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How To Understand Cryptocurrency & VAT
Cryptocurrency has been one of the most widely discussed topics in the business sector for the last decade. What originally seemed like an outlandish investment scheme has now become a mainstream currency, with more and more people investing in the likes of ‘Bitcoin’ and ‘Ethereum’ every day. Since major ecommerce facilitators such as PayPal and Amazon are now allowing consumers to make purchases with the currencies, now seems a prudent time to explore how the transactions involving cryptocurrencies will be taxed, and what sellers need to consider. As the industry is still relatively young, there is still some uncertainty about how HMRC will treat transactions involving cryptocurrency, but here is everything we know so far…
What Is Cryptocurrency?
Fundamentally, a cryptocurrency is just a virtual currency. What makes it special is the fact that it utilises encryption technology to ensure secure transactions. Whilst it has primarily been seen as an investment for trading, it can be used to make purchases for goods and services.
It is worth noting that there is still no worldwide consensus on how the currencies should be defined from a legal perspective. This has meant that a lot of the legal literature surrounding the currencies is largely inconclusive and is still in need of further clarification.
The Tax Implications For Individuals Using The Currency
The tax implications for individuals using cryptocurrency really depends on how they are using it. To determine how an individual is using the currency, HMRC have devised a system which uses ‘badges’. These badges will be used to determine how transactions need to be taxed.
Capital Gains Tax
If you are an individual who invests in cryptocurrency (or, at least when HMRC considers your transactions to be an investment) the currency will be treated as a foreign currency. HMRC are very clear on their treatment of foreign currencies – they deem them ‘chargeable assets’ for capital gains tax.
Thus, any gain made from buying and selling a cryptocurrency will be liable for capital gains tax. The tax should be paid in pound sterling at the converted value. HMRC do recognise that the exchange rate regularly fluctuates, and therefore they currently just require you to show that you have a made a ‘reasonable effort’ to pay the correct amount.
It is worth making clear that as there is still a fair amount of grey area surrounding the topic of taxing cryptocurrencies, HMRC will take each case on an individual basis. This means some mitigating factors, such as if you hold the currency in a foreign account, may alter your tax obligations.
Income Tax
The aforementioned ‘badge system’ really comes into play when HMRC are trying to ascertain whether you need to pay income tax. The badges are given to a transaction or a series of transactions in order to decipher whether the said transactions constitute trading activity.
Essentially, if HMRC believe you are buying and selling cryptocurrencies at a significant rate, either with or alongside other people’s money, they are likely to class this as trading. If this is the case, you would be required to pay income tax on these sales. The rate at which you would pay income tax would depend on your normal marginal rate. National Insurance would also be due.
The Tax Implications For Businesses Using The Currency
Assuming your business is not going to be trading or speculatively investing in cryptocurrencies, the main thing you will have to be wary of is accounting for VAT on the sale of goods and services. As the cryptocurrency is recognised as an official currency, any sales or services that are paid for using cryptocurrency should be treated in the same way as any other transaction.
This means that VAT will be due on any sales you make. You should pay this to HMRC in pound sterling. As before, the exchange rate does not need to be perfect, but you must show that you have a made a reasonable attempt to make the conversion. The value due relates to the value of the currency at the point of sale.
How We Can Help With VAT & Cryptocurrencies
As experts in providing tax services for ecommerce sellers, we can assist you in all your accounting needs.
At J&P, helping your business is our passion, and we understand that companies across the UK are at risk now more than ever, which is why innovation is crucial. We are here to support you through this period, so please do not hesitate to give us a call on 0161 637 1080 or send an e-mail to enquiries@jpaccountant.com.
Is Social Media The Future Of Ecommerce?
Nowadays, most companies and ecommerce providers will have a social media presence. The potential for exposure, branding, and the relatively low cost of maintaining a social media page has seen many sellers use it as a valuable marketing channel. However, what is surprising is how few use social media to make sales. In most cases, companies and sellers seem to view it as more of a branding tool rather than a selling platform. Whilst it is certainly suitable for this function, sellers could be missing out on countless sales by not utilising social media as a sales platform. So is social media really a viable selling route, and if so, how can sellers make the most of it? Read on to find out.
The Growth Of Social Media For Ecommerce
Well over a million companies are now selling on social media in the UK alone, and this number is only going to continue to rise. Research conducted by PayPal has found that 1 in 5 companies who don’t currently sell on social media are planning to do so in the future.
With the rise of ecommerce over the last 18 months, it is no surprise that companies are flocking to sites such as Instagram and Facebook to sell their goods, as they are well aware that many consumers will be scrolling through their social feeds. However, there has been some questions as to whether these companies are using social media properly. Research has found that many of these companies use social media primarily to showcase their goods rather than to directly sell them. This could mean they are missing out on sales.
