Distance Selling: another VAT win for Sports Direct

Sports Direct, the massive retail chain, recently appealed against HMRC’s rules regarding distance selling.

You can usually only appeal against a decision made by HMRC about your tax, but large-scale businesses sometimes ask for a ruling about VAT. Sports Direct was one such company.

In 2010, Sports Direct asked whether the VAT distance selling rules would apply to goods sold to customers abroad. HMRC responded favourably and Sports Direct was happy. However, in January 2016, HMRC wrote again, reversing the advice given in 2010. Sports Direct was not happy; the firm appealed.

The ‘Upper Tribunal’ agreed with the ‘First-tier Tribunal’ that the 2016 HMRC letter could be the subject of an appeal, but they did not rule specifically about UK VAT.

Distance selling

The distance selling rules are quite straightforward and apply when an EU business sells goods to non-VAT registered customers in other EU member states. VAT is charged on the goods according to the VAT regulations in the seller’s country – so a UK business selling products to a customer in France would charge 20% VAT.

If your total sales into a country to customers who are not VAT registered are more than either €35,000 or €100,000 in a calendar year (checking the total figure at the end of each calendar month), you must stop charging UK VAT and register for VAT in the customer’s country. You then charge the rate of VAT that applies to those goods in that country.

The VAT rates differ from country to country so you have to complete separate VAT returns in each case. If you’re selling all over the place, you could end up having to complete 28 different tax returns! To make it even more complex, each EU country chooses which of the two limits to go with – so in France, for example, it’s the €100,000 threshold, but in Ireland it’s €35,000.

What Sports Direct did

Sports Direct decided to ease their administrative issues by bringing in a separate company (Barlin) to deliver the goods, because the distance selling regulations only apply to goods delivered by the seller – in this case, Sports Direct. As they were technically not delivering the goods themselves, they thought they didn’t have to worry about the distance selling rules. So, all Sports Direct sales were subject to UK VAT -and this is what HMRC confirmed in 2010.

EU VAT Committee

In 2015, HMRC asked the EU VAT Committee for its thoughts on Sports Direct’s arrangement. The EU VAT committee said that, if the customer ordered goods from Sports Direct and received them as requested, this was a distance selling supply covered by the €35,000 and €100,000 limits. The fact that the seller arranged delivery by a separate company was irrelevant.

So, in January 2016, HMRC told Sports Direct to speak to every EU country where it sold goods, to see if each country expected domestic VAT on the prducts. If those countries expected their own VAT to be paid under the distance selling rules, then HMRC would consider a refund of UK VAT.


HMRC’s argument in the First-tier Tribunal was that there could be no appeal made by Sports Direct. This was because the January 2016 letter did not make any decision or give any actual ruling on UK VAT – so nothing to appeal against.

The tribunal disagreed and said that HMRC had effectively decided that the place of supply was the customer’s country, so the arrangement was subject to the distance selling rules. HMRC appealed this decision.

The Upper Tribunal supported the First-tier tribunal’s decision, but for different reasons. It said the first tribunal was wrong, because all that HMRC had done was suggest that Sports Direct should approach the overseas tax authorities. They did have a right of appeal because the dispute related to “the VAT chargeable on the supply of any goods or services.”

It made us smile to read this quote on the AccountingWeb website:

“The score on this VAT dispute is now Sports Direct 2 HMRC 0!”

If you have any queries regarding distance selling or any other aspect of VAT, please give our VAT team a call on 020 8530 0720, or email Svetla@nordens.co.uk.