Much like Australia did a few years ago, the UK and EU are looking to implement a similar registration-based system that puts more onus on the seller or marketplace to capture VAT and end collections at the door. Also, the new changes puts more pressure on low value importers that seek to avoid paying VAT. This could be a big change for US small businesses that export to the UK. When we look at the average value of goods shipped by most e-commerce shipping software providers, we see an average value around $55 per shipment, well below the low value threshold that will be implemented by the EU and UK.
Both the United Kingdom and the EU will introduce their changes in 2021. The UK will introduce their plan on VAT (value added tax) on all goods that will be imported from outside the UK starting January 1, 2021. The EU will introduce their plans halfway through the year starting in July 2021.
What will be affected under UK changes
VAT tax changes will be for all goods that is imported from Great Britain, England, Scotland and Wales with value not exceeding £135 ($173 USD). Under the new UK model, it will treat all goods from the European Union and non-EU countries the same way. Northern Ireland will have special status in regard to VAT for it to continue trade with Ireland. The government made known UK businesses will not be disadvantaged by competition from VAT-free imports. In addition, the new changes will target the problem of overseas sellers failing to pay the right amount of VAT on sales of goods that are already in the UK at the point of sale.
The following changes will apply on imports of a value below £135 ($173 USD) from January 1, 2021:
- The time VAT is due to be paid will move from the point of importation to the point of sale
- Online marketplaces involved in facilitating the sale will now be responsible for collecting and accounting for the VAT (in this scenario, the online marketplaces will become the deemed supplier, so the overseas supplier will not have to register and account for UK VAT)
- Goods sent from overseas and sold directly to UK consumers, without online marketplace involvement, will be required to register and account for the VAT to HMRC (Revenue and Customs
- Where business-to-business sales are made to a UK VAT registered trader, if the business customer is VAT registered in the UK and provides its valid VAