Date of issue: 1st December 2004

SHOPS ALLOWED VAT 'HOLIDAY' ON ONLINE SALES

A ruling that permits retailers to postpone accounting for VAT on sales made via the Internet has been welcomed by chartered accountants Clement Keys, Birmingham as good news for all businesses which sell online.

Online retailers can now wait seven days from the date goods are despatched before accounting for VAT on Internet sales, regardless of when payment is received.

This change follows a successful Tribunal case by Robertson's Electrical, which argued that under the Consumer Protection (Distance Selling) Regulations 2000 a consumer has seven days, from the date they receive the goods, to return them for a full refund. The company waited until the end of the 'cooling off' period before issuing an invoice and had written this statutory provision into its terms and conditions.

"Customs and Excise argued that VAT has to be accounted for at the time payment is received," says Steven Simmonds, director of VAT services at Clement Keys, Birmingham.

"However, the Tribunal accepted that, until the customer's seven-day 'cooling off' period has elapsed, the payment can be treated as a refundable deposit and does not therefore create a tax point.

"It's important to understand that the Distance Selling Regulations do not stipulate that goods must be rejected for a particular reason - the fact that they are returned is sufficient."

Online retailers need to make sure they do not issue a VAT invoice until the seven days has passed. If they do, this process automatically creates a tax point and VAT will have to be accounted for at this time.

To take advantage of this new VAT ruling Clement Keys, Birmingham advises businesses which sell online to review their contracts and procedures to ensure they reflect the requirements of the Distance Selling Regulations.