VAT when selling online to customers abroad

When you sell goods or services online to customers outside the UK, your VAT obligations depend on several factors: whether you're selling to businesses or consumers, what you're selling (goods or services), and where your customer is located.

Getting this wrong can result in charging the wrong amount of VAT, unexpected tax liabilities in other countries, or penalties from HMRC. This guide explains when you must charge VAT on overseas sales and when your sales are outside the scope of UK VAT.

The fundamental distinction: B2B vs B2C sales

VAT rules differ significantly depending on whether you're selling to another business (B2B) or to a private consumer (B2C).

B2B sales: If your customer is a VAT-registered business acting in their business capacity, different place of supply rules apply. You'll need evidence of their business status, typically their VAT registration number.

B2C sales: When selling to private consumers or businesses receiving goods or services for personal use, consumer-focused rules apply. These are generally more complex for cross-border transactions.

VAT place of supply rules for services

Rules determining where services are supplied for VAT purposes, covering B2B and B2C transactions, belonging tests, and key exceptions.

The place of supply determines which country's VAT rules apply to a service. If the place of supply is the UK, UK VAT applies. If outside the UK, the service is outside the scope of UK VAT (though may be subject to VAT in another country).

General B2B rule: Place of supply is where the customer belongs (customer's country)
General B2C rule: Place of supply is where the supplier belongs (your country)
B2B definition: Customer is a business acting in business capacity (VAT-registered or should be)
B2C definition: Customer is a private individual or business receiving services for private use

Determining where a person belongs

The 'belonging' test determines the place of supply by identifying the relevant establishment of the customer (B2B) or supplier (B2C).

Customer belonging - primary test: Where the customer has established their business (head office or seat of economic activity)
Customer belonging - fixed establishment: If services received at a different fixed establishment, that establishment's location applies
Customer belonging - no establishment: Customer's usual place of residence if no business establishment exists
Supplier belonging - primary test: Where the supplier has established their business (head office or seat of economic activity)
Supplier belonging - fixed establishment: If services supplied from a different fixed establishment, that establishment's location applies
Evidence for B2B: Customer's VAT registration number, business address, contract details, nature of services

Exceptions to the general B2B rule

Certain services have special place of supply rules that override the general 'where the customer belongs' rule, even for B2B transactions.

Land-related services: Place of supply is where the land is located (surveys, estate agents, architects, construction)
Passenger transport: Place of supply is where the transport takes place (pro-rata for international journeys)
Events and admission services: Place of supply is where the event physically takes place (conferences, exhibitions, sports)
Restaurant and catering: Place of supply is where the services are physically performed
Short-term vehicle hire: Place of supply is where vehicle is put at customer's disposal (up to 30 days, 90 days for vessels)
Cultural, artistic, sporting services: Where physically performed (for B2B admission charges only)

Exceptions to the general B2C rule

For supplies to consumers (non-business customers), these services have special place of supply rules that override the general 'where the supplier belongs' rule.

Digital services to EU consumers: Place of supply is where the consumer is located (OSS/MOSS schemes available)
Telecommunications and broadcasting: Place of supply is where the consumer is located
Land-related services: Where the land is located (same as B2B)
Transport of goods: Where the transport takes place (pro-rata for cross-border)
Passenger transport: Where the transport takes place
Cultural, artistic, sporting events: Where the event physically takes place
Restaurant and catering: Where services are physically performed
Professional services (lawyers, accountants): Where the consumer belongs if consumer is outside the EU

Digital services - special rules

Electronically supplied services, telecommunications, and broadcasting to consumers are supplied where the consumer is located, not where the supplier belongs.

