The Basics of VAT for TikTok Shop sellers [2024 Update] 📊

As e-commerce explodes on social platforms, many sellers find themselves blindsided by the complexities of Value Added Tax (VAT), especially when it comes to cross-border sales. 

In 2024, with VAT rules constantly evolving across the UK and EU, even a small mistake can lead to hefty fines or lost profits. Whether you're selling domestically or internationally, VAT affects your pricing, reporting, and tax obligations. 

Our guide simplifies VAT for TikTok Shop sellers. We cover VAT basics, explain its application to TikTok Shop sales, and offer practical compliance tips. Our aim is to help both new and experienced sellers navigate the complexities of VAT more effectively.

DISCLAIMER

We are not Tax Advisors and so our guidance and suggestions on the application of tax rules cannot be construed as tax advice. We highly recommend that you seek advice from qualified accountants for tax compliance.

What is TikTok Shop VAT?

TikTok Shop VAT is the Value Added Tax charged on goods sold through TikTok’s e-commerce platform in countries where VAT applies, such as the UK and EU. VAT is included in the price of goods and is collected by sellers based on the location of the buyer. 

Sellers must ensure they are registered for VAT if their turnover exceeds local thresholds and correctly account for VAT on all applicable sales.

How does VAT work in the UK?

For VAT-registered businesses, VAT is collected on sales and paid on purchases. These businesses report the VAT to tax authorities at regular intervals. 

For example, when a TikTok Shop seller buys goods, they pay VAT to their suppliers, which is included in the purchase price. When the same seller makes a sale, they charge VAT to their customers, adding it to the selling price.

At the end of a VAT period (usually quarterly), businesses calculate the VAT they have collected from customers and subtract the VAT they paid on their own purchases. They then report these figures to the relevant tax authorities. Depending on the result, the business either owes VAT to the tax authority or can reclaim any excess VAT they’ve paid.

While VAT is fairly straightforward for businesses trading within a single country, it can get complex for those selling across borders on platforms like TikTok Shop. Each country has its own VAT rules, registration thresholds, and reporting requirements. In the UK, sellers must charge 20% VAT on most products and register for VAT if their annual turnover exceeds £90,000.

Once registered, TikTok Shop sellers must:

• Charge VAT on their sales.
• File regular VAT returns with HMRC detailing VAT collected and paid.
• Maintain accurate records of sales, purchases, and VAT transactions to facilitate refunds or payments.

How does TikTok Shop VAT work for sellers?

For sellers on TikTok Shop, VAT compliance works similarly to other e-commerce platforms but with some TikTok-specific elements. Sellers must ensure they handle VAT correctly based on their business location and the country they are selling to.

1. VAT for UK and EU Sellers: If you're a seller based in the UK or EU, you must charge VAT on sales if your turnover exceeds the local VAT registration threshold (£90,000 in the UK). TikTok Shop provides tools for sellers to include VAT in their product prices, ensuring transparency for buyers. Once registered, sellers must charge VAT on all applicable sales, file VAT returns regularly with the relevant tax authorities (e.g., HMRC in the UK), and keep accurate records.
2. Cross-Border Sales: If you're selling to customers in different countries, you’ll need to be aware of cross-border VAT rules. For example, in the EU, VAT rules have evolved, and sellers may need to collect VAT at the point of sale, especially for low-value goods. 
3. Invoicing and VAT Reporting: TikTok Shop allows sellers to generate VAT-compliant invoices, this is important for businesses that are VAT-registered. Sellers must ensure that these invoices correctly reflect the VAT charged, which is then reported to the respective tax authorities in their VAT returns

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How can Link My Books help with your TikTok Shop VAT

Link My Books streamlines your TikTok Shop accounting by automatically generating clear summary invoices for each payout. These invoices break down all sales, refunds, fees, and VAT, matching exactly what you receive in your bank account. This automation makes reconciliation a one-click task, saving you time and reducing errors in your financial records.

By handling your TikTok Shop accounting, Link My Books frees you to focus on growing your business. You'll have accurate, up-to-date financial information without the monthly hassle of manual bookkeeping. This not only saves time but may also improve your tax efficiency, giving you a competitive edge in the fast-paced world of e-commerce.

Here is how it works: 

1. Automated Import and Categorization

Link My Books directly connects to your TikTok Shop and integrates with your TikTok Shop accounting software, like Xero or QuickBooks. It automatically imports and categorizes your sales, refunds, fees, and VAT, ensuring that your financial data is accurate and fully compliant with tax regulations.

2. Deposit Matching

Every time TikTok Shop sends you a payout, Link My Books generates a clean summary invoice that breaks down your sales, refunds, fees, and most importantly, VAT. This invoice matches the exact amount deposited into your bank, simplifying reconciliation and ensuring your accounts are always accurate.

Why Choose Our VAT Management Tool?

"Link My Books makes TikTok Shop VAT simple."

In addition to simplifying reconciliation, Link My Books ensures accurate VAT reporting and saves you time on manual data entry. With its VAT Product Grouping feature, the tool automatically groups your products based on their VAT rates and applies the correct tax treatment to each sale. This helps you stay compliant with VAT regulations, no matter what products you're selling on TikTok Shop.

How to connect your TikTok shop to Link My Books

1. Start by linking your TikTok Shop to Xero or QuickBooks via Link My Books. This integration ensures that your sales data flows seamlessly between the platforms, making your accounting process more efficient.

2. Each time you receive a payout from TikTok, Link My Books automatically validates every transaction within that payout. It checks the details of each sale, refund, and fee to ensure the correct tax treatment is applied, saving you time and reducing errors.

3. Link My Books then creates a clear, organized summary, breaking down the payout into sales, refunds, and fees, and allocating them to the correct accounts. It also applies the correct tax rates to each transaction, ensuring your financial records are accurate.

4. Every entry is designed to match the TikTok Shop payout deposit exactly, allowing you to reconcile the transactions with your bank account in just one click.

You can try our Xero TikTok integration or our QuickBooks TikTok integration for 14 days free of charge. 

• No credit card is required
• Easy 15-minute setup

Or if you use a different accounting software, you can try Link My Books separately. 

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How to register for VAT

The VAT registration is a straightforward process, it takes just a couple of steps. If you are over the turnover threshold for your country, here’s what to do. 

1. Determine When to Register
2. Gather Necessary Information
3. Register Online (Usually)

Determine When to Register

You should register for VAT when your business’s taxable turnover (the total value of your sales) exceeds the VAT threshold set by your country. The threshold varies from country to country, so check the specific rules for your location.

Some countries also allow voluntary registration even if your turnover is below the threshold. This can be an advantage if you want to reclaim VAT for your business expenses.

Gather Necessary Information

• Business Details: Your business name, address, and contact information.
• Bank Account Details: You’ll need a bank account for VAT-related transactions.
• Unique Taxpayer Reference (UTR): If applicable, provide your UTR.
• Annual Turnover: Details about your annual sales.

Register Online (Usually)

Most countries allow online VAT registration. You’ll need a Government Gateway ID (a 12-digit series) to access the relevant tax authority’s portal.

During online registration, you may need to fill in additional forms based on your business type.

In some cases, you might not be able to register online. These include situations like:

• Applying for a temporary registration exception due to a sudden increase in turnover.
• Joining specific schemes (e.g., the Agricultural Flat Rate Scheme).
• Registering as part of a VAT group or for separate divisions/business units.
• Registering an overseas partnership.

If you fall into any of these categories, you’ll need to register by post using the appropriate form (e.g., VAT1).

Once registered, you’ll receive:

• A VAT registration number (include this on your invoices).
• Information on setting up your business tax account (if you don’t have one already).
• Guidance on when to submit your first VAT return and payment.
• Confirmation of your registration date (known as your ‘effective date of registration’).

VAT charges in different countries

For companies that do business within EU countries, governments have put distance selling thresholds in place. When a business sells more than the threshold in any EU country, they are required to register for VAT locally and file VAT returns accordingly.

