Selling to customers abroad: the VAT rules a UK small business actually needs

The first overseas order is a good day. Somebody in Dublin or Denver found you, liked what you do, and paid. Then you open the invoice template and stall, because you have no idea whether to add 20% or not — and the answer genuinely depends on whether you are shipping a box or sending a file.

That is the first thing worth internalising. UK VAT treats goods and services as two separate systems when the customer is abroad. Goods follow the parcel. Services follow the customer. Get those the wrong way round and you either hand HMRC money you never needed to collect, or you quietly build up a liability you will be asked for later.

Goods leaving the UK are zero-rated — if you can prove they left

Sell goods to a customer outside the UK and export them, and the sale is zero-rated. You charge 0% rather than 20%. The catch is entirely in the evidence: you have to be able to show the goods physically left the country, and you have to obtain that proof within three months of the time of sale. Time of sale here means the earlier of the day you send the goods or the day you get paid in full — so a customer who pays up front starts your clock immediately, not when you eventually ship.

Acceptable proof is ordinary commercial paperwork: a certificate of posting, a Parcelforce or courier dispatch pack, an airway bill number, or the electronic Goods Departed Message if you are declaring through the National Export System. If the goods go to the EU for processing before they are exported onward, the window stretches to six months. Whatever you hold, keep it for six years.

Two situations trip people up. If your overseas customer asks you to deliver to a UK address — a freight forwarder they use, a friend, a UK office — the goods have not left the UK at the point of your sale, and you charge VAT. And if the customer collects the goods themselves, you are the one carrying the risk: agree in writing how and when they are leaving and what removal evidence you will get back, before you decide not to charge VAT.

Zero-rated does not mean nothing to do. It means 0% today, plus an evidence file you can still produce in five years' time.

The EU rule that changed on 1 July 2026

If you sell physical goods to consumers in the EU, one thing genuinely changed this summer. The EU's €150 duty-free threshold for low-value consignments ended on 1 July 2026. In its place there is an interim flat customs duty of €3 per item line, running until 1 July 2028, when the new Customs Data Hub is expected to take over and normal tariffs apply to everything regardless of value.

Two details matter for a small seller. First, the €3 is charged to the business — the seller, the importer, or the IOSS holder — not collected from the consumer at the door, so it comes straight out of your margin unless you price for it. Second, it is per item line on the customs declaration, based on tariff classification rather than unit count. Items sharing a classification can be grouped onto one line and attract one €3 charge, so how your declarations are built now has a direct cash consequence.

IOSS itself has not gone away. It still handles the VAT on B2C consignments up to €150 — you register once, charge the customer's local VAT rate at checkout, and file a single monthly return rather than dealing with each member state.

Services follow the customer, not the parcel

Now the other system. For services, the general B2B rule is that the place of supply is where the customer belongs. Sell consultancy, design, development or professional advice to a business in Germany and the supply is outside the scope of UK VAT. You invoice net, you note on the invoice that the reverse charge applies, and the German business accounts for the VAT at its end. You are not being generous — you have simply moved the tax to where the law puts it.

The general B2C rule is the mirror image: the place of supply is where you belong. Sell that same consultancy to a private individual in Germany and you are, as a rule, charging UK VAT at 20% exactly as if they lived in Leeds.

Which means the single most important thing on an overseas B2B invoice is evidence that the customer really is a business. Get their VAT number, keep it, and keep whatever else supports it — their website, their company registration, the contract. If you cannot show the customer was in business, HMRC's default position is the B2C treatment, and the VAT is yours to find.

Digital services to EU consumers have no threshold at all

There is one exception that catches side-hustlers and software sellers hardest. Automated digital services sold to EU consumers — downloads, templates, courses that run without human intervention, subscription software — are taxed where the consumer is, from the very first sale. There is no minimum, no allowance, no grace period. One €12 template sold to a buyer in Spain creates a Spanish VAT liability.

The practical answer is the non-Union One Stop Shop. As a UK business you register through a single EU member state, charge each customer their own country's rate, and file one quarterly return covering the whole EU rather than registering in twenty-odd countries. Most marketplaces and app stores handle this for you when they are the seller of record — but if you sell direct from your own site, it is on you.

