scruttonbland.co.uk
E COMMERCE
Starting Your Amazon Business
Spotlight: Vanil, Scandinavian-Inspired Home Decor
Place of Supply of Services
Contents
3 Welcome to the Autumn edition of our E-commerce newsletter
8 Navigating Customs: Imports and Exports
4 Maximising Profits: A Comprehensive Guide to Starting and Succeeding in Your Amazon Business
12 Software For E-Commerce Businesses
14 Location, Location, Location:
6 Spotlight: Vanil, Scandinavian- Inspired Decor
Untangling Place of Supply Rules for Online Service Provision?
16 Meet the Team
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Welcome to the Autumn edition of our E-commerce newsletter
E-commerce has been one of the fastest-growing sectors in the UK over the past decade. Even before the Covid-19 pandemic, consumers were increasingly shopping online for convenience, broader product selection, and competitive pricing. The pandemic only accelerated e-commerce adoption across demographics. In the UK, online retail sales jumped 46.1% in 2020.
F or businesses, having an online sales channel is more critical than ever. E-commerce levels the playing field, allowing small businesses to access customers across the UK and beyond. While third-party marketplaces like Amazon and eBay provide ready-made infrastructure, operating your own e-commerce site can offer greater control over branding, customer data, and margins. In this newsletter edition, we provide expert insights to help your e-commerce business capitalise on the latest trends in the sector while navigating legal and operational complexities. Our first article provides valuable insights and guidance for business owners looking to dive into the world of Amazon selling. Emma Clifton profiles local business Vanil, based in Woodbridge, this Scandinavian- inspired business sells accessories, furniture and home décor. See how they reinvented their business for the digital age and the importance of having a professional adviser by your side.
For companies importing or exporting goods, Joy Shaw breaks down customs processes, duties, and documentation for the UK. She outlines commodity codes, Incoterms® 2020, and the Customs Declaration Service. Ryan Pearcy reviews software essentials for finance, inventory management, order processing and more. Daniel May delves into the complex area of VAT for electronically supplied services. He clarifies B2B versus B2C rules and registration requirements for EU and non-EU suppliers. This edition aims to provide actionable insights and advice to help your e-commerce venture succeed. Please reach out to your usual Scrutton Bland contact with any feedback or requests for future newsletter topics. Enjoy the read!
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Maximising Profits: A Comprehensive Guide to Starting and Succeeding in Your Amazon Business
In today’s digital age, the world of e-commerce offers unparalleled opportunities for entrepreneurs to launch and scale their businesses. Among the numerous platforms available, Amazon stands out as a platform in the industry. With its vast customer base and robust infrastructure, selling on Amazon can be a game-changer for both new and established businesses.
S imon Pinion, Business Advisory Partner, provides valuable insights and guidance for business owners looking to dive into the world of Amazon selling. Within the article we’ll cover key steps, strategies, and financial considerations to ensure your Amazon business not only thrives but also maximises profitability. 1. Research and Niche Selection Before you embark on your Amazon journey, it’s crucial to begin with thorough research and niche selection. It’s important to understand your target market and competitors and as an accountant, I can’t stress enough how critical this step is from a financial perspective. You may want to consider conducting a cost- benefit analysis to evaluate potential niches. Assess factors like product costs, shipping expenses, and potential revenue. Use tools like Amazon’s Best Sellers and Jungle Scout to identify trending and profitable niches. Remember, your chosen niche should align with your financial goals and expertise. 2. Business Structure and Registration Setting up the appropriate business structure is essential for financial and legal reasons. Sole traders, LLPs, and corporations each have distinct tax implications and liability protections. Consult with an accountant to determine the best structure for your Amazon business.
3. Set Up a Bank Account and Payment System Setting up a bank account and payment system for your business is essential for several reasons such as:
Since 2021, Amazon sellers have only been able to access funds through Amazon Payment Service Providers (PSPs), so it’s important to check which payment providers are acceptable. Once you have a business bank account and payment service provider set up, ensure you take time to connect both of them to your accounting platform, such as Xero, so that you can quickly and easily reconcile transactions so that you have an accurate and up to date picture of money coming in and out. Your accountant can help with this if needed.
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Financial organisation: Keeping your business and personal finances separate makes it easier to track your profits, revenue, and expenses. This information is essential for making informed business decisions and filing accurate tax returns. Legal and liability protection: In the event of a legal dispute, having a separate business bank account can help protect your personal assets. This is because creditors can only go after the assets in your business account, not your personal account. Simplified bookkeeping: When you have a separate business bank account, all of your business transactions are in one place. This makes it much easier to keep track of your income and expenses, and to reconcile your books at the end of each month. Improved financial insights: By analysing your business bank account statements, you can gain valuable insights into the financial health of your business. This information can help you identify areas where you can improve efficiency, reduce costs, and increase profitability.
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4. Product Sourcing and Inventory Management
Efficiently managing your inventory is a key factor in your Amazon business’s financial success. You must strike a balance between maintaining enough stock to meet customer demand and avoiding excessive carrying costs. Consider different sourcing options, such as wholesale, drop shipping (where your business model allows you to sell products online without having to own or operate the physical location where those products are stored and processed), or private label, and weigh their financial implications. Calculate your inventory turnover rate and monitor your cash flow closely to avoid overstocking or stockouts. Tools like Amazon’s Fulfilled by Amazon (FBA) can streamline inventory management.
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5. Pricing Strategies Pricing your products competitively while ensuring profitability can be challenging. Utilise Amazon’s pricing tools and monitor your competitors’ prices regularly. Factor in all costs, including Amazon fees, shipping costs, and your desired profit margin when setting your prices. Remember that a well-thought-out pricing strategy can significantly impact your Amazon business’s financial health. Pricing too low may lead to slim margins, while pricing too high can deter potential customers. 6. Fulfilment Options Amazon offers multiple fulfilment options, each with distinct financial implications. Fulfilment by Amazon (FBA) handles storage, packing, and shipping, but it comes with fees. Fulfilled by Merchant (FBM) allows you more control but requires handling logistics yourself. Consider your product size, volume, and financial capabilities when choosing a fulfilment method. It’s often a wise choice to start with FBA for its convenience and customer trust, then reassess as your business grows. 7. Amazon Advertising and Marketing Investing in Amazon advertising and marketing campaigns can significantly boost your sales, but it’s essential to manage your budget wisely. Allocate your advertising budget based on the products that yield the highest profit margins.
10. Scaling and Diversifying As your Amazon business grows, explore opportunities to scale and diversify your product offerings. Expanding into related niches or introducing complementary products can boost revenue and profitability. Continually assess your financial performance and set realistic growth targets. Reinvest profits strategically to fund expansion while maintaining a healthy financial foundation. Starting an Amazon business can be a lucrative venture when approached strategically and with careful financial planning. The journey requires dedication, continuous learning, and adaptability. By following the steps and strategies outlined in this article, you can navigate the complexities of Amazon selling and position your business for long-term financial success. Remember that financial expertise, combined with a deep understanding of e-commerce, is key to maximising profits and achieving your business goals on Amazon. Stay committed to financial diligence, and your Amazon business can become a thriving and profitable venture in the competitive world of e-commerce. If you are thinking about setting up an online business and utilising Amazon to do this, get in touch with Simon Pinion by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk
Regularly analyse the performance of your ad campaigns, focusing on metrics like Return on Ad Spend (ROAS) and Advertising Cost of Sales (ACoS). Adjust your strategies to maximise profitability and avoid overspending on underperforming campaigns. 8. Financial Tracking and Reporting As an accountant, I can’t emphasise enough the importance of robust financial tracking and reporting for your Amazon business. Implement accounting software or hire a professional to manage your finances accurately. Maintain clear records of your revenue, expenses, and taxes. Track your sales, refunds, and fees meticulously. Regularly review your financial statements and reports to identify trends and make informed financial decisions. 9. Taxation and Compliance Taxation in e-commerce can be complex, and compliance is crucial to avoid financial penalties. Understand your tax obligations, including sales tax, income tax, and import duties if you source products internationally. Consider working with an accountant who specialises in e-commerce to ensure you meet all tax requirements. Failure to do so can have severe financial consequences for your Amazon business.
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E-Commerce: How it works in Retail Spotlight: Vanil, Scandinavian-Inspired Decor
Mandy Leeson is the owner of a unique home décor shop based in Woodbridge, Suffolk called Vanil. She sells a unique assortment of Scandinavian-inspired accessories and gifts from personal designers. Mandy says, “I feel passionate about championing partnerships with designers and artists who share my belief in ‘slow’ design, which is all about taking time to create designs you will cherish for a lifetime.”