What counts as digital services: Website hosting, software downloads, streaming, e-books, online gaming, SaaS
B2C digital services to EU: VAT charged at customer's country rate - use OSS scheme to simplify returns
B2B digital services: Standard B2B rules apply (where customer belongs) - customer accounts for VAT
UK digital services threshold: No threshold - all B2C digital supplies to EU consumers are taxable in customer's country
Evidence of customer location: Two pieces of non-contradictory evidence (billing address, IP address, bank details)

Reverse charge for B2B cross-border services

When a UK business receives services from an overseas supplier where the place of supply is the UK, the UK business must account for VAT under the reverse charge mechanism.

What is the reverse charge: UK customer accounts for VAT instead of overseas supplier - self-assessment of VAT due
When it applies: B2B services from overseas suppliers where place of supply is UK (general rule services)
VAT return treatment: Include VAT due in Box 1, reclaim as input tax in Box 4 (if entitled)
Net effect if fully taxable: Neutral - VAT due equals input tax recoverable, no cash payment
Partial exemption impact: Only reclaim input tax proportion relating to taxable supplies
Record keeping: Invoice from supplier showing reverse charge applies, your VAT calculation

Practical examples

UK consultancy to US business: B2B general rule - place of supply is US (outside UK VAT scope)
UK architect designing French property: Land-related exception - place of supply is France
UK web developer selling app to German consumer: Digital services B2C - place of supply is Germany
German marketing agency to UK business: B2B general rule - place of supply is UK (reverse charge applies)
UK conference provider, event in Spain: Event exception - place of supply is Spain

VAT place of supply of services - Notice 741A

Further guidance: How to work out your place of supply of services

Selling goods to overseas customers

When you sell physical goods to customers outside the UK, VAT treatment depends on where the goods go and who receives them.

Exports to customers outside the EU

Goods exported directly from the UK to destinations outside the EU (including the USA, Australia, or any non-EU country) can be zero-rated for VAT. This means you charge 0% VAT, but you must keep evidence that the goods left the UK.

VAT on Exports - Zero-Rating Rules

Conditions for zero-rating exports and evidence requirements to avoid VAT liability.

VAT rate on exports: 0% when conditions met (goods consumed outside UK)
Evidence deadline: Must obtain within 3 months of time of sale
Record retention: Minimum 6 years for all export evidence and documents
Failure consequence: Supplier liable for VAT due if conditions not met

Three core requirements for zero-rating

1. Goods must be physically exported from UK
2. Evidence obtained within 3 months of sale
3. Evidence retained and all conditions met

Acceptable evidence

Official: C88 Form (SAD Copy 3) with customs endorsement, or CDS export declaration with departure message.

Commercial: CMR Consignment Note (fully completed by consignor, carrier, consignee), or commercial documents linking transaction to exported goods.

Official and commercial evidence have equal weight for VAT purposes.

VAT Notice 703 - Exports

Selling goods to EU consumers (distance selling)

Since Brexit, selling goods to consumers in the EU has become more complex. The EU's Import One Stop Shop (IOSS) scheme can simplify VAT compliance for consignments valued at 150 euros or less.

Without IOSS: Your customer pays import VAT and potentially customs duty when the goods arrive in their country. This creates a poor customer experience as they face unexpected charges.

With IOSS: You register for the IOSS scheme in an EU member state, charge VAT at the customer's country rate at checkout, and report all EU sales through a single quarterly return. The customer receives goods without additional charges at the border.

IOSS eligibility and registration

Value limit: Consignments must not exceed 150 euros (excluding VAT)
Excise goods excluded: Alcohol and tobacco cannot use IOSS
Registration: UK businesses must register through an EU member state (you'll need a fiscal representative unless you have an EU establishment)
Monthly returns: Submit returns and pay VAT by the end of the month following each reporting period

Selling services to overseas customers

For services, the 'place of supply' determines which country's VAT rules apply. The rules differ significantly between B2B and B2C transactions.

B2B services (general rule)

When you supply services to a business customer outside the UK, the place of supply is generally where the customer belongs. This means:

Your supply is outside the scope of UK VAT
You do not charge UK VAT
The customer may need to account for VAT in their own country (reverse charge)

You must verify your customer's business status. Get their VAT registration number and business address. Keep this evidence with your records.

