On December 31, 2020, the UK has left the EU VAT system. As a result, starting from January 1, 2021, the VAT rules and obligations for e-commerce marketplaces and sellers that import products to the UK have changed.
The changes apply in Great Britain (the UK minus Northern Ireland). For the time being, Northern Ireland is operating under a different VAT framework for e-commerce sales.
VAT Rules and Obligations for B2C E-commerce Transactions
From January 1, 2021, the HMRC has defined the following VAT rules for business-to-customer (B2C) e-commerce transactions:
- There’s no longer a VAT exemption threshold at £15. All products imported into the UK are now subject to VAT.
- Goods that cost less than £135 are not subject to import VAT, but to sales VAT instead. The seller (based in the UK or abroad) must charge VAT to the UK customer at checkout and remit the collected VAT in the UK. A customs declaration (albeit simplified) is still necessary. For products that cost more than £135, sellers are subject to the same VAT and customs obligations as before.
- Online marketplaces (OMPs) that facilitate the sales of goods costing less than £135 are responsible for collecting and remitting VAT in the UK. This is valid even for sellers outside of the UK, and where the goods were already on the territory of the UK.
Below, we’ll discuss the different rules that apply, based on the location of the seller and of the goods.
Products that were not in the UK when the sale occurred
- Goods that cost less than £135: There is a new VAT regime that applies to goods that cost less than £135. This includes multiple products in the same package, as long as the total value does not exceed £135. This limit is related exclusively to the value of the goods and excludes insurance or transportation fees. Sellers (both located outside or in the UK) need to charge VAT at checkout. If the goods were sold on an online marketplace that facilitates the sale, it’s the OMP’s responsibility to issue a VAT invoice to be presented to customs and to collect VAT. The OMP or the seller must then file a VAT return and remit VAT in the UK.
- Goods that cost £135 or more: For products that cost over £135, the existing VAT rules apply. The seller must pay VAT and customs duties, or they might also have the customer pay them at customs or at delivery.
Products that were already in the UK when the sale occurred
- Sellers based outside of the UK that operate via an OMP: For sellers based outside of the UK where an online marketplace is facilitating the sale, the OMP is responsible for applying the standard VAT rate for the UK, and is considered the deemed supplier. The seller has paid VAT to import the goods into the UK, or paid VAT for domestic purchases, and then sells the goods to the OMP. This applies to B2C transactions.
- Sellers based outside of the UK that have their own website: For sellers that do not operate via an OMP, the old VAT regime is effective. It’s the seller’s responsibility to complete their VAT registration in the UK, and charge, report and remit VAT.
How Can Fonoa Help You?
We recommend e-commerce businesses to prepare for these new rules timely. For volume businesses, this means ensuring your IT systems and e-commerce software are ready to handle the complexity these new rules bring and provide you (or your tax accountant) with adequate data to file your tax returns.
At Fonoa, we have developed a platform that is ready for the future and automates all aspects of your e-commerce VAT obligations.
A digital one-stop shop for online retailers with standard integrations to the world’s leading marketplaces and e-commerce tools like Shopify, Woocommerce, Magento and Opencart.
What’s more, reach out to us and we can help you handle your tax registrations, tax filings and representation where needed.