UK TikTok sellers who sell their goods in Germany should pay VAT in the UK only, but when they hit the German threshold of €100,000 in a tax year, they must register for VAT in Germany and pay and collect VAT at the local VAT rate (19%).

EU countries (and the UK) are required to set minimum VAT rates and up to a maximum of two reduced rates. Member EU countries also offer a 0% VAT rate on some amenities, including intra-community and international transport.

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Different VAT scenarios for TikTok Shop sellers

VAT compliance for TikTok Shop sellers depends on various factors, including whether you're VAT-registered, your sales volume, and whether you're selling domestically or across borders. Here’s an overview of the common VAT scenarios TikTok Shop sellers might face.

Purchases that cross the UK - EU border

Post-Brexit, selling goods from the UK to EU customers (and vice versa) involves complex VAT and customs rules. Here’s how it works:

• For UK to EU Sales: TikTok Shop sellers shipping goods from the UK to the EU must now apply import VAT and customs duties for goods over a certain value (typically €150). For goods below this threshold, VAT is collected at the point of sale via platforms like TikTok Shop using schemes like the Import One-Stop Shop (IOSS)​.
• For EU to UK Sales: Similar rules apply for sellers in the EU shipping to UK customers. VAT is collected on orders under £135 at checkout, while orders above this threshold require the customer to pay VAT upon delivery, alongside potential customs duties.

As a seller, you need to make sure that the correct VAT is applied at checkout and be clear with customers about any additional costs they may face when receiving goods across borders.

You are not VAT-registered

If you’re a small TikTok Shop seller and not VAT-registered, you don’t need to charge VAT on your sales. However, this also means that you cannot reclaim VAT on business-related purchases.

1. VAT Registration Threshold: In the UK, you are required to register for VAT if your business turnover exceeds £90,000. However, you can also choose to register voluntarily even if your turnover is below this threshold.
2. Charging VAT: If you are not VAT-registered, you cannot charge VAT on your sales. This means that while you can sell products on TikTok Shop, the prices you set must be inclusive of any applicable taxes without adding VAT on top.
3. VAT on Purchases: If you make purchases for business purposes, being VAT-registered allows you to reclaim VAT on those purchases. Without registration, you cannot reclaim any VAT paid on goods or services purchased for your business.
4. Sales to Customers Outside the UK: If you sell goods to customers outside the UK, these sales are typically zero-rated for VAT, meaning you do not charge VAT but must keep proof of export for your records.
5. TikTok's Role: TikTok Shop includes applicable taxes in the prices listed for products sold on its platform, which may include VAT depending on the jurisdiction and nature of the sale. As a seller, if you are not registered for VAT, you must ensure that your pricing strategy accommodates these tax implications.

Flat rate scheme

The Flat Rate Scheme simplifies VAT reporting for small businesses, including TikTok Shop sellers. Under this scheme, instead of calculating VAT on every transaction, you pay a fixed percentage of your gross turnover as VAT. This reduces the administrative burden of managing VAT but limits your ability to reclaim VAT on purchases.

• For example, if your flat rate is 10%, you pay 10% of your gross sales to HMRC as VAT, regardless of the actual VAT rates on the individual products you sell.

The scheme is available to businesses with a VAT-taxable turnover of £150,000 or less, excluding VAT. It’s particularly useful for sellers with low VAT-exempt expenses.

Zero, reduced and standard-rated products

In many countries, different goods are subject to different VAT rates. As a TikTok Shop seller, you need to know the VAT rate applicable to each product you sell:

• Standard Rate (e.g., 20% in the UK): This applies to most goods and services.
• Reduced Rate (e.g., 5% in the UK): This applies to specific products, such as children’s car seats or home energy products.
• Zero Rate (0%): This applies to essential items like most food and children’s clothing.

If you're selling a mix of products with different VAT rates, you must apply the correct VAT rate for each item. TikTok Shop provides tools to configure these rates, ensuring that your prices and invoices reflect the correct amount of VAT

Does TikTok Shop charge VAT on seller fees?