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S mall businesses, such as Vanil shares how Vanil became a client back in 2018, and how together Mandy and Emma have been working closely to face challenges that arise. The first was Making Tax Digital for VAT (MTD) and transitioning from a paper-based record system to an online accounting system. We supported Mandy in transitioning her accounting operations from Sage to Xero, which was a big change for the business. Moving to an online system meant that both Mandy and I were able to access the business information in real- time, look at the same information together and talk her through any changes required. have had to adapt and react to an ever-changing landscape over the last couple of years. Emma Clifton, Business Advisory Associate Partner, For peace of mind, Mandy engaged us to review her Xero data on a quarterly basis and to file the VAT Returns with HMRC. With cloud accounting software this was made so much easier and meant we could work on the data in the background, without any disruption for Mandy. Getting her returns right and filed with HMRC gave Mandy a sense of anxiety so supporting her with this process meant we could tick something off her to-do list!
We were also able to implement a monthly billing cycle to assist Mandy with her cash flow management. It is really important for new, small businesses to be able to understand the timing of payments and plan accordingly Then came Brexit! With Vanil’s main product base being Scandinavian, this was a real concern for Mandy. What would this mean for importing products? Would this lead to an increase in product and import costs? Would the business have to consider increasing their prices? Would there be an additional administrative burden? After many sleepless nights and emails from suppliers about Economic Operators Registration and Identification (EORI number), Postponed VAT Accounting and Deferment Accounts, Mandy reached out to us to help work through the options. She felt like this was overly complicated for her small, local business and even considered “throwing in the towel.” She didn’t want to lose the identity of her business, but the implications of Brexit were making this very difficult for her to trade outside of the UK. Our internal VAT and Brexit specialists at Scrutton Bland were able to support and advise Mandy on the best course of action for her business. Whilst there is still an additional administrative burden that falls on her, things have now settled down and enabled Mandy to concentrate on her business again. It feels like we only just overcame that hurdle to then be faced with Covid! Like many other small businesses, this was going to be Mandy’s biggest challenge to date.
Being a local shop in Woodbridge with no online presence, Mandy’s income stream stopped overnight. She was forced to close her shop, which was devastating for Mandy as her business was her life. She has put her heart and soul into this business and feels passionately about the products she provides only for this to be taken away from her. I know a lot of business owners felt the same and had similar struggles and I have every sympathy for them When it became clear that Covid was going to be around for longer than anyone had originally thought, Mandy made the decision to invest in a website. With a period of limited income, spending money was not high on the priority list, however, Mandy could see the benefit both now and in the future. Mandy will be the first to admit that this decision saved her business. Her website www.vanil.co.uk has been designed in such a way that her passion for craftsmanship and design comes across seamlessly. Having got through the Covid period, Mandy has continued to invest in her website, and this has now become a steady income stream for her. She loves meeting people in her shop and connecting with them but having an online presence has also enabled her to expand from being a local shop in Suffolk to an online retailer with global outreach. As many small business owners can appreciate, Mandy has many hats that she has to wear. As well as an employer, she has to consider marketing, purchasing, the day-to-day running of the shop, cash flow management and much more. Mandy’s time is therefore precious, and having a business advisor by her side throughout has meant that we have been able to support Mandy through any challenges that have arisen. Whilst no one can predict the future, what’s certain is that new regulatory updates will be implemented and that new challenges will affect small businesses across the UK like Vanil, but having trusted advisers facing these alongside you can give you the peace of mind that you are supported. To reach out to Emma to discuss your small business, please call 0330 058 6559 or email hello@scruttonbland.co.uk
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Navigating Customs - Imports and Exports
Internet sales as a percentage of total retail sales in the UK, (as recorded by the Office for National Statistics), has grown steadily from under 5% in 2006, to around 20% in 2020 (prior to the Covid Pandemic), peaking during this period to approaching 40%, before a fluctuation at the start of 2021 (combined Brexit and Covid effect), then settling down to around 25% in 2023. The trend remains upwards, so internet sales are becoming increasingly important.
