Channel Islands query

[rosiejo]

I work for a UK registered independent clothing retailer. We are owned by a Jersey resident. He wants to use an entirely separate Jersey based company’s website to sell our stock online. This will work by customers (mainly UK residents) buying from the Jersey website but us shipping the product from our UK stores direct to the Uk customers. I am then to invoice the Jersey website company for the stock sold plus costs (postage, salary element packaging etc). I am confused as to whether this is acceptable in VAT terms and if so how to treat it and would appreciate your comments.

[Marie Stein]

Hi Rosiejo

You don’t say why the owner wants to set things up in this way. If the purpose is to sell VAT free goods, then it won’t work because if the goods will never leave the UK, then for VAT purposes, the Jersey company will be making supplies of goods in the UK and may be liable to register for VAT in the UK. The fact that the ordering/invoicing will be done online and through a Jersey company doesn’t change the VAT status of the transactions.

I don’t see any VAT problem if the owner simply wants a separate company for the purposes of having a separate “vehicle” for online sales. In principle, you can organise your business affairs as you like, but it doesn’t affect the underlying VAT principle which is that the place of supply of goods is where the goods are physically located, not where the supplier is based.

Sales from the existing UK company to the Jersey company will be liable to VAT in the same way as any other transaction. If the value of supplies to be made by the Jersey company will exceed the VAT registration limit, then it will be liable to register for VAT. Either way, the only way in which the Jersey company will have to recover the VAT charged by the UK company would be to register for VAT. The UK company can act as agent for the Jersey company to submit VAT returns etc if the Jersey company has no employees based in the UK. The guidance on this issue is in VAT Notice 700/1 Should I be registered for VAT, sections 8 – 10 http://tinyurl.com/d5jrb5u.

It might be possible for the Jersey company to enter into a VAT group registration with the UK company, which would minimise administration as there would only be one VAT return for both companies and it would not be necessary to raise invoices for transactions between the companies. However this may not be possible unless the Jersey company can satisfy certain residency requirements – you can find further information on this in VAT Notice 700/2 Group and Divisional Registration http://tinyurl.com/ybdq3gh

Marie

[Author]

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