Yes, TikTok Shop does charge VAT on seller fees in countries where VAT applies, such as the UK and EU. These fees typically include commission fees, referral fees, and fulfilment fees if you're using TikTok's fulfilment services. VAT is applied based on the seller's location and whether they are VAT-registered. If you're VAT-registered, you may be able to claim back the VAT you pay on these fees through your VAT return.

To learn more about your TikTok Shop fees check out our guide Understanding TikTok Shop Fees - Your Smart Start to Selling.

Does TikTok Shop charge VAT on advertising?

While TikTok Shop doesn’t directly charge VAT on advertising within the shop itself, VAT may apply if you use TikTok Ads Manager to promote your products. Similar to other platforms, if you’re located in a VAT-applicable region like the UK or EU, VAT will be charged on advertising fees unless you provide a valid VAT number, in which case the reverse charge mechanism may apply. This allows businesses to self-account for VAT instead of paying it upfront.

When setting up your TikTok Ads Manager account, you can either add your VAT number during registration or later.

• If you provide a valid VAT number:some text
  • TikTok assumes the ads are for business purposes (e.g., promoting goods or services).
  • If your ads are for non-business purposes (like charity or non-profit activities), leave the VAT section blank.
• If you don’t provide a VAT number:some text
  • Your ads will be subject to VAT at your country’s local tax rate, and VAT will be charged on your ad purchase.

For UK Advertisers:

• With VAT number: You’re charged the standard 20% UK VAT rate, and a full tax invoice is provided.
• Without VAT number: You’re treated as a final consumer, charged 20% VAT, and can request an invoice.

For EU Advertisers:

• With VAT number: No additional VAT is charged on top of your ad cost.
• Without VAT number: You’re charged VAT at your local tax rate based on your country of residence.

To learn more about TikTok bookkeeping check out our guide TikTok Shop Bookkeeping: What You Need to Know.

What to do with a mixture of VAT-rated products

When selling a variety of products with different VAT rates on TikTok Shop, it’s important to ensure that the correct VAT is applied to each item. This is especially crucial if your product range includes a mix of standard-rated, reduced-rated, and zero-rated goods. Here’s how you can manage these differences effectively:

1. Categorize Products by VAT Rate:some text
   • Standard-rated (20%): Most products fall under this category in the UK, including general consumer goods and services.
   • Reduced-rated (5%): Specific items like energy-saving materials or children's products may be eligible for a reduced VAT rate.
   • Zero-rated (0%): Essential items such as most food and children’s clothing may be zero-rated, meaning no VAT is applied.
2. Set Up Correct VAT Rates in TikTok Shop:some text
   • Within TikTok Shop's settings, ensure that each product is correctly classified by its applicable VAT rate. Most e-commerce platforms, including TikTok, allow sellers to configure tax settings based on product categories.
   • You can automate VAT calculations by using tools like Link My Books, which syncs with TikTok Shop and assigns the correct VAT rate based on the product’s classification​.
3. Apply VAT Consistently:some text
   • It’s crucial to ensure VAT is correctly applied at checkout. If a customer purchases multiple items with varying VAT rates, TikTok Shop will calculate the appropriate tax for each item and combine it into the total amount.
   • Check local VAT laws regularly, as different countries may have different rules for reduced or zero-rated goods, and thresholds for cross-border sales may vary​.
4. Maintain Accurate Records:some text
   • For VAT returns, it’s essential to keep detailed records of which VAT rates were applied to each product. This not only ensures compliance with tax authorities but also simplifies the process of reclaiming VAT on eligible expenses​

Over and under-paying VAT for TikTok Shop sellers

Managing VAT effectively is crucial for TikTok Shop sellers, but mistakes can happen, resulting in either overpaying or underpaying VAT. Here’s how both scenarios can occur and what you can do to avoid them.

Over-Paying VAT

Overpaying VAT occurs when you incorrectly charge VAT on items that are zero-rated or reduced-rated, or if you apply the wrong rate altogether. This leads to higher costs for your customers and may reduce your competitiveness, as well as cut into your profits if not corrected.