But Is Selling On Social Media Successful? The Conflicting Views
One of the factors that may be deterring sellers from investing more heavily in their social media is the fact that research into the effectiveness of social media as a channel for selling ecommerce products is so contradictory.
The Positive View On Social Media & Ecommerce
Currently 8.4 million consumers shop via social media in Britain. Of this figure, 20% claim that they do so on a weekly basis. The most popular channels are thought to be Facebook, Instagram and Snapchat. The fact that same research found that the amount of UK businesses selling via social media is considerably lower than the rest of the world suggests that British sellers are missing out on sales by not taking advantage of the popularity of social media.
The Contrasting View On Social Media & Ecommerce
Some recent research has claimed that consumers don’t tend to buy on social media. Constant Contact surveyed over 2,000 consumers and small-business leaders and found the two groups often differ about what content, communication methods and online experiences are most valuable. The research found that 45% of shoppers do believe that social media is effective at grabbing their attention. However, it also found that these shoppers would rather buy via an email or text.
How Can I Use Social Media To Make Sales?
One likely reason for the contrasting results of research is probably that many sellers are not necessarily using social media properly to facilitate sales. As mentioned earlier, sellers tend to just use social media as a showcase for their products, rather than using it to release discount codes or bundles as they might do via email. This could be why the surveyed sellers said they preferred to buy via email or text.
The other factor is that many sellers don’t engage enough with their social media followers. Social media provides sellers a great opportunity to interact with consumers and receive feedback. If you are going to use social media as a selling route, it would definitely be worth investing serious time in maintaining your relationship with your buyers and followers.
Don’t Forget That We Specialize In Helping Ecommerce Sellers
Whether you are planning on using social media or not, we at J&P have the qualifications and knowledge to help you plan ahead, so please do not hesitate to get in touch should you have any further questions about selling on online, or if you need any help with adapting your business. We can get you VAT registered across the EU and can file your returns. Essentially, we sort out your tax so you can deal with selling your products. You can contact us at enquiries@jpaccountant.com, on our social media, or give us a call on 0161 637 1080.
HMRC Researches Chinese Cross-Border Sellers
HMRC have recently released the results of research that they have conducted into Chinese cross-border selling into the UK. The research came in the form of detailed interviews with Chinese ecommerce cross-border sellers, and has been titled ‘Knowledge and Attitudes of Online Sellers in China to UK Tax Compliance’. The research was quite illuminating, with results showing that Chinese ecommerce sellers operating in the UK tend to rely on online marketplaces and third-party agents to decipher the communications provided by HMRC. Here are the main talking points from the research and our take on the findings.
How Aware Are Chinese Sellers Of The UK Tax System?
The awareness of UK tax system is slightly contradictory when it comes to Chinese sellers. On the one hand, the research showed that the sellers did have a broad and undefined knowledge of their tax obligations, but they are not very knowledgeable when it comes to their specific responsibilities. For the more specific tax rules, they are more than happy for their online marketplaces and tax agents to direct them.
On the other hand, when it comes to changes of their tax obligations the sellers seem to be very well informed. This would suggest that their online marketplaces, which they are using as their primary source of information, are doing a good job of keeping Chinese sellers up to date. The sellers seemed especially knowledgeable on Brexit, which it seems was a big news story in China.
What Are The Typical Business Practices Of Chinese Ecommerce Sellers?
The first thing that was apparent when assessing the business practices was the reliance they have on online marketplaces. As you may have guessed from the last section it is clear that Chinese cross-border sellers rely on online marketplaces for their tax-related information, but this is not where the reliance ends. The findings showed that the sellers also rely on their online marketplaces for fulfilment, sales, and regulation updates.
In addition, the sellers tend to use a Chinese third-party tax agent to calculate and pay all their VAT. This means that the typical business model for Chinese cross-border sellers is quite streamlined, as they only have to deal with one account on their online marketplace and one tax agent, to whom they are willing to trust with almost all of their tax obligations.
The probable cause for the decision to use Chinese tax agents is the overwhelming preference to correspond in Chinese. Almost all the participants said they wanted Chinese correspondence. Furthermore, another interesting point was that the participants seemed to greatly prefer to use WeChat as their primary form of communication in favour of emails. Chinese sellers seem to use the app as a way of receiving and disseminating information and communicating with tax agents.
How Is The Relationship Between The Chinese Sellers And HMRC?
For the most part, the sellers interviewed seemed to believe that communication and themselves was acceptable and they liked to be communicated with directly. They also claimed they would be happy to proactively research the changes that HMRC informed them of. They did, however, claim that they did often find the information to be confusing – especially when it was not in Chinese.
Another complaint they had was that the information was commonly distributed via email. As stated in the earlier section, the Chinese sellers tend to prefer WeChat and are aware that they are liable to miss HMRC emails. This undoubtedly contributes to their preference of receiving information from their online marketplace or tax agent.
