EU trading

While trading with the EU can initially seem a little daunting, the single market actually makes EU trade straightforward. There are a few things you need to know about though, such as the VAT implications, EC sales lists and intrastats.

Guide

7 min read

1. Disclaimer

This guide contains information relating to the EU that may be out of date due to Brexit. We are working to update our guidance as the situation unfolds. For urgent assistance please contact your local Business Gateway office or visit https://www.prepareforbrexit.scot/.

2. Trading in the European Union

While trading with the EU can initially seem a little daunting, the single market actually makes EU trade straightforward. There are a few things you need to know about though, such as the VAT implications, EC sales lists and intrastats.

First of all, you need to know whether you’re an exporter or a dispatcher.

3. Are you exporting or dispatching?

If you sell goods to one of the 28 European Union (EU) countries, you’re making ‘dispatches’ or ‘removals’. ‘Exports’ are goods sold to non-EU countries.
Occasionally parts of some countries’ territories may not be in the EU for VAT purposes. For example, Spain is an EU country and it includes the Balearic Islands. But it doesn’t include the Canary Islands, Ceuta and Melilla.

If you send goods to an 'excluded territory' your goods are treated as 'exports' and you must make an export declaration and follow the rules for selling to non-EU countries.

See a full list of EU countries and their included and excluded territories.

4. Selling goods to other EU countries

If your EU customer is VAT registered, you can use a zero rate if you have their EU VAT registration number, send the goods out of the UK to another country, and keep commercial evidence that the goods move within three months of the date of supply.

However, if your EU customer is not VAT registered, you need to treat as you would a UK customer, and charge VAT at the appropriate UK rate for the goods you’re selling. This also applies is the VAT number your EU customer gives you is not invalid.

And remember never to zero-rate the supply unless the zero rate would normally apply to the goods – children’s clothing, for example.

Distance selling

If you supply goods to a customer in another EU country, who isn't registered for VAT in that country and you are responsible for delivery – that is, they don't collect them – then you’re 'distance selling'.

Every country has a ‘distance selling threshold’. If the value of your sales to that country exceeds this threshold, you must register for VAT in that country, and charge their rate of VAT on sales to that country.

If you’re below the threshold, just charge VAT at UK rates in the normal way.

Read more about selling goods to other EU countries.

5. Supplying services to other EU countries

These are the general rules:

1: Business to business services

If you supply a service to a business in another EU country, then you treat the service as if it is made in your customer’s country. Your customer will account for any VAT, and you don’t need to account for VAT because it is 'outside the scope' of UK VAT.

2: Business to non-business customer

When you supply a service to a customer who is not in business, you must account for the VAT in the UK at the UK rate.
There are exceptions to these rules, depending on the service you provide. Check to see if your service is an exception.

Reverse charges

When you’re the customer receiving services from an EU supplier outside of the UK, then ‘reverse charges’ apply. So you account for the VAT, rather than the supplier – meaning you act as both the supplier and the customer for VAT on the service received.

See full details about the place of supply for services.

6. EC sales lists

If you’re a VAT-registered business in the UK and you supply goods or certain services to VAT-registered customers in other EU countries, you have to send the details of this trade to HMRC.

You send these details on an EC sales list. This helps governments make sure businesses have correctly accounted for VAT, and lets them see how trade with the EU is doing.

There’s no threshold, so you need to list every supply to VAT-registered customers, no matter how small, detailing your customer, the relevant country code and the value of the goods and/or services.

EC sales lists for goods

The first time you enter an amount in Box 8 of your VAT Return 'Total value of supplies of goods and related costs to other EC countries', excluding VAT, HMRC will automatically send you an ESL VAT101 to complete.

You normally send an EC sales list for goods every three months. HMRC divides the year into four and uses March, June, September and December as the end of each three-month period. If the value of your goods goes above a certain threshold in a three-month period, you have to send your sales lists at the end of every month.

EC sales lists for suppliers of services

You also send sales lists for services every three months; at the end of March, June, September and December. If you have to make monthly sales lists for goods, you can choose to send your lists for services on a monthly basis too. You can enter details for both goods and services on the same list. Add code number 3 to identify services.

Because you don’t enter supplies of services in Box 8 of the VAT return, HMRC won’t ask you to send a sales list. If you only supply services, you need to remember to do this.

Don’t enter supply of services where you’re using reverse charges. This applies when you receive services under the business to business 'general rules'.

When and how to send your list to HMRC

Sending your list to HMRC online is faster and more secure than sending by post. And it saves you time and helps reduce errors.

Your sales list needs to be with HMRC 21 days from the end of the reporting period, if you send electronically. But if you send a paper version, it has to be with HMRC 14 days from the end of the reporting period. And if you had no EU trade in the period, you don’t need to send one at all.

Detailed instructions on sending EC sales lists to HMRC.

7. Using intrastats for EU goods sales

As well as recording your EU sales of goods in your records, on your VAT return and EC sales lists, you may have additional statistics to record when your goods sales exceed a certain threshold.

You supply this information on an intrastat supplementary declaration. If you supply any services, you don’t need to record them on an intrastat.

What intrastats are used for

Governments need to monitor how their country’s trade is doing with countries both in and outside the EU. Intrastat statistics help them to do this, and in turn that information helps them inform their overall trade policy. It also helps them generate initiatives on new trade areas, and plan for future transport infrastructure needs.

You won’t be submitting the same information as your EC sales list though. Intrastats go a little further than sales lists, and actually ask what the goods you’re selling are.

Find out more about intrastat.

When and how to make intrastat returns

You need to make an intrastat declaration if the value of your EU good dispatches goes over the intrastat threshold for a calendar year between January and December. When your total goes over the threshold, HMRC will send you a letter, asking you to start making intrastat declarations.

If your total sales from January to June are below the threshold, but your sales for July take the total from January to July above the threshold, you need to start using intrastats from July until the end of the following year.

Check if you are near or over the intrastat threshold.

Classifying your goods for intrastat

Any goods you export need an eight-digit commodity code. On the uktradeinfo site, (which publishes and holds the UK trade statistics information) the commodity code is called an intrastat classification nomenclature (ICN). Every item you trade will have an ICN.

See how to classify your goods.

8. Records

If you’re VAT registered, you need to keep your VAT account and invoices for six years, as HMRC may visit you sometimes to check them.

You’ll need to show evidence of any goods you’ve sent from the UK. And if you’ve used zero rate VAT for goods that are normally standard or reduced rate, you need to have evidence to support this. This can include:

  • customer orders
  • correspondence with customers
  • sales invoices
  • packing lists
  • invoices from hauliers
  • bank statements
  • consignment notes showing the goods have been received in another EU country.

These documents also need to show details of your business, your customer, the goods (and their value), the method of transport, route and destination.

Find out how to keep VAT records.

Penalties for not keeping records

If you don’t keep VAT records and accounts, you’re more likely to make mistakes. And if you make mistakes – or send your VAT returns late – HMRC can charge you a penalty.

See a list of the penalties for late or incorrect VAT returns.

Find out more on Gov.uk

For more help trading in the European Union, contact your local Business Gateway office

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