Brexit brought many changes to how online retailers in the EU and in the UK need to handle VAT. EU distance selling rules no longer apply in the UK, and shipments between the UK and the EU are now subject to import duties and other fees.
The UK’s simplified VAT scheme
Since January 1, 2021, the UK has introduced a simplified VAT scheme, where import duties and import VAT are not charged on goods of a value of less than £135; UK VAT, however, applies, which means businesses who import such products need to register for VAT in the UK. That is, unless sales transactions are facilitated by an online marketplace, in which case it’s the marketplace operator’s responsibility to charge and remit VAT. The EU is introducing a similar reform, scheduled for July 1, 2021.
The EU VAT reform and the OSS scheme
The EU VAT reform is very similar to the one in the UK. Retailers will not need to pay import duties and VAT on goods of a value of up to €150, if they use the Import-One-Stop-Shop (IOSS). They need to apply VAT of the destination country and declare it via their quarterly VAT return for sales in the EU.
Online marketplaces will be responsible for VAT on goods of a value of €150 or less, and will need to apply the VAT rate of the country where the end customer is located.
Regular import duties will apply to products of a value of over €150.
The One-Stop-Shop (OSS) scheme makes it possible for businesses to register for VAT and account for it in a single EU country, instead of in each country where they have customers. Additionally, distance selling limits no longer apply: instead, a pan-EU threshold of €10,000 will be introduced. Under that limit, suppliers will need to apply the VAT rate of the country where they’re established, and above it, they’ll have to charge VAT as per the destination country’s rules and rates.
How can online retailers get ready for these changes?
Overall, the changes described above are good news for online retailers, as they’ll simplify tax compliance, and make it potentially less expensive. They’ll also have the chance to improve customer experience by minimizing the risk of incurring additional import charges.
Here are some things to consider, and steps you can take to make the transformation easier:
- Describe your sales channels: online marketplaces, your own website, third party retailers.
- Add details on how sales are completed and fulfilled in each instance. Specify the inventory’s location, the couriers you’re using, etc.
- Add pricing information: do you have goods that are over €150? Do you often sell parcels of a total value of over €150? If you sell 2 products of €90 each to the same customer, will you send them together or separately?
- If you’re using the services of an online marketplace, check if they have provided you with additional guidance and information on how they’ll address the changes. Will VAT being handled by the marketplace incur any additional costs for you?
- Define how you will collect and store information and receipts on purchases and sales.
- Decide how to communicate the changes to your customers, as well. Will your pricing change? What are the procedures you’ll implement to maintain a high level of customer satisfaction?
This list is not exhaustive, but it gives you an overview of the things you need to consider in order to prepare. As you can see, there are a few changes you need to implement in order to maintain business continuity.