For many cross-border e-commerce sellers, the European market is a very attractive market; among them, the United Kingdom is the choice of most sellers to open the road to Europe, because compared with the general 20% VAT rate in European countries, the United Kingdom's low tax rate will be more attractive to sellers, and today, the Green Circle will focus on the United Kingdom tax.
There are two options for quarterly VAT returns in the UK
Standard Tax Return (STN) and Low Tax Return (FRS) (Flat Rate Scheme).
UK FRS Low Rate Flat VAT7.5% (1% for the first year) is a flat rate scheme. This is a lower rate of tax than the standard rate of Standard VAT20%. It allows you to calculate VAT by multiplying your total taxable turnover by a fixed rate, depending on the type of business. This type of return is not the low tax return that has been rumored to be the case, but is a compliance exercise that meets the requirements of the Inland Revenue.
01 Conditions for applying for Flat VAT in the UK
If you have registered for UK VAT, you can apply/adjust to the Flat VAT rate if you have not yet started selling and your annual gross sales are not expected to exceed £15W in the next 12 months, or if you have already started selling or if you are currently on the Standard Rate and your gross sales have not exceeded £15W in the last 4 consecutive quarters.
02 Conditions of use of low tax rates in the UK
1. Total sales do not exceed £23W for 4 consecutive quarters;
2. The declared value of imported goods is not less than 2% of sales or more than £1000/year (£250/quarter).
Effective April 1, 2017, the calculated tax rate for FRS returns will be adjusted from the original single rate of 7.5% to two different rates of 7.5% and 16.5%. 16.5% is the lower rate that falls under condition 2 above that does not meet the criteria because the IRS will consider you to be selling a luxury item, so the Flat VAT rate will be adjusted by the highest Therefore, the flat VAT rate will be adjusted according to the highest flat VAT rate of 16.5%.
03 How to apply for a low tax rate
When registering VAT, the seller should propose a tax rate utilization plan, and after the tax agent registers the VAT successfully, the seller will continue to submit a low tax rate application to the tax office, and the time limit for the application is 1-3 months. Of course, the application for low tax rate is not always successful, and the IRD may reject the application for some reasons.
At present, there are some tax agents who have not successfully applied for flat vat tax rate for their clients, but they have calculated flat vat tax rate for their clients, which has resulted in tax investigation and penalty by the IRD, so sellers must be discerning when choosing a tax agent.
04 Conversion of Flat VAT rate and Standard VAT rate
Report 4 consecutive quarters of gross sales over £230,000 then you will be out of the FRS and the Inland Revenue will force an adjustment to the Standard VAT rate from the next quarter onwards. These 2 rate adjustments can only be made once a year. If the client is on Standard VAT, they will need to see 4 consecutive quarterly returns with gross sales less than £150,000 before they can be adjusted back to Flat vat and apply to the Inland Revenue no later than 30 days before the next return is due to be filed.
05 Should I choose a lower tax rate?
Flat VAT 7.5% is indeed much lower than Standard VAT 20%, but it is not deductible against import VAT and other VAT-containing invoices. Sellers should consider the choice according to their actual shipment and sales situation, the most suitable is the best.
When your reported value and logistics costs are as large as your sales, is it more cost-effective to use a lower tax rate? Contact a dedicated account manager to find out.
06 Compliance with low tax rates
Many sellers use the logistics method of double-clearing and tax-packing.Actually, it's not quite legal.Firstly, your EORI and VAT numbers do not have import records, so you can't prove the origin of the goods, and it's hard to explain to the tax office when they check the accounts; secondly, there is a risk of being detained when you clear the goods. We recommend sellers to use their own EORI and VAT number for customs clearance every quarter, at least to achieve the conditions of low tax rate.
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