The internet has enabled many small businesses to sell internationally, but exporting goods and services can create VAT difficulties.
For VAT purposes you need to know whether you are selling goods (physical things), or services (something you cannot physically touch
eg: downloaded software), as the rules vary for goods as opposed to services. You also need to know where your customer is based -
in an EU country or elsewhere and whether the customer is a VAT registered business.
When you sell goods to other businesses in the EU or in other countries you can normally charge the zero-rate of VAT on the sale.
This means you can recover VAT on any related input costs. However, you need to show that your customer was VAT registered
and the goods physically left the UK. Getting the paperwork right is essential.
The rules for international services are more complicated as they depend on the place of supply of the service,
which varies according to the type of service supplied and who it is supplied to (business or non-business customer).
UK businesses selling to private customers in other EU countries must charge UK VAT. Where the customer is a business in another EU country,
in most cases the customer accounts for the VAT in their own country, so the UK supplier does not charge VAT and the reverse charge procedure applies.
Whether you sell goods or services to VAT-registered businesses within the EU you must complete an EC sales list (ESL).
If you only supply services, or your total goods and services sales do not exceed £35,000 per quarter,
you may submit the ESL every quarter, otherwise you must submit monthly ESLs. Certain low-volume exporters can apply to the Taxman
for permission to submit annual ESLs.
The ESL can be submitted in paper form on VAT 101, or online through the HMRC website, but it must contain the following details:
Limited Company Sole Trader/Partnership
Companies are governed by the companies Acts. A company must:
However, annual accounts are necessary for the Inland Revenue tax returns.
Companies may have greater borrowing potential. They can use current assets as security by creating a floating charge.
Sole traders and partners are unrestricted in the amount and purpose of borrowings but cannot create floating charges.
Shares in a company are generally transferable – therefore ownership may change but the business continues.
Incorporation does not guarantee reliability or respectability but gives the impression of a soundly based organisation.
Personally, there may be prestige attached to a directorship.
The unincorporated business does not carry the same prestige.
Tax is payable on director’s remuneration paid via PAYE on the 19th of the following month.
If applicable, higher rate tax is paid by shareholders on dividends under the self-assessment rules.
Corporation tax is payable 9 months after the year-end. For a sole trader or partnership,
tax is generally paid by instalments on the 31 January in the tax year and the 31 July following the tax year.
Tax for 2009/10 is payable:- first payment on account on 31 January 2010, second payment on account on 31 July 2010,
with any final balance due on 31 January 2011. Losses in a company can only be carried forward to set against future profits.
Losses generated by a sole trader or a partner can be set against other income of the year or carried back to prior years.
For profits up to £300,000 tax is charged at 21% (2010/11). Profits are taxed at 40% on taxable income
in excess of £37,000 and at 50% over £150,000 (2010/11).
There is both employer’s and employees’ national insurance payable on directors salaries and bonuses.
The NI charge is greater than that paid by a sole trader/partner.