dti tax consequences brochure

Do I have to pay VAT on goods ordered from abroad?The VAT paid on imports depends on whether the transactionis inside or outside of the EU. If the company you are buyingfrom is registered for VAT in an EU country, then you willneed to pay the VAT in that particular country. However, youwill not need to pay VAT when the goods enter the UK, aslong as you can provide documentation to prove that the VAThas been paid in the country of origin. If the company you arebuying from is outside the EU, then you will not have to payany VAT up to a price limit of £18. For goods above thisthreshold, duty and VAT is then paid at point of entry.

For VAT purposes the Channel Islands, Canary Islands andGibraltar are outside of the EU therefore import duty and VATwould be charged on goods ordered from these countries.

Should I charge VAT on goods sold abroad?Again, this depends on whether or not the country you aresupplying the goods to is in the EU. If the goods are beingsold to a VAT registered company in the EU, then VAT shouldnot be charged. If the company is not registered then you willneed to charge VAT. It is not necessary to charge VAT if thecompany is outside the EU.

Does it matter in what currency I deal withcustomers from overseas?If you are dealing with customers from overseas, you maywish to invoice, or you may be invoiced in, a differentcurrency from the currency of your accounts. Invoicing, andreceiving or making payments in currencies other than thecurrency of your accounts, including the Euro, may give riseto exchange differences. These will normally need to berecognised for tax purposes. It may be worth getting aprofessional accountant’s help to deal with any foreignexchange differences.

For more information on trading online contact your local UKonline for business adviser by calling the Infoline on 0845 715 2000 or visit the web site atwww.ukonlineforbusiness.gov.uk

For specific tax advice contact your localtax office or visit the Inland Revenue’s

web site at www.inlandrevenue.gov.uk

For further information on duty, VAT and imports and exports call the National Advice Service on 0845 010 9000 or visit the HM Customs and Excise web site at www.hmce.gov.uk

WHAT ARE THE TAX CONSEQUENCES OF TRADING ONLINE?

Printed in the UK on recycled paper with a minimum HMSO score of 75.November 2001. Department of Trade and Industry. http://www.dti.gov.uk/

© Crown Copyright. URN 01/1369

VAT abroad

RING THE UK ONLINE FOR BUSINESS INFOLINE ON 0845 715 2000 OR VISIT THE WEB SITE AT www.ukonlineforbusiness.gov.uk

Infoline: 0845 715 2000Web site: www.ukonlineforbusiness.gov.uk

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FOR SPECIFIC TAX ADVICE CONTACT YOUR LOCAL TAX OFFICE OR VISIT THE INLAND REVENUE’S WEB SITE AT www.inlandrevenue.gov.uk FOR FURTHER INFORMATION ON DUTY, VAT AND IMPORTS AND EXPORTS, CONTACT HM CUSTOMS AND EXCISE ON 0845 010 9000

What special allowances can I claim for myInternet and e-commerce assets?If your business is small, you may claim 100% first yearcapital allowances on your investment in computer hardware,software and high-tech mobile phones, provided they arebought between 1 April 2000 and 31 March 2003. Thismeans you can set the full cost of your investment againstyour taxable profits for the period of accounts during whichthe items are bought. Set-top boxes, which allow the Internetto be displayed through a television, can also qualify for the100% first year capital allowances.

Capital allowances give businesses tax relief for theirinvestment in capital assets. They take the place ofdepreciation in the business’ accounts, which is not anallowable expense for tax purposes. Contact your local taxoffice for more information.

What tax relief is available if I lend myemployees a computer? Neither you nor the employee will have any tax or nationalinsurance contributions to pay on a computer of up to£2,500 in value which you lend to an employee, even forsolely private use. However, the lending arrangements mustnot be confined to directors or made on more favourableterms to directors than to other employees.

Many small businesses often find tax a somewhat ‘grey’area. Once companies have come to grips with the taximplications of trading offline, the thought of the potentialcomplexities of filling out tax forms for Internet trading canbe daunting, to say the least.

However, in reality, the tax consequences of trading onlineare similar to those in the offline world and, if anything, theInternet can make the whole process of dealing with taxmuch easier.

The following points should provide answers to most of thebasic queries that businesses have, whether they are settingup an e-business from scratch or expanding an existingbusiness into the world of e-commerce.

If I am already trading, do I need to let the Inland Revenue know that I am now trading electronically?In general this will not be necessary as the electronic trading will be an extension of your existing trade. If,however, the electronic trading represents a wholly newventure or is substantially different from the activities of yourexisting business, you should contact the Inland Revenuewith the details.

Do I need to keep special records ofsales/purchases made electronically?All records which are required to make a correct andcomplete tax return must be kept. This specifically includes:

• all receipts and expenses that arise in the course of the business;

• all sales and purchases, where the trade involves dealingin goods; and

• all supporting documents (bank statements, books,deeds, contracts, vouchers and receipts). ‘Documents’includes records held on computer.

Can I keep electronic records?The Inland Revenue accepts methods which keep theinformation in the records in a different form, such aselectronically. This is so long as those methods capture allthe information needed to demonstrate that a complete andcorrect tax return has been made and they are capable ofproducing that information in legible form. This includeselectronically scanned forms as long as the form representsan unaltered image of the underlying paper document

However, there are occasions where the original record mustbe retained, such as documents issued by the InlandRevenue or those from a third party. The Pay As You Earn(PAYE) regulations do not provide for information to be keptin an electronic form.

These documents do not have to be printed out, as long asoriginal documents can be recovered from the electronicform and can satisfy the requirements for record keeping.

Can I use safe methods of storing informationsuch as encryption?If you have encrypted the original records in any way, youmust make sure that the original information can berecovered in an unencrypted form so that you can make acorrect and complete tax return.

What if I change my computer or software?Businesses need to bear in mind that when they change orupdate computerised accounting packages, they need toensure they have the software to access the old data.

What are the implications of tradingelectronically with people outside the UK?You should maintain records in exactly the same way as youdo for transactions with people in the UK. If, however, youare setting up a trading structure overseas to administer thispart of your business, there may by additional rules whichyou need to be aware of and you should contact your localtax office for more details.

Are there differences that I need to be aware of between trading with other European countries and trading outside Europe?For corporation and income tax purposes, there are nosignificant differences.

Do I have to pay customs charges or duty on goods sourced from abroad?Duty must be paid on all items imported into the UnitedKingdom, including those bought via the Internet fromcountries outside the EU. The duty is paid when the goodsenter the country. If the goods are couriered the duty can be paid by the courier company and then charged back toyour business. If they are delivered directly through thepostal system then you will have to pay the duty when thegoods are delivered to your premises. Alcohol and tobaccopurchased via the Internet from EU member states are bothliable to duty.

It is unlikely that simply buying or selling goods electronicallythrough a web site on a server located in the UK tocustomers in another country will make you liable tocorporation or income tax in that country. But if you carry outany other activities in that other country you may have ataxable presence there. Some countries may take the viewthat a server located in that country creates a taxablepresence in that country. You are advised to contact the taxauthorities in the country to clarify the position.

Is there any specific information that I shouldget from my international customers whentrading electronically?You should keep sufficient information that will enable you toproduce accounts and explain the transactions reflected inthose accounts.


If I buy or sell electronicallyoverseas, will I have to pay tax inthose countries?

Keeping recordsWhat are the tax consequencesof trading online?


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