UK Businesses Importing Goods For UK-based businesses, wishing to import goods from the EU post-Brexit, the rules have become aligned with the rest of the world, with new options available to facilitate imports such as:
New EU VAT rules In July 2021, the EU changed the VAT rules for cross-border VAT e-commerce – everyone in the e-commerce chain is affected both inside and outside the EU, postal operators and couriers, customs and tax administrations, through to consumers. To facilitate trade the EU introduced the One Stop Shop and the Import One Stop Shop for consignments valued at 150 EUR or less. Selling from a third country into the UK Brexit rules which came into effect on 1 January 2021, had an impact on sellers based outside the UK, (EU and the wider world), selling small consignments with a value of £135 or less to customers into the UK, by requiring them to register for VAT in the UK, unless they sold small consignments into the UK using an online marketplace.
Planning an e-commerce strategy Now that the UK is no longer part of the EU it is important to seek appropriate advice in setting up an e-commerce strategy for importing goods into the UK and selling outside of the UK. First Steps for UK Businesses Importing and Exporting Anyone involved in the importing and exporting of goods, whether they are self-employed, (selling goods on a social media platform), a business (large or small) or an agent acting on behalf of a business, will need to understand what is required to import goods into the UK or export goods from the UK – the specific rules may be different according to the circumstances, but the same steps will each need to be considered. Basic Requirements – consider what is required to import or export the specific goods to the county of destination:
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Postponed VAT Accounting (PVA)
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Deferment Accounts
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Customs Declaration Service (CDS) – replacing the former CHIEF system
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The creation of Freeports around the UK
Once imported, (VAT and Duty paid) goods can then be distributed into free circulation to customers in the normal way. VAT is charged to UK customers as applicable, and the import VAT is reclaimed as input VAT. UK Businesses Exporting Goods As part of Brexit planning, exporting for businesses has been made relatively straightforward (with no UK VAT or Duty due on exports from the UK perspective). However, now the UK is outside of the EU and with the EU becoming like the rest of the world the important consideration will be the import rules in the country of receipt.
Importantly, no import duty is payable on consignments of £135 or less.
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Ensure that each good that is being imported or exported is allocated a
There is some anecdotal evidence that some EU businesses have ceased to sell goods online into the UK post Brexit, which does give the opportunity to UK-based businesses to import goods in bulk for distribution and sale within the UK.
commodity code. The code describes the product and governs the duty and VAT payable at the port. This ensures a smooth transition through customs, without this your goods may be seized.
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Consider the origin of the goods, and whether a preferential duty rate can be used, which is based on trade agreements between the country of origin and the country to which the goods are being imported. Agree which party, will assume the responsibility of Importer of Record – they are responsible for ensuring that imported goods comply with all customs and legal requirements of the country of import. Establish the appropriate Incoterms® 2020 (international commercial terms), the point at which goods are sold and which entity (buyer or seller), takes the responsibility as the Importer of Record. This will also determine the country in which VAT is payable and the rate of VAT. Getting this wrong, can be expensive in terms of VAT charges that are either irrecoverable or administratively time-consuming / expensive to recover and possibly create a requirement to register for and account for VAT overseas. Some goods such as alcohol or tobacco are called excise goods which will be subject to excise charges which means they cannot be sold online in the same way as other goods.
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Other goods by virtue of their nature, such as animal or plants and derivatives will require health certification and, in some cases, also a licence. Goods such as high-risk foods, medicines, chemicals, hazardous goods, weapons etc are also subject to special rules and the need to obtain licences and certificates prior to import / export. The buyer and seller will then need to agree on the route and means of transportation of the goods. When it comes to international e-commerce, services are offered by the post office and international couriers who will also act as a customs agent providing a process for dealing with customs declarations. An important logistics consideration will be the dates for goods to be collected and delivered to their destination. This will have a big impact, for perishable goods, and those required for just in time production, and time sensitive markets, such as Christmas. Alternatively, advance planning for non-perishable goods can see some significant transport cost savings.
Preparing to Import and Export Goods – businesses will need to consider the following:
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An Economic Operator Registration and Identification Number (EORI for short) is required to carry out imports and exports. Use of the correct EORI number is important as it will flow the import and export details through to the owner’s Customs Declaration record. Access will also be required to the Customs Declaration Service, (CDS), for both making declarations and downloading documents. The Due Diligence which will be required when making Customs Declarations – before engaging in a supply chain, the individual or business will need to understand the customs responsibilities. Ensure that the transactions are not part of a fraudulent activity, understand what rules must be followed, and what duties will be payable, and decide in advance whether the appointment of a customs representative is required. In the case of e-commerce, the use of a recognised international Post Office service or International Courier may be sufficient, so long as the process has been adequately researched, is understood and declarations correctly made.