B2C services (general rule)

For most services to non-business customers, the place of supply is where you (the supplier) belong. This means UK VAT applies to your supply, and you charge VAT at the standard UK rate.

Exception: Digital services, telecommunications, and broadcasting have special rules covered below.

VAT on digital services to consumers

Place of supply rules and compliance options for electronically supplied services, telecommunications, and broadcasting to non-business customers.

When UK businesses supply digital services to consumers (B2C), the place of supply is where the consumer is located, not where the supplier belongs. This means charging VAT at the customer's country rate.

Place of supply rule: Where the consumer is located (not where supplier belongs)
Affected services: Electronically supplied services, telecommunications, broadcasting
VAT rate charged: Rate of customer's country (varies by EU member state, non-EU varies)
UK sales to UK consumers: UK VAT at 20% (place of supply is UK)
UK sales to EU consumers: VAT at customer's country rate - OSS scheme simplifies compliance
UK sales to non-EU consumers: Outside scope of UK VAT (but may be taxable in customer's country)

What counts as electronically supplied services

Included: Software downloads, apps, e-books, music and video streaming, online games, SaaS
Included: Website hosting, online advertising, cloud storage, domain name registration
Included: Automated online education, images and text downloads, online database access
Not included: Physical goods ordered online, services merely booked online
Not included: Live online teaching with real-time teacher interaction
Not included: Professional advice delivered by email (the service is advice, not electronic delivery)

One Stop Shop (OSS) scheme

The OSS scheme simplifies VAT compliance for digital services sold to EU consumers. Instead of registering for VAT in each EU country, you register once and file a single return.

OSS purpose: Single EU registration for B2C digital/telecom/broadcasting services to EU consumers
UK businesses post-Brexit: Must register for OSS in an EU member state (cannot use UK registration)
Non-Union OSS: For businesses with no EU establishment - register in any EU member state
Filing frequency: Quarterly OSS returns
Alternative: Register for VAT individually in each EU country where customers are located

Evidence of customer location

You must collect two pieces of non-contradictory evidence to determine where the customer is located.

Acceptable evidence: Billing address, IP address location, bank details (country of bank), SIM card country code
Requirement: Two pieces of non-contradictory evidence
Contradictory evidence: If evidence conflicts, use additional factors to determine likely location
Record retention: Keep evidence for 10 years (longer than standard 6 years for UK VAT)

VAT place of supply of services - Notice 741A

Digital services: special rules

If you sell digital services (software, downloads, streaming, SaaS, e-books, online courses without live interaction, games), special place of supply rules apply for B2C sales.

Selling digital services to EU consumers

The place of supply is where the consumer is located, not where you are. This means you must charge VAT at the rate of the customer's EU country.

Compliance options:

One Stop Shop (OSS) scheme: Register in one EU member state and file a single quarterly return covering all EU consumer sales. You charge VAT at each customer's local rate but report and pay through one portal.
Register in each country: Without OSS, you must register for VAT separately in every EU country where you have customers. This is administratively burdensome for most businesses.

Selling digital services to consumers outside the EU

When your customer is outside the EU (USA, Australia, etc.), your supply is outside the scope of UK VAT. You do not charge UK VAT. The customer may owe local sales tax or VAT in their own country, but this is their responsibility.

Evidence of customer location

You must collect and keep two pieces of non-contradictory evidence showing where your customer is located:

Billing address
IP address (geolocation)
Bank details (country of the bank)
Country code of SIM card (for mobile services)

Keep this evidence for 10 years - longer than the standard 6-year VAT record retention period.

