the UK, it’s about items coming into the EU from the UK. The EU will have its own version of this law (it’s an EU/UK law) soon enough (1 July): it scraps the 22 euro low threshold exemption for VAT on imports and will have non-EU businesses registering for VAT in a single EU country and filling in VAT returns. It’s that or have them run into the arms of online marketplaces such as eBay that will automatically take care of charging the VAT and the VAT returns. So expect this subject to rise again from the grave in July. 🙂

 

Ian
Fighting 15s
www.fighting15s.com

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