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To pay the import VAT at the point and time of entry through Customs – in which case an import VAT certificate C79 will be issued by HMRC to support a future reclaim of VAT by the entity. To use a Customs Agent who will pay the VAT and recharge by way of invoice to the entity (C79 also issued by HMRC). To elect to use Postponed VAT Accounting (PVA) whereby no import VAT is paid but entries are made on the next VAT return. To charge the import VAT to a deferment account (linked to bank account), where import VAT for the month can be charged for settlement by one monthly payment.
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How the individual or entity will make Customs declarations and the appropriate software. The rise of e-commerce and internet sales has seen the development of software that will provide a customs declaration service, but this can be quite a maze to navigate.
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As the Customs Declaration Service, (CDS) has replaced CHIEF, declarations via the CDS will be required. However, there will be other considerations.
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Tax and Duties on Imports
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When an entity acts as Importer of Record, a “Customs pack” of documents will be created, either by the entity or their Customs agent. These will need to be retained for a minimum of the 6 previous years (10 if using IOSS). The Customs Declaration Service (CDS) will hold details of the import and export declarations made using the entity’s EORI number. Each month the Postponed VAT Accounting (PVA) Statements and C79 certificates should be available for download, to check and keep with the Customs packs to support the entries made in the accounting records and VAT returns. Historic reports of import and export data can also be purchased from the CDS to ensure the completeness of records. This is the same information used by Inspectors of Taxes conducting compliance visits so the taxpayer can ensure their records are complete and correct.
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Obtaining PVA statements and declaring on VAT returns
Where an entity has elected to use the PVA, monthly statements should be downloaded from the CDS portal, and checked to the Customs document packs for individual imports before declaring on the next VAT. As no import VAT has been paid under PVA the entries on the VAT return both declare and reclaim the same amount of import VAT (so long as the import of goods is for business purposes and not for exempt sales), this is just a declaration exercise and no import VAT is payable.
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Reclaiming import VAT paid
Where an entity has paid over import VAT, either at the point of entry, to a Customs Agent or via a Deferment Account a repayment can be claimed so long as the entity has a C79 certificate which confirms that the import has been declared and import VAT paid. A common mistake is to reclaim import VAT charged on a Customs Agent invoice, however the VAT claim should be supported by C79 certificates. It is important to note that under CHIEF C79 documents were posted out to importers but now they are published to the CDS online to be downloaded. Scrutton Bland has a dedicated tax advisory team who support and advise clients on importing and exporting issues. This has risen in relevance since the change of rules with Brexit, and the increase in Internet and e-commerce sales. They can provide advice and assistance in recovering import VAT, and structuring business models with regards to importing and exporting in a tax efficient manner. Coupled with our SB Digital team we are well placed to support our clients in the modern trading environment. To get in touch, please call 0330 058 6559 or email hello@scruttonbland.co.uk
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When goods are imported, and duty is payable the entity has a number of choices:
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To pay the duties at the point and time of entry through Customs which may not be practical.
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To use a Customs Agent who will pay the duties and recharge by way of duty invoice.
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To set up a deferment account (linked to bank account), where duty charges for the month can be charged for settlement by one monthly payment.
Duty forms part of the cost of goods and cannot be reclaimed where correctly charged.
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When goods are imported, import VAT is also payable and again the entity will have a number of choices:
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Software for e-commerce businesses E-commerce has been a fast-growing area for many years and lockdown (brought on by Covid-19) forced many
more businesses to explore selling online to help diversify their route to market and manage risk. This brought with it opportunities but also challenges in relation to compliance and operational efficiencies, selling items multiple ways and tracking this all effectively. The answer is software and systems, but which to utilise is not always easy to identify. Ryan Pearcy, SB Digital Associate Partner, shares his expertise by identifying a few key scenarios, that require different approaches from a system perspective. Please be aware that there is not a one-size-fits-all all approach and it is best to consult with an expert before making any decisions.