The One Stop Shop (OSS) scheme for UK businesses

The OSS scheme simplifies VAT compliance when selling to EU consumers. It's available for:

Digital services to EU consumers
Telecommunications and broadcasting services to EU consumers
Distance sales of goods from Northern Ireland to EU consumers (if you have stock there)

How OSS works

Register for OSS in one EU member state (you'll need a fiscal representative as a non-EU business)
Charge VAT at the rate of each customer's country
File quarterly OSS returns listing sales by country
Pay all EU VAT through one portal

Important: UK businesses cannot use the UK to register for OSS. You must register through an EU member state.

VAT reverse charge for services from overseas

How UK businesses account for VAT on services received from overseas suppliers under the reverse charge mechanism.

The reverse charge requires UK businesses to account for VAT on services received from overseas suppliers when the place of supply is the UK. The UK customer 'self-assesses' the VAT due instead of the overseas supplier charging it.

When reverse charge applies: B2B services from overseas suppliers where place of supply is UK under general rule
Who accounts for VAT: UK customer (recipient) instead of overseas supplier
VAT rate: UK standard rate (20%) unless reduced or zero-rated supply
VAT return - Box 1: Include the VAT due on the reverse charge
VAT return - Box 4: Reclaim the same amount as input tax (if entitled to full recovery)
VAT return - Box 6: Include the net value of services received in total outputs
VAT return - Box 7: Include the net value in total inputs

Calculating the reverse charge

Determine the value of services received (convert foreign currency at HMRC rates)
Apply the UK VAT rate (usually 20%)
Include VAT amount in Box 1 of your VAT return (output tax due)
If entitled to input tax recovery, include same amount in Box 4

Currency conversion: Use HMRC exchange rates for the period or your normal commercial rate
Invoice requirements: Supplier invoice not required to show VAT - you calculate it
Record keeping: Keep supplier invoice, your reverse charge calculation, evidence of service received
Partially exempt businesses: Can only reclaim input tax proportion relating to taxable supplies
Exempt supplies only: Reverse charge VAT is a real cost - cannot be recovered

Services excluded from reverse charge

The reverse charge does not apply to services with special place of supply rules where the place of supply is not the UK.

Land-related services: Place of supply is where land is - no UK reverse charge if land is overseas
Event admission: Place of supply is where event is - no UK reverse charge if event is overseas
Transport: Place of supply is where transport occurs - pro-rata rules apply
Digital services from overseas to UK business: Reverse charge applies - place of supply is UK (where customer belongs)

VAT place of supply of services - Notice 741A

When the reverse charge applies

The reverse charge shifts responsibility for accounting for VAT from the supplier to the customer. This is relevant in two scenarios for e-commerce businesses:

You're the supplier (B2B services to overseas businesses)

When you supply services to a VAT-registered business customer where the place of supply is their country, you don't charge VAT. Your customer accounts for VAT in their own country under the reverse charge. Your invoice should state 'Reverse charge: customer to account for VAT'.

You're the customer (receiving services from overseas)

If you receive services from an overseas supplier where the place of supply is the UK, you must account for VAT yourself under the reverse charge. Include the VAT in Box 1 of your VAT return (output tax) and reclaim it in Box 4 (input tax) if you're entitled to full recovery.

E-Commerce Export Regulations and VAT

Distance selling rules, GDPR compliance, and VAT obligations when selling online internationally.

Global marketplace sales: 56% of global e-commerce on online marketplaces (projected $5tn by 2027)
EU marketplace VAT: EU marketplaces charge and collect VAT at point of sale for DDP shipments
GDPR seven rights: Informed, access, rectification, erasure, object, portability, restrict processing
Platform reporting: Digital platforms report seller details and income to HMRC annually

Distance selling obligations

Provide accurate product info, costs, delivery details; allow customers to correct errors; deliver within 30 days unless agreed otherwise; prompt order confirmations.

Each market has different regulations - research required. Non-compliance risks: providing goods at own expense, paying compensation, facing fines.

Digital Exporting Programme

Marketplace Partnerships Guide covers 30+ marketplaces (B2B and B2C) with key requirements, marketing options, logistics, and tax guidance. Local Digital Advisers provide customized global strategy.

