VAT: Distance Selling

This update is a refresher on distance selling, highlighting the main rules that apply to distance sales from the UK.

Where goods are supplied to a customer in another EU country who isn't registered for VAT in that country, and where the business is responsible for delivery, a 'distance sale' will have taken place.

The most common type of sale is mail order or internet sales to private individuals, unregistered businesses, charities and public bodies.

Generally, the business will account for UK VAT unless it is registered for VAT in the country to which the goods have been dispatched. 

Each country has a 'distance selling threshold' and, if exceeded, registration in that country is required and VAT is charged at their rate.

The law is contained in Section 7 of the VAT Act 1994: 7(5), which states:

'Goods whose place of supply is not determined under any of the preceding provisions of this section and which do not consist in a new means of transport shall be treated as supplied outside the United Kingdom where -

(a)  the supply involves the removal of the goods, by or under the directions of the person who supplies them, to another member State;

(b)  the person who makes the supply is taxable in another member State; and

(c)  provisions of the law of that member State corresponding, in relation to that member State, to the provisions made by subsection (4) above make that person liable to VAT on the supply;

  • 'but this subsection shall not apply in relation to any supply in a case where the liability mentioned in paragraph (c) above depends on the exercise by any person of an option in the United Kingdom corresponding to such an option as is mentioned in paragraph 1(2) of Schedule 2 unless that person has given, and has not withdrawn, a notification to the Commissioners that he wishes his supplies to be treated as taking place outside the United Kingdom where they are supplies in relation to which the other requirements of this subsection are satisfied.'

HMRC states that 'Section 7(5) applies where a UK supplier is making distance sales to customers in another EC Member State. Without it the place of supply is the UK as the Member State of departure of the goods. But in cases where a UK supplier:

  • has exceeded the threshold for such supplies in the Member State of arrival (see below), or

  • has distance sales below the threshold but has nevertheless opted to register for VAT there, or

  • the goods are subject to excise duty in the Member State of arrival,

then the place of supply moves to the Member State of delivery.'

See EU VAT rates.