EU & UK: How is the EU VAT reform affecting UK e-commerce retailers?

October 12, 2021

The EU VAT reform, which was rolled out on July 1, 2021, has a profound impact on all sellers who have EU customers, including non-EU businesses. After Brexit, this also includes UK retailers, and in this article, we’ll look into the impact that the EU VAT reform has had on them.

The goals of the reform include granting fair competition for EU and non-EU businesses alike, stimulating intracommunity trade, and eliminating VAT avoidance and fraud, in order to close EU’s VAT gap. Additionally, to facilitate tax collection, marketplaces such as Amazon, Etsy, eBay and AliExpress are now responsible for charging and remitting VAT in many instances, instead of individual sellers. Nevertheless, many UK businesses are struggling to adapt to the changes of the reform and post-Brexit trade. 

How are UK businesses affected by the EU VAT reform?

Thousands of companies have already registered for the IOSS (Import-One-Stop-Shop) scheme, which simplifies customs obligations for goods imported into the EU, if the consignment value is under €150. The first IOSS filings have already taken place this summer, and businesses are adapting to the new rules. 

One of the biggest changes that are impacting British sellers is the removal of the VAT exemption threshold for items of a value of less than €22. 

UK businesses now have to quickly adapt their administrative processes to a number of challenges: 

  • The correct classification of products
  • Applying the correct VAT rate of each customer’s country
  • Calculating and labeling VAT charges correctly
  • The implementation of all necessary reporting and processing systems. 

The average UK business is estimated to need to spend up to a few thousand pounds this year to navigate the changes, remain compliant, and ensure business continuity. The COVID-19 pandemic has put an additional strain on SMEs. 

What are the risks for UK businesses?

Risks in case of non-compliance include: 

  • Fines and an additional administrative & legal strain 
  • Double charges of import fees or duties
  • Consignments being blocked at customs

These risks can also affect end consumers and lead to a worsened customer experience. To maintain their reputation and guarantee a positive shopping experience, businesses must carefully assess all risks and make sure they’re compliant with the new EU rules. 

The advantages of the EU VAT reform for UK companies

Of course, the VAT reform has important advantages, as well. UK companies can now use a single VAT registration in one EU member state to file VAT returns, instead of maintaining several registrations. The IOSS system also makes imports easier, faster and smoother for end customers. This means that after the initial adjustment period, trade with the EU will, in fact, be simplified.

In the next few months, businesses will have to finetune their processes and also adapt to marketplaces’ procedures, whenever VAT is directly charged by the marketplace. Once the transitional period is over, businesses that adapt to changes successfully will be able to trade with EU customers easily.