Digital Exporting Programme

Marketplace and platform sales

If you sell through online marketplaces (Amazon, eBay, Etsy, etc.), the platform may be responsible for charging and accounting for VAT on some of your sales.

When the marketplace handles VAT

Online marketplaces are deemed the supplier for VAT purposes when:

Goods are imported into the UK with a value of £135 or less
Goods are already in the UK and sold by an overseas seller through the platform
Digital services are supplied through the platform to consumers

In these cases, the marketplace charges VAT to the customer and accounts for it to HMRC. You (the underlying seller) treat your supply to the marketplace as zero-rated.

When you're still responsible

If you're a UK seller using a marketplace to reach overseas customers, you remain responsible for your VAT obligations on exports and cross-border B2B sales. The platform's VAT handling only applies to the specific scenarios above.

Record keeping for international sales

Robust record keeping is essential for international e-commerce VAT compliance. HMRC can request evidence years after a transaction.

Records to keep for all international sales

Customer details (name, address, and for B2B: VAT number)
Date and value of each supply
Description of goods or services
VAT charged (or note that supply is outside UK VAT scope)
Country of destination

Additional records for zero-rated exports

Export evidence (customs declaration, departure message from CDS, CMR note)
Proof goods left the UK within 3 months of sale
Shipping documentation and tracking

Additional records for digital services to EU consumers

Two pieces of evidence of customer location
VAT rate charged (by country)
OSS return submissions (if using OSS)

Retention periods:

Standard VAT records: 6 years
Digital services location evidence: 10 years
Export evidence: 6 years

Common mistakes to avoid

Treating all overseas sales as zero-rated: Only goods physically exported are zero-rated. Services have different rules based on place of supply.
Ignoring digital services rules: Digital services to EU consumers require you to charge local VAT rates and use OSS or register in each country.
Missing evidence deadlines: Export evidence must be obtained within 3 months of sale. Without it, you're liable for VAT at the standard rate.
Assuming B2B without verification: Always get your customer's VAT number and verify it before treating a sale as B2B.
Forgetting about marketplace deemed supplier rules: Check whether the platform is handling VAT before you charge it yourself.

Business Context Testing

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Guvnor

VAT when selling online to customers abroad

The fundamental distinction: B2B vs B2C sales

Selling goods to overseas customers

Exports to customers outside the EU

Selling goods to EU consumers (distance selling)

IOSS eligibility and registration

Selling services to overseas customers

B2B services (general rule)

B2C services (general rule)

Digital services: special rules

Selling digital services to EU consumers

Selling digital services to consumers outside the EU

Evidence of customer location

The One Stop Shop (OSS) scheme for UK businesses

How OSS works

When the reverse charge applies

You're the supplier (B2B services to overseas businesses)

You're the customer (receiving services from overseas)

Marketplace and platform sales

When the marketplace handles VAT

When you're still responsible

Record keeping for international sales

Records to keep for all international sales

Additional records for zero-rated exports

Additional records for digital services to EU consumers

Common mistakes to avoid

Compliance Assistant

🧪 Business Context Testing

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The fundamental distinction: B2B vs B2C sales

Selling goods to overseas customers

Exports to customers outside the EU

Selling goods to EU consumers (distance selling)

IOSS eligibility and registration

Selling services to overseas customers

B2B services (general rule)

B2C services (general rule)

Digital services: special rules

Selling digital services to EU consumers

Selling digital services to consumers outside the EU

Evidence of customer location

The One Stop Shop (OSS) scheme for UK businesses

How OSS works

When the reverse charge applies

You're the supplier (B2B services to overseas businesses)

You're the customer (receiving services from overseas)

Marketplace and platform sales

When the marketplace handles VAT

When you're still responsible

Record keeping for international sales

Records to keep for all international sales

Additional records for zero-rated exports

Additional records for digital services to EU consumers

Common mistakes to avoid

Related guides in Tax & Finance

Business Context Testing

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