Conclusion
Whilst the report was mainly positive, it is clear to see the difficulties that Chinese sellers face when it comes to selling in the UK and dealing with HMRC. Fortunately, J&P can help. We are one of the leading suppliers of accounting services for Chinese sellers, due to the fact that we have offices both in the UK and China.
If you are a business who participates in cross border e-commerce, or importing of any kind, we would be more than happy to help you register for an EU and UK EORI number. We can also help you register for UK VAT, the UK VAT deferral scheme, file your UK and EU VAT returns, and help you comply with VAT in case your account faces any issues.
At J&P, helping your business is our passion, and we understand that companies across the UK are at risk now more than ever. We are here to support you through this post-Brexit period, so please do not hesitate to give us a call on 0161 637 1080 or send an e-mail to enquiries@jpaccountant.com.
Alibaba & WorldFirst Offer Hand To UK SMEs
UK sellers have had a torrid time over the last 18 months when it comes to selling abroad, as Brexit and the Coronavirus outbreak have introduced unprecedented challenges. This is why the timing of Alibaba and WorldFirst’s partnership is perfect for UK sellers. The two companies are offering their services to UK SMEs and sellers to help them expand their business and gain access to Alibaba’s considerable amount of buyers. Here’s everything you need to know about Alibaba’s expansion into the UK.
Who Are Alibaba & World First?
All ecommerce sellers will likely be aware of Alibaba, but their brand is not quite as big in the UK as it around the globe. The Chinese ecommerce giant is an online marketplace that claims to reach over 1.18 billion users every 12 months. As one of the biggest companies in the world, and an industry leader in ecommerce, the platform is a great way for sellers to gain exposure to potential new consumers.
WorldFirst is a payment management group that was founded in London about 15 years ago. Predominantly, the company serves as a go-between between sellers and online marketplaces. As well as managing payments, WorldFirst also offer sellers access to their risk management tools and provide advice and support when it comes to signing up to one of their partnered marketplaces.
Alibaba subsidiary Ant Financial Group acquired WorldFirst in 2019 for approximately £500 million. Together, they are also expanding Alibaba into Singapore.
So What Does The New Partnership Mean For Ecommerce Sellers?
UK-based ecommerce sellers should certainly be excited about the new partnership between Alibaba and WorldFirst. The collaboration gives UK sellers the chance to reach 15 million buyers from 200 countries and regions via the Alibaba platform.
In addition, WorldFirst have pledged to support UK SMEs through the process. They’re prepared to offer a range of advice, including help with registration, the set up and maintenance of their online store, and even navigating the platform and its services. The joint venture between a leading ecommerce specialist and payment provider means that this collaboration will offer a unique opportunity for ecommerce sellers to expand their business.
Omnichannel Ecommerce More Important Than Ever
Regular readers of our posts will know how much we champion an omnichannel approach to ecommerce. The pandemic has driven more people to online shopping than ever before. This means your products need to be available on a range of devices (computer, mobile phone etc.). However, the same logic applies to the amount of places consumers are looking for products.
It is no longer enough for a seller or SME to merely have products available on their site. Whether you use a social media platform or an online marketplace, it is vital for you to promote and distribute your products in as many places as possible. Not only does the collaboration between Alibaba and WorldFirst make this easier, they can also give you access to millions of new and distant consumers, giving you the advantage over other UK-based sellers.
If You Are Looking to Expand Your Business, We Can Help
Is The Storage Shortage In The UK Being Solved?
It has been known for a while that the amount of warehouse space in the UK does not correlate with the huge ecommerce economy that the nation enjoys. However, following Brexit and the pandemic and the subsequent surge in ecommerce, it looked for a short time that UK ecommerce sellers were about to really suffer from this shortage or storage space. However, the logistics industry is now racing to keep up with ecommerce, as is evidence by the fact that the UK warehouse space is expected to grow by 60% before the end of the year.
Why The Sudden Surge In Storage Space?
There are a number of factors that have contributed to this industry-wide focus on increased storage space. The main one is the fact that the pandemic forced more people to shop online than ever before. Ecommerce was already growing, but as lockdowns kept people in doors the surge in ecommerce was unprecedented. This meant sellers needed increased inventories, and thus increased space to hold their additional stock.
The next factor is Brexit. Previously, sellers may have held their stock in other countries and merely imported or exported their goods into the UK. Since Brexit, this is not really a viable option as it is so costly to move goods between the UK and the EU. Not only has this resulted in UK sellers recalling some of their stock from abroad, it has also meant that EU-based seller have opted to transfer their UK-allotted inventory to UK warehouses to avoid costs at customs.