• Common Causes: Misclassification of products (e.g., charging 20% VAT on zero-rated goods) or mistakenly including VAT on exports that are VAT-exempt.
• How to Avoid: Carefully categorize your products based on their VAT rates (standard, reduced, or zero-rated) and ensure you’re following the correct VAT rules for cross-border sales. Using automated tools like Link My Books can help apply the correct VAT rates to your products and reduce the risk of overpayment​.

Under-Paying VAT

Underpaying VAT occurs when you fail to apply the correct VAT rates to your sales, either by omitting VAT where it should be charged or by charging too little. This could result in significant penalties from tax authorities such as HMRC or EU tax bodies, as well as unexpected backdated payments.

• Common Causes: Not charging VAT on items when it’s required, miscalculating VAT for cross-border sales, or failing to adjust your pricing when your sales exceed VAT registration thresholds.
• How to Avoid: Ensure you register for VAT when your turnover exceeds the threshold (e.g., £90,000 in the UK) and regularly review your sales to make sure you’re charging the correct amount of VAT. Using automated VAT management software like Link My Books can ensure your tax filings are accurate and compliant​

Other considerations for TikTok Shop VAT

In addition to managing VAT on sales, TikTok Shop sellers must also consider other aspects of taxation, including customs duties, import VAT, VAT invoicing, and remitting VAT. These are critical for ensuring compliance with tax regulations, especially when dealing with cross-border sales and various product categories.

Customs duty

When selling goods across international borders, particularly from the UK to the EU (or vice versa), customs duties apply. Customs duty is a tariff or tax imposed on goods when transported across international borders, calculated based on the value of the goods, their nature, and the country of origin.

• When It Applies: For orders shipped between the UK and the EU, customs duties apply for goods valued over €150. These duties are typically paid by the customer upon receipt of the goods.
• Seller Responsibility: As a seller, it’s crucial to inform your customers about any potential customs duties they may incur, particularly for high-value orders. Ensure your pricing reflects this to avoid unexpected costs for your buyers

Import VAT

Is calculated on the total value of the goods, including shipping and any applicable customs duties.

• Reclaiming Import VAT: If you are a VAT-registered seller, you can reclaim import VAT as part of your VAT return. This helps to reduce your overall tax liability. For example, if you import goods from outside the EU to sell on TikTok Shop, you will need to pay import VAT at the border but can reclaim this VAT on your next VAT return.
• Automating Import VAT: Using accounting software integrated with TikTok Shop can help ensure that import VAT is correctly accounted for, preventing errors when reclaiming VAT​.

Invoicing for VAT

VAT-registered sellers must issue VAT-compliant invoices for sales made through TikTok Shop. These invoices are essential for both you and your customers to ensure VAT compliance. Here’s what a VAT invoice should include:

• Your VAT registration number.
• The VAT rate applied and the total VAT amount.
• Details of the goods or services sold and the net price before VAT.

TikTok Shop allows sellers to configure tax settings to include VAT in their invoices automatically. Sellers should regularly review these invoices to ensure they meet the local tax authority requirements, such as those set by HMRC in the UK.

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Remit VAT

VAT-registered sellers are required to file VAT returns at regular intervals (usually quarterly). This involves:

• Calculating the total VAT collected from sales.
• Subtracting the VAT paid on business-related purchases (such as import VAT).
• Paying the remaining amount to the tax authority (e.g., HMRC in the UK), or claiming a refund if you’ve paid more VAT than you collected.

Automation Tools: Tools, like Link My Books, simplify this process by automatically compiling all your sales, fees, and VAT data. The tool generates the necessary VAT reports, making it easier to submit your VAT return on time and ensure compliance​.

What about VAT for non-EU-based selling partners?

For non-EU-based selling partners on TikTok, VAT obligations can be complex, particularly when selling to customers in the EU. Here are the key points regarding VAT for these sellers:

Zero-Rated Exports

When non-EU sellers sell goods to customers outside the UK, these sales are usually zero-rated for VAT. This means that no VAT is charged, but sellers must keep proof of export to support this in their VAT returns

OSS Registration

Non-EU businesses can register for the One-Stop Shop (OSS) under the non-union scheme. This allows them to declare and pay VAT on B2C sales of goods to EU customers from a single EU Member State. For example, a US-based seller can register in Ireland and use that registration to manage VAT obligations across multiple EU countries.

