What do these new VAT rules mean for UK sellers?

From 1 July 2021, the VAT rules on cross border sales from business to consumer (B2C) have changed. A consumer being an individual or organisation that is not registered for vat.

There is no longer a threshold for distance selling to EU member states and the vat exemption at importation of small consignments of EUR 22 has been removed.

This means that all goods imported into the EU from non-EU countries (like the UK) will be subject to VAT.

Imports to the EU over EUR 150 (£135) will have VAT along with any customs duty assessed by the customs office and collected from the buyer on delivery.

Imports to the EU under EUR 150 (£135) should have VAT added to them at the time of the sale.  The VAT added will be at the rate applicable in the country of the buyer.  (i.e., a sale made to a French customer will have VAT added at 20% and a sale to a Italian customer will have VAT added at 22%).

As a UK business that is registered for UK VAT, you cannot account for the VAT charged in other countries, on your UK vat return it will need a separate return in the country of import. So, what are the options?

Option 1 – You can register for vat in every EU member state you sell to, and complete VAT returns in that country. It is probably not worth considering this option due to language barriers and possible additional costs as a local agent would be needed to submit the VAT returns.

Option 2 – You can change your terms and conditions to make your customers responsible for any import VAT and duty on delivery of the goods. This could potentially affect your sales, as customers will have to pay these costs when the goods are delivered, they may look for sellers who include the VAT at point of sale, so the goods are delivered without additional costs.

Option 3 – You can register for a scheme for distance sales called Import One Stop Shop (IOSS). This scheme has been created to simplify the declaration and payment of VAT charged for EU member states.

This will require monthly reports and VAT payments of EU VAT.

These options only relate to the sales under EUR 150 (£135) sales over this amount will be included on your UK VAT return as exports in the usual way.

A UK business wishing to register for IOSS will be able to do so in any EU Member state, however as your business is not based in the EU, you will normally need to appoint an intermediary to fulfil the vat obligations under IOSS.

It will be possible to register for the scheme in the UK, but the registration portal is not yet available and HMRC have not indicated when it will be available.

The UK portal is going to be the preferred option for registering and submitting the monthly returns that are required by the scheme. Until the UK portal is available, it may be worthwhile  using a courier who can account for the VAT under IOSS on your behalf.

For example: – Royal Mail are offering an assisted IOSS option which is a simple ‘pay-as-you-go’ option where Taxamo acts as the electronic interface allowing you to use its IOSS number to send parcels to consumers located in the EU. For sales where Taxamo is the electronic interface, there is no need for you to register for IOSS and file tax returns.

There is a £2 per item charge for this service, other couriers may have similar services available.

There is one more thing you will need to consider about the new rule: –

If you use an online marketplace for your sales.  The July 2021 reforms oblige marketplaces which facilitate cross-border sales to consumers via third parties to become the ‘deemed supplier’ in certain cases. This means the marketplaces become responsible for charging and collecting VAT on deemed supplier transactions. You will need to check with your online marketplace to see they are the deemed supplier for your sales, this is not always the case and it will then be your responsibility to account for the VAT using one of the options mentioned.

Please speak to us for more information and guidance.