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Tax on Internet Companies

As any other UK business, an internet business is taxed where the control of the business occurs. If the business is operated from the UK, you have to register for tax purposes in the UK.


Several things, particularly important for internet businesses, are worth noting.


Work from home


A lot of internet enterpreneurs work from home. Some of the home expenses can be subtracted in the company results, however in the UK this are only the incremental costs for the business. For example:


  • Calculated additional light and heating – need to establish what proportion of the property is used as an office and for how long.

  • Additional water – only if the water is metered, not a flat charge.

  • Business broadband and telephone - £4 per week can be subtracted without any back up.


Revenue recognition


Do you own the inventory you are selling, or work as the supplier’s agent?


If you have purchased the inventory from the supplier, and bear all risks and rewards – i.e. you bear the loss in case of returns and inventory damage, then you are most likely recognising gross revenue. The revenue is the selling price times quantity sold.


If on the other hand the supplier bears all risks and rewards – you give them some of the sales proceeds and they pay you an agency fee, they bear the loss in case of return or damage, then you most likely recognise net revenue. The revenue is the agency fees.


For example, Groupon, eBay should recognise net revenue as they act as an agent for the sellers. Littlewoods, Boohoo should recognise gross inventory as they own the inventory.




Following the recent EU VAT regulation, internet sellers of VATable supplies must charge the correct VAT percentage for each country they are selling to. It is possible to register in the UK for simplified VAT and pay all the VAT there instead to each EU country.


For example, Amazon is now showing a different price depending on which EU country you log in from – this is due to different VAT percentages.


Most goods and services are standard rate.

See for VATable and non VATable supplies.


  • Food and drink is usually zero rated except alcohol, confectionery, crisps, soft drinks, mineral water, etc which are standard rated.

  • Health and education services – for example, online consultations, lessons, are also zero rated.

  • Brochures, leaflets are zero rated.

  • Babywear and childrens’ clothes are zero rated


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