The registration-threshold trap

Here is the one that quietly forces small businesses into VAT registration a year earlier than they expected. Zero-rated export sales are still taxable supplies. They count in full towards the £90,000 registration threshold. A maker turning over £70,000 in the UK and £30,000 in exports is at £100,000 of taxable turnover and has to register, even though the export half carries no VAT at all.

Outside-the-scope services behave differently. B2B services to overseas businesses sit outside the scope of UK VAT entirely, so they do not count towards the threshold. Two consultants with identical £100,000 turnovers can therefore land in completely different places — the one selling goods abroad is registrable, the one selling services to overseas businesses may not be. If you are anywhere near the line, split your sales report by treatment before you assume you are under it. Our piece on whether voluntary VAT registration is worth it covers what happens when you cross.

Putting numbers on it

Take an illustrative example. You make homeware. In the year you sell £62,000 in the UK, £18,000 shipped to EU consumers and £14,000 of design consultancy to a US business. Your taxable turnover for threshold purposes is £62,000 plus £18,000 — £80,000. The US consultancy is outside the scope, so it does not count, and you are £10,000 under the line rather than £6,000 over it.

On the EU shipments, say those £18,000 of sales came from 300 parcels. At €3 per item line, that is up to €900 of new customs duty a year landing on you rather than the customer — roughly 4% of that revenue stream, straight off the margin. Worth knowing before you set next season's prices rather than after.

What to do this week

Four jobs, none of which take long. Pull your last twelve months of sales and split them three ways: UK, exported goods, and services to overseas customers. Check you actually hold export evidence for every zero-rated goods sale, and that it was obtained inside the three-month window. Collect and record VAT numbers for every overseas business customer you invoice net. And if you sell digital products direct to EU consumers, work out whether you already have a liability you have not registered for — that one does not improve with age, and unlike a missed quarter it has no threshold to hide under. If cash timing is your bigger worry, paying for stock months before you sell it covers the financing side of importing and exporting.

Common questions

Do I charge VAT if my customer is overseas but delivery is to a UK address?

Yes. Zero-rating for exported goods depends on the goods physically leaving the UK, not on where the customer happens to live. If an overseas buyer asks you to deliver to a UK address — a freight forwarder, a relative, their own UK office — the goods have not left the country as part of your supply, so you charge VAT at the normal rate. The same caution applies when a customer collects goods themselves and takes them abroad afterwards. In that case agree in writing how and when the goods are leaving and what removal evidence you will receive, before you decide not to charge VAT.

Do I need the customer's VAT number to zero-rate a B2B service?

You need evidence that your customer is genuinely in business, and their VAT number is the cleanest form of it. For most services the B2B place of supply is where the customer belongs, so the supply falls outside the scope of UK VAT and the customer accounts for it under the reverse charge. Without proof of business status, the default treatment is the B2C one, which means UK VAT at 20% that you will be asked for later. Record the VAT number on the invoice, keep supporting evidence such as the contract or company registration, and note on the invoice that the reverse charge applies.

Do export sales count towards the £90,000 VAT registration threshold?

Zero-rated exports of goods do count, in full. Taxable turnover means everything you sell that is not exempt, and a zero-rated supply is taxable at 0% rather than outside the system. So a business selling £70,000 in the UK and £30,000 abroad has £100,000 of taxable turnover and must register. Services supplied to overseas businesses are different: those are outside the scope of UK VAT altogether and do not count towards the threshold. If you are near the line, split your sales by treatment before concluding you are under it, because the two look identical on a bank statement.

What is the €3 EU customs duty and who actually pays it?

The EU removed its €150 duty-free threshold for low-value consignments on 1 July 2026 and replaced it with an interim flat customs duty of €3 per item line, which runs until 1 July 2028. It is charged to the business — the seller, importer or IOSS holder — rather than collected from the consumer on delivery, so for a UK seller shipping to EU customers it is a direct margin cost. It applies per item line on the customs declaration, based on tariff classification, so goods sharing a classification can be grouped onto one line and attract a single €3 charge rather than one per unit.