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Getting the core right The core of any business lies with operations and finance. As operational software tends to be where most people spend their time this tends to get the most focus with all other software selected after this is chosen. Beware, this is the wrong approach! Although operational software is key, it is the finance element that is the lynchpin of any modern system. All key systems interact with finance, including operations, and so it is important that the right finance system is selected that meets requirements but enables flexibility. By adopting a “Modern Enterprise Resource Planning (ERP)” approach, which is the combination of separate cloud-native software connected via secure APIs, a business can build a highly effective system that streamlines operations, enables flexibility and delivers better business insights. This plug and play approach enables the business to adapt, adding or switching out best of breed systems as they grow and evolve. Finance systems such as Xero have become the core of these Modern ERPs, enabling the business to scale quickly as they transition through the phases explained below. They are also cost effective, enabling a business to grow to a reasonable size before having to consider switching to another system. Single sales channel If you sell through a single channel the system configuration can be quite simple. Channels such as Shopify have a direct integration with Xero, pulling in your sales and fees automatically and enabling quick reconciliations. Other channels may not have links and you need to be wary of just using what comes into your bank. These receipts may be net of transaction fees which need to be separated for accounting purposes. To overcome this, you can use import files, which creates an additional admin burden, or connector tools (explained below).
Multi channels – unlimited stock As your business expands you may want to sell across multiple channels, such as eBay, Esty, Amazon etc. If you have a product that is bought or built on request then you do not need to worry about tracking inventory levels (see section below if you do), but you do now have multiple routes that income could enter your bank. This can create an admin nightmare. The way to prevent this is to use a connector system such as A2X, Dext Commerce or Saasant. These tools pull in all transactions from the various sales channels and align them with your finance system based on rules you set up. This automates the financial compliance requirements and enables you to focus on selling, reducing your compliance costs. Selecting the right tool will depend on the channels you use and it is paramount that it is set up correctly as a bad setup can create huge disruption for your financial accounting and reporting. Multi channels – finite stock Handling finite stock across multiple channels becomes a challenge of availability. Do you manually update each channel with a quantity you have each time something is sold, or do you keep quantities to a minimum but potentially miss out on sales? Neither is a helpful approach. To overcome this the business needs a system that can update the availability listings automatically in one channel when a sale is made in another. This is where tools such as Expandly, Unleashed or Dear come in. These tools handle inventory management from purchase to sale, updating availability and pushing transactions through to the finance system. Tools such as Unleashed also update the inventory value in Xero, enabling you to have confidence in your profits. Implementing these systems is an investment so deciding when to upgrade is critical.
Shipping When you start in e-commerce you likely handle shipping manually, but this becomes an admin burden as you grow. Inventory tools, as listed above, connect to shipping management systems or directly to providers such as Royal Mail, DPD and DHL. As an order is taken a carrier can be selected, either manually or by rules set per product and scheduled for collection to align with scheduling for packing. Multi country sales As you expand to sell into other countries there will be additional compliance requirements such as VAT or sales tax reporting and filing. Channels such as Amazon enable you to outsource the compliance to them directly, for a cost, but not all channels handle this. In the US there are tools such as Quaderno, and Xero themselves work with Avalara to assist with this (although you need a Xero US license), but there is less choice in the UK. Linkmybooks, a connector tool similar to A2X described above, can assist with tracking VAT across countries but does not help with filing and tracking this in your finance system can be challenging. We advise speaking to an expert to assist you with this. These are just a few examples of systems to consider as you setup and grow your e-commerce business or arm your business. These solutions, if implemented in the right way, will save considerable amounts of time and money and allow business owners and allow employees to focus on more productive tasks. We always advise speaking to an expert to ensure you select the right system for your needs, get this implemented correctly and have someone to reach out to for support if things change. The SB Digital team can assist so please reach out to Ryan if you have any queries by calling 0330 058 6559 or by emailing hello@ scruttonbland.co.uk
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Location, Location, Location: Untangling Place of Supply Rules for Online Service Provision
The UK place of supply rules The general rule for the place of supply of services to a non-business consumer (business to consumer ‘B2C’) is where the supplier belongs. For general rules services, local VAT rates applicable to the supplier are used. However, there are some exceptions to the general rule, such as services relating to land and to work on goods, which are subject to VAT where the land/goods are located. Another exception is for the supply of digital services. Where a UK-based software publisher sells a download to a customer based in Ireland, the supply is outside of the scope of UK and the VAT rules in Ireland apply. Taking Ireland as an example, the supply would create a compulsory Irish VAT registration (see also, section about the One-Stop-Shop later) and would be subject to 23% Irish VAT. Whilst these rules are part of UK legislation, they are similar worldwide. For example, a US tech firm supplying digital downloads to the UK would be liable to register for UK VAT and account for 20% UK VAT on its income.