Finally, there is also the impact of the huge companies now holding stock in storage facilities. Online retailers are thought to hold roughly half of warehouse space in the UK, with Amazon alone being responsible for about 80% of this portion. This has meant the competition for space has never been hotter.
Show Me The Money
It is being estimated that 3.4 million square metres of extra warehouse space will be built in the UK by the end of the year, which dwarfs the expansion of 1.9 million in 2019. As the square metres rise in the millions, the pounds in investment are rising by the billions.
Already in the first six months of 2021 we have seen investment totalling roughly £6 billion, which is more than double what we saw in the first six months of last year. It is interesting that over 50% of this investment seems to be originating from outside of the UK, most notably from Europe, the USA and China.
The current shortage has also put up the price of warehouse space in the UK. Research has shown that a square metre of warehouse space in London could cost over £17.50. Whilst this is considerably more that cheaper places such as Wales (£6 on average) it is still indicative of the rising prices for ecommerce sellers.
Why Is The Shortage Of Storage Space So Important?
The issue of less storage space is extremely worrying for sellers as they need to be able to keep up with the increased demand for ecommerce. The longer it takes for sellers to sign a lease for warehouse space the more likely they are to overpay or, even worse, miss out on storage space altogether. Consumers are now more demanding than ever when it comes to fast delivery times, and so having products on hand has never been more important.
It is obviously positive that so much is being invested into storage facilities, but there is a real fear that the industry is still not managing to keep up. Ensure you don’t miss out on storage space.
Can J&P Help?
Fortunately, we can.
Inventory and warehouse management has never been more difficult. But don’t forget that we are able to help.
At J&P, we can offer our warehouse services to businesses and ecommerce sellers in the UK and EU. If you manage an inventory, we just want to let you know that we have the qualifications and knowledge to help you plan ahead. Please do not hesitate to get in touch should you have any further questions about warehousing or logistics and supply chain management. You can contact us at enquiries@jpaccountant.com, or give us a call on 0161 637 1080.
Amazon’s New Approach To Returns & Inventories
Dealing with returns is a huge challenge for all ecommerce sellers; naturally, this includes Amazon sellers. Ensuring customers are satisfied with your service whilst also making sure that returned items don’t go to waste is not only very difficult, but it is also vital to ensure that you maintain your profit margins and reputation. This is also true of managing an overstocked inventory. Bearing this in mind, Amazon sellers will be happy to know that Amazon are rolling out two new programmes that help the returns process and the issue of overstocked inventories. The first of these two programmes is called FBA Grade & Resell and the other has been named FBA Liquidation. Today we’ll be exploring everything you need to know about these two new services.
What Are The Two Amazon Programmes For?
As stated earlier, the two programmes are going to aid sellers with returns and overstocked inventory. Here’s how…
FBA Grade & Resell
Essentially, this programme will greatly reduce the amount of work for sellers when it comes to dealing with returns. Rather than having the buyer return the product directly to the seller, the seller can opt to have it sent to Amazon. Once Amazon have received the product, they will sell it as an used item and give it a new ‘condition’, such as Used – Like New, Used- Very Good etc. Sellers can set their own prices, just as with they would with any of their items.
FBA Liquidations
FBA Liquidations is more concerned with overstocked inventories. This service offers sellers the chance to take advantage of Amazon’s wholesale liquidation partners and technology. By choosing this option, sellers can recoup losses on overstocked inventories. Both this option and the FBA Grade & Resell will be in addition to Amazon’s FBA Donation programme, which sees the ecommerce giant donate unwanted items from sellers to charities across the world.
Where Are FBA Grade & Sell And FBA Liquidations Available?
At the moment, the Amazon FBA Grade & Sell is available in the UK, but it will be available in the US by the end of 2021 and the in Germany, France and Italy in early 2022.
It is almost the opposite for the FBA Liquidation scheme, which is available to sellers across Europe in places such as France, Germany Italy and Spain, but is not yet available in the UK. It is already available in the US.
The aforementioned Amazon FBA Donation service is already available across Europe and in the UK and US. It is thought that this programme, which launched in 2019, has already given a new lease of life to over 67 million products.
These Amazon Programmes Are A Win-Win-Win
Of course, these programmes will benefit sellers as managing returns and inventories will be easier and will also benefit buyers as they will be able to return products easily. There is another winner though, and that is the environment. These new initiatives are another example of Amazon’s commitment to sustainability and reducing waste.
Should you need more help, we would like to take this opportunity to remind you that our long history of working with Amazon and eBay sellers means we can offer you expert advice.
As well as helping with your Fulfilment, we would be more than happy to help you register for the OSS and help you with all your VAT compliance needs in case your account faces any issues.
So please do not hesitate to give us a call on 0161 637 1080 or send an e-mail to enquiries@jpaccountant.com for a quote today.
