Key takeaways
- Know the basics: Understanding core VAT terms—like input/output VAT, tax point, and place of supply—is essential for accurate compliance.
- Simplify reporting: Schemes such as OSS, IOSS, and the Flat Rate Scheme help streamline VAT management and reduce admin work.
- Stay compliant: Proper VAT registration, invoicing, and record-keeping ensure smooth audits and help avoid costly penalties.
In short: Key VAT terms every ecommerce business owner should know include input VAT, output VAT, place of supply, tax point, the reverse charge and VAT registration. Schemes such as OSS, IOSS, the Flat Rate Scheme and the Cash Accounting Scheme can simplify VAT reporting. The glossary below defines each term in plain words.
If you run an ecommerce business, you’ve probably noticed there are almost endless terms linked to VAT compliance. You need to get your head around them. To make things a bit easier, we’ve put together a list of the most common VAT terms you’re likely to meet, with definitions.
What is the Annual Accounting VAT Scheme?
The Annual Accounting VAT Scheme lets eligible businesses report and pay their VAT once a year. The standard is quarterly or monthly. The scheme makes VAT simpler for small businesses. It cuts admin by giving more time between VAT submissions.
What is the Cash Accounting VAT Scheme?
The Cash Accounting VAT Scheme is a way of accounting for VAT based on when cash is actually received or paid. Under it, VAT on sales and purchases does not depend on when invoices are issued or received. This can give you more control over cash flow. You only pay VAT to the tax authority once your customers have paid you.
What is an EC Sales List (ESL)?
An EC Sales List (ESL) is an EU reporting requirement for businesses that sell goods and services across borders. EC Sales Lists are used to keep track of VAT transactions within the EU.
What are exempt supplies?
Exempt supplies are goods or services that are not subject to VAT in a given country. They are usually left out of the tax base. Businesses do not charge VAT on them, and consumers pay no tax when they buy them.
What is the Flat Rate VAT Scheme?
The Flat Rate Scheme is a simple VAT scheme used in some countries. Businesses pay a fixed percentage of their gross turnover as VAT. They don’t need to work out and report VAT on each sale and purchase. The Flat Rate Scheme is designed to make VAT accounting easier for small businesses and cut admin. You can also read UK VAT Rate: All You Need to Know.
What is the Import One Stop Shop (IOSS)?
The Import One Stop Shop (IOSS) is an online portal for reporting and paying VAT on distance sales of imported goods. It covers goods valued at less than €150. The IOSS was set up to make this process simpler.
What is import VAT?
Import VAT is a tax on goods bought in one country and then brought into another. In the European Union (EU), import VAT is the tax due on items bought from countries outside the EU and brought into the EU.
What is input VAT?
Input VAT is the tax a business pays on the goods and services it buys. It’s called ‘input’ because a business can usually deduct it from the VAT it collects from customers. In many countries, you subtract the input VAT you’ve paid from the output VAT you’ve collected. The result is the net VAT you owe the government.
What is Intrastat?
Intrastat is a system EU member states use to collect and report statistics on trade in goods between EU countries. Intrastat helps track the movement of goods within the EU's single market.
What is the Margin VAT Scheme?
The Margin VAT Scheme lets businesses pay VAT on their profit margin for certain second-hand goods, not on the full selling price. It is used in some countries, such as the United Kingdom. The scheme often applies to antiques, artwork and collectibles. It lowers the tax burden when you sell these items.
What is the One Stop Shop (OSS)?
The One Stop Shop (OSS) scheme is a single EU system for reporting and paying VAT on cross-border sales of goods and services. It lets you meet your VAT duties in several EU member states through one online portal. This cuts admin and makes tax compliance easier.
What is output VAT?
Output VAT is the VAT a business charges and collects from customers when they buy goods or services. It is the business’s tax liability, which it must report and pay to the government.
What is the place of supply?
The place of supply is where a supply of goods or services is treated as taking place for tax purposes. It’s a key concept in tax. It decides which country's tax laws apply and how much tax is due on a sale. The rules vary by country. They can depend on the type of transaction and the parties involved.
What is postponed VAT accounting?
Postponed VAT accounting lets businesses in the United Kingdom (UK) account for import VAT on their next VAT return. They don’t have to pay it upfront at the border. This system was introduced as a result of Brexit. It is designed to ease cash flow for businesses importing goods into the UK.
What is the reverse charge?
The reverse charge moves the duty to report and pay VAT from the supplier to the customer. It’s often used to fight tax fraud. It also helps make sure VAT is properly collected in business-to-business sales.
What are taxable supplies?
Taxable supplies are goods or services that are subject to VAT. The supplier must by law collect the tax and pay it to the government. These supplies are usually used by people or businesses. The tax is added to the price, so the end consumer pays it.
What is a tax point?
A tax point is the time or event that triggers a tax liability. It’s also called a ‘taxable event’ or ‘taxable moment’. The tax point decides when you must pay a tax such as VAT. The timing can vary by type of tax and by local tax law.
What is VAT (Value Added Tax)?