Business to business (B2B) supplies The B2C rules above relate to non-business consumers. Different jurisdictions define ‘consumer’ in different ways. In the UK, proof of being in business (such as a document from Companies House or HMRC) is generally accepted, but in most EU Countries, a VAT number must be acquired to treat a supply as B2B. Some countries (such as Russia, South Africa, Nigeria etc.) have chosen to interpret the digital services rules even wider and tax B2B supplies in-country too. Supplies made through platforms It is likely the responsibility for VAT on sales made through Google, Apple, Amazon etc are that of the platform. The terms and conditions of the agreement with the platform will confirm, but the rest of this article will assume sales are made in your own name, for example on your own website only.
The invention of smartphones and other digital devices has led to a huge increase in the demand for the supply of digital services, such as:
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Software, music, and film downloads
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Webinars and training courses
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e-books*
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PDFs and other documents
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Photographs and other images, etc.
This has not gone unnoticed by tax authorities around the world. Indeed, most countries have introduced rules which subject sales of digital services supplied by overseas providers to consumers, to indirect taxes in-country. This can result in the need for multiple VAT (and other indirect taxes, such as Goods and Services Tax ‘GST’ in Australia) registrations across the world. Daniel May, VAT Manager, explores the place of supply where the supplier is established.
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So, what does this mean for me? A provider of digital services making sales as principal will need to check the VAT and other indirect taxes requirements for each country to which they sell. Subject to any thresholds which may be present in legislation, the business may have to register in multiple countries across the globe. There are likely to be slightly different classifications of what constitutes a digital service (such as the level of human intervention involved in the process) from country to country and different requirements for how to identify customer’s status – e.g. are they B2B or B2C? The way in which a customer’s location is determined, especially for businesses using payment service providers such as Stripe to collect payments will also be key in identifying where potential VAT liabilities may arise. If prices have been set without considering overseas VAT, an increase may have to be made, or future plans that are dependent on forecasted income may need to be pushed back.
The general approach by most providers is to keep the price charged the same to all customers regardless of location. Applicable indirect tax rates vary considerably (for example, 27% VAT in Hungary, 18% GST in India, 10% Consumption Tax in Japan, 7.7% VAT in Switzerland, etc.) so the view that the rates smooth themselves over in the long run is taken. Unfortunately, when selling to customers that cannot recover indirect taxes they are charged, it can be difficult to increase prices for this reason alone. What can Scrutton Bland do to help? As part of the Nexia Group, we have a proven record of ensuring clients are registered where needed and compliant with local indirect tax rules. Our dedicated VAT team would be happy to review your registration obligations on a country-by-country basis and assist with ongoing compliance and penalty mitigation, if appropriate.
UK VAT registrations and compliance are our main specialty, but we are also well versed in assisting with One-Stop-Shop registrations which may be of use for sales made in the European Union (‘EU’). Taking the Irish example from earlier, if the same supplier made sales to other EU Member States, it could create a One-Stop-Shop registration to declare VAT in each of the 27 Member States to which sales are made, rather than register individually in each one. To get in touch with our dedicated VAT team, please contact Daniel by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk *Please note, the VAT liability of e-books was changed in the UK from the 20% standard rate to the zero rate with effect from 1st May 2020
E-COMMERCE | SCRUTTON BLAND | 1 5
Meet the Team We have a long-standing association with the e-commerce sector, and our specialists have a thorough understanding of the opportunities and challenges it currently faces.
We seek to build long term and trusted relationships with our clients, and to fully understand their businesses in order to provide bespoke and targeted advice.
Get in touch with a member of the team to see how they can help you.
Simon Pinion Business Advisory Partner simon.pinion@ scruttonbland.co.uk 01206 417202
Emma Clifton Business Advisory Associate Partner emma.clifton@ scruttonbland.co.uk 01473 945764 Joy Shaw Senior Tax Adviser joy.shaw@ scruttonbland.co.uk 01473 945837
Ryan Pearcy SB Digital Associate Partner ryan.pearcy@ scruttonbland.co.uk 01206 417218 Daniel May VAT Manager daniel.may@ scruttonbland.co.uk 01473 945823
0330 058 6559 scruttonbland.co.uk
@scruttonbland
0780/10/2023/MKTG
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