Marketplace Responsibility

If a non-EU seller uses TikTok Shop, the platform may act as an intermediary and be responsible for collecting and remitting VAT on sales made to EU consumers. This is particularly relevant for distance sales of imported goods, where the marketplace collects VAT at the point of sale.

Intra-EU Sales

 For sales made to customers within the EU, non-EU sellers must comply with local VAT regulations. They can either register for VAT in each EU country where they sell or use the OSS to simplify compliance by reporting all sales through one portal.

Simplification through IOSS

The Import One-Stop Shop (IOSS) system introduced by the EU in 2021 simplifies VAT compliance for non-EU sellers. By registering for IOSS, non-EU sellers can charge VAT at the point of sale on goods valued under €150, allowing them to file VAT returns in a single EU country, rather than registering in each member state.

FAQ on TikTok Shop VAT

Does TikTok Shop report to HMRC?

TikTok Shop does not directly report to HMRC on behalf of individual sellers. It is the seller's responsibility to report and remit VAT to HMRC as part of their VAT returns if they are VAT-registered. However, TikTok actively collaborates with HMRC to help HMRC gain a better understanding of its business operations and openly address any tax-related matters that arise.

Additionally, under the new Making Tax Digital (MTD) scheme, HMRC has greater access to view businesses' financial records and can conduct random audits more easily. While audits were possible before MTD, the new digital regime simplifies HMRC’s ability to monitor and assess a company's tax compliance.

Where do I get a VAT invoice from TikTok Shop?

TikTok Shop allows sellers to generate VAT-compliant invoices. These invoices should be accessible through the TikTok Seller Center or your order management system within the platform. You can configure your store to automatically generate invoices that include details like VAT charges, product information, and your VAT number.

Do I need a VAT number before selling on TikTok Shop?

You don’t need a VAT number to start selling on TikTok Shop, especially if your turnover is below the VAT registration threshold (e.g., £90,000 in the UK). However, once your business exceeds this threshold, you must register for VAT and charge VAT on applicable sales​.

How does TikTok Shop handle VAT collection and remittance?

TikTok Shop helps sellers comply with VAT laws by allowing them to configure VAT settings for their stores. When VAT is applicable (such as for UK and EU customers), TikTok Shop calculates the VAT based on the product and buyer’s location. Sellers are responsible for ensuring that the correct VAT is collected and for remitting the VAT to the tax authorities via their regular VAT returns​.

Is there a VAT requirement in the US for TikTok Shop buyers and sellers?

In the US, there is no VAT system, instead, sales tax applies. Sellers on TikTok Shop must comply with US sales tax requirements, which vary by state. TikTok Shop typically automates the calculation of sales tax at checkout, based on the buyer's location. VAT is not a concern for US-based sellers unless they are selling to international customers in regions where VAT applies​.

Who is Responsible for VAT on Cross-border Sales on TikTok Shop?

For cross-border sales on TikTok Shop, VAT responsibility depends on the value and destination of the goods. For orders under £135 (UK) or €150 (EU), TikTok Shop typically collects and remits VAT at the point of sale. For higher-value goods, the buyer may be responsible for paying VAT and customs duties upon receipt of the order. Sellers must ensure that they apply the correct VAT rate during checkout and clearly communicate any potential additional costs to the buyer.

Make your TikTok Shop VAT calculations simple with Link My Books

Managing VAT on TikTok Shop can be challenging, especially when dealing with different VAT rates, cross-border sales, and changing tax regulations. Link My Books simplifies this entire process by automating VAT calculations, ensuring accurate tax reporting, and integrating seamlessly with TikTok Shop.

Let Link My Books handle the heavy lifting for your TikTok Shop VAT. By automating VAT tracking, reporting, and compliance, you can focus on growing your business while staying on the right side of tax regulations. Start your free trial today and see how easy VAT management can be!