VAT is a consumption tax on the value added to goods and services at each stage of production or distribution. The end consumer pays it in the end, which makes it an indirect tax. VAT is a major source of government revenue. Businesses collect it for the tax authorities.
What is VAT accounting?
VAT accounting is how a business tracks and reports the VAT it collects on sales and pays on purchases. It means keeping records of VAT transactions and working out your net VAT liability. It also means filing regular VAT returns with the tax authorities.
What is a VAT audit?
A VAT audit is a check of a business's Value Added Tax (VAT) records and transactions by the tax authorities. It makes sure you follow VAT regulations, report accurately and pay the right VAT. We cover this in more detail in Understanding French VAT - Rates and Compliance Essentials.
What is VAT compliance?
VAT compliance means following all the VAT rules, reporting duties and payment obligations a government sets. It involves working out, collecting and paying VAT correctly. It also means keeping proper records and filing VAT returns on time.
What is a VAT group?
A VAT group is a legal arrangement in some countries where two or more separate businesses join together for VAT. The group is treated as a single entity for VAT. This makes accounting simpler and often brings VAT benefits, such as sharing credits and liabilities within the group. Related reading: What Is a VAT Group and Should You Join One?.
What is a VAT invoice?
A VAT invoice is a formal document a business issues when it makes a taxable sale. It includes details the tax authorities require. These include the VAT registration numbers of seller and buyer, the VAT rate and the amount of VAT charged.
What is VAT liability?
VAT liability is the amount of VAT a business owes to the tax authority for a reporting period. It is the output VAT charged on sales minus the deductible input VAT paid on purchases.
What is a VAT number?
A VAT number is a unique ID code that tax authorities give businesses to track their Value Added Tax (VAT) obligations. It’s used for tax reporting, invoicing and cross-border trade in the European Union. Some other countries with a VAT system use it too.
What is a VAT penalty?
A VAT penalty is a fine tax authorities charge people or businesses that break Value Added Tax (VAT) rules. Examples include late or wrong VAT filings, under-reporting VAT liabilities and other breaches of VAT law.
What is a VAT rate?
A VAT rate is the percentage of VAT charged on goods and services, and different items can carry different rates. Rates are often grouped as standard, reduced or zero-rated, each with its own percentage. Knowing the right VAT rate for your products or services is key to getting your tax right.
What is VAT recovery?
VAT recovery is how businesses reclaim the Value Added Tax (VAT) they’ve paid on eligible costs, goods or services. It helps you lower your overall VAT liability and get back the tax you’ve paid while running your business.
What is VAT registration?
VAT registration is how a business or person officially signs up with the government as a VAT taxpayer. Once registered, you can collect VAT on the taxable goods and services you provide. You can usually also claim back VAT paid on business costs. Registration keeps you compliant and lets you report and pay VAT properly.
What is a VAT return?
A VAT return is a regular report you send to the tax authorities. It sums up the VAT collected on sales and paid on purchases in a set period. It shows how much VAT you owe the government or how much it owes you.
What is VAT software?
VAT software is a computer program or app that helps businesses manage and automate their VAT tasks. It helps you work out, report and file VAT returns accurately and quickly. This keeps you in line with tax rules.
What is the VAT threshold?
The VAT threshold is the minimum taxable turnover a business must reach in a set period before it must register for and charge Value Added Tax (VAT). This applies in many countries. Once your turnover goes over the threshold, you must collect VAT and pay it to the government.
What are zero-rated supplies?
Zero-rated supplies are goods or services that carry 0% value-added tax (VAT). They are still taxable items, but no tax is actually collected on them. This makes them tax-free for consumers in practice.
Do you need help with your VAT compliance? Book a free call with one of our VAT experts to find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers.
How Taxually handles this
Taxually’s CrossTax handles VAT registration, VAT, OSS and IOSS returns and fiscal representation in the countries you sell into, and checks your sales data against 250+ validation rules before each filing. OneTax then pays every tax authority with one bulk payment in your chosen currency.
Related guides
Frequently asked questions
Why is it important to understand VAT terminology?
Knowing key VAT terms helps ecommerce businesses stay compliant, avoid costly errors, and manage VAT reporting more efficiently across multiple jurisdictions.
What are the main VAT schemes for small businesses?
Common options include the Flat Rate Scheme, which simplifies VAT reporting by applying a fixed rate to turnover, and the Cash Accounting Scheme, which bases VAT on payments received rather than invoices issued.
What’s the difference between input VAT and output VAT?
Input VAT is the tax a business pays on purchases, while output VAT is the tax it collects on sales. The difference determines how much VAT the business owes or can reclaim.
What is the One Stop Shop (OSS) and Import One Stop Shop (IOSS)?
These are EU systems that simplify VAT reporting for cross-border and low-value import sales, allowing businesses to manage VAT through a single online portal.
What happens if my business exceeds the VAT threshold?
Once your taxable turnover surpasses the national VAT threshold, you must register for VAT, charge it on sales, and submit regular VAT returns to the tax authority.
