Expanding internationally can feel like a natural next step when your UK business is growing, especially if you work in professional services, hospitality or retail. But once you start selling to customers in other countries, VAT gets more complicated, leading to VAT pitfalls, and the risks of penalties and cashflow problems increase quickly if things are not set up properly.
The UK VAT registration threshold is £90,000 of taxable turnover and is set to remain at that level for the 2025/26 tax year. If you go over that on a rolling 12-month basis, you must register and start charging VAT (HMRC, 2025). When you are expanding internationally, you also need to think about whether you have to register for VAT or the local equivalent in the countries where you sell.
SMEs remain at the heart of the UK economy, accounting for around 60% of total employment and just over half of business turnover at the start of 2025 (ONS, 2025). At the same time, around 21% of trading businesses with 10 or more employees reported exporting in the last year, and over a third of those said their export costs had risen compared with 2024 (ONS, 2025). If you are expanding internationally, getting VAT wrong can seriously eat into already tight margins, so it pays to get on top of the rules early.
Why VAT gets harder when expanding internationally
Domestic VAT is tricky enough, but expanding internationally introduces a few extra pressure points. You are often dealing with different tax authorities, new customer expectations and more complex supply chains.
For goods, you need to consider when exports can be zero-rated from the UK, when import VAT will be due overseas, and who is responsible for paying it – you or your customer. The answers will depend on where the goods are when ownership transfers, how they move and the terms in your contracts. HMRC guidance makes it clear that most exports can be zero-rated if the right conditions are met and evidence is kept, but that is a big “if” when you are juggling multiple markets.
For services, things turn on “place of supply” rules. These decide which country’s VAT rules apply. Whether you are an IT consultant billing a client in Germany or a restaurant group licensing your brand to a franchise abroad, expanding internationally means thinking carefully about where your services are treated as supplied and whether you need to register locally. The Department for Business and Trade stresses that you should understand place of supply before pitching or pricing an overseas contract.
On top of that, the Autumn Budget 2025 confirmed that VAT rates remain unchanged, but there are technical changes around areas such as cross-border VAT groups from late 2025. When you are expanding internationally, those technical areas can quickly become relevant if you operate through multiple entities.
Get VAT registration and thresholds right before you sell
Before you start expanding internationally, it is worth taking a step back and mapping where you are likely to create VAT obligations. That means looking at both UK and overseas thresholds.
In the UK, you must register once your rolling 12-month taxable turnover goes over £90,000, or if you expect to exceed it in the next 30 days. Waiting until the year end is too late – HMRC expects you to monitor turnover continuously. If you are close to the line, a strong forecast and regular checks will help you avoid a last-minute scramble.
Overseas, there is often no equivalent of the UK’s relatively generous threshold. Some countries have very low turnover limits or require non-resident businesses to register from the first sale. If you hold stock locally, sell digitally to consumers or operate through an online marketplace, the rules can be stricter again.
To reduce risk when you are expanding internationally, you should be clear on:
- Local VAT thresholds: Understand when you must register in each country where you expect to trade.
- Non-resident rules: Check whether you need a fiscal representative or local agent before making supplies.
- Group structure: Consider whether using a separate overseas subsidiary changes where VAT must be accounted for.
This planning should happen before you sign distribution agreements or start shipping regular orders. As part of that work, we can review your current turnover, plans and structure and suggest a VAT route that supports growth rather than holding it back. You can find out more about how we support growing businesses on our home page.
Common VAT pitfalls when selling goods and services overseas
Most VAT problems for businesses expanding internationally come back to a few recurring issues. These are the ones we see most often.
- Wrong treatment of exports: Assuming all overseas sales are zero-rated. In reality, you need to meet specific conditions and hold evidence, such as export documents, to justify zero rating.
- Ignoring import VAT and duties: Quoting a price without thinking about import VAT, customs duties and clearance fees. If you agree to deliver goods “duty paid”, those extra costs will fall on you and may wipe out profit.
- Overlooking place of supply: Treating every overseas service as outside UK VAT. Many B2B services are taxed where the customer belongs, but there are important exceptions, particularly for property, events, digital services and work for non-business customers.
- Poor invoicing: Issuing invoices with the wrong VAT rate, missing customer VAT numbers or incomplete descriptions. That can delay payment, increase queries and weaken your evidence if HMRC reviews your records.
- Weak record-keeping: Failing to keep contracts, shipping records and correspondence. When you are expanding internationally, HMRC expects you to have clear evidence to support your VAT treatment.
We can help you review existing contracts and sample invoices to ensure that the VAT position aligns with what actually happens in practice. That is often where problems emerge.
Systems, records and cashflow when you expand overseas
Once you are expanding internationally, VAT is not just about getting the rules right on paper. It is also about how the numbers flow through your systems and affect cashflow.
Different countries have different reporting deadlines and formats. Some require local e-invoicing, some work on monthly returns, some on quarterly returns. If your accounting software is set up only for UK VAT, you might find it hard to track overseas VAT codes, exchange rates and filing dates.
There are a few practical steps that help most SMEs:
- Robust VAT coding: Make sure your accounting system can handle multiple VAT rates and jurisdictions so invoices post correctly first time.
- Clear tax points: Train your team on when VAT becomes due, especially for milestone projects or retainers billed to overseas clients.
- Cashflow planning: Factor in the timing difference between paying import VAT or foreign VAT and recovering it, if recovery is allowed.
- Evidence storage: Keep export evidence and contracts in a structured digital format so you can produce them quickly if questioned.
If you work with professional services, hospitality or retail operations, that might include separate tills or software for overseas branches, or dedicated VAT codes for international online sales. Getting this right early makes VAT feel like a routine part of your monthly process rather than a constant worry. If you would like to sense-check your current set-up, you can contact us for a VAT review.
Bringing your VAT obligations together when expanding internationally
Expanding internationally can open up valuable new markets, but VAT risk tends to grow just as fast as sales. With the UK VAT registration threshold fixed at £90,000 for 2025/26 and overseas authorities taking a tougher line on foreign suppliers, HMRC and other tax bodies expect you to keep tight control of your VAT position. If you are not careful, interest, penalties and delayed repayments can all damage cashflow at the point you want to reinvest.
The good news is that most VAT pitfalls for businesses expanding internationally are predictable and manageable. If you understand where your supplies are taxed, keep an eye on UK and overseas thresholds, set up your systems properly and keep solid evidence, you are already ahead of many businesses of a similar size.
Our role is to keep things practical. We can help you review your plans for expanding internationally, map where VAT registrations may be required, tidy up invoicing and records, and liaise with overseas advisers where needed. That gives you more confidence to price correctly and commit to longer-term contracts.
If you are thinking about expanding internationally and want to avoid VAT pitfalls, talk to us about our VAT and international expansion support for SMEs. Strong VAT planning now makes it much easier to grow without unpleasant surprises later. You can start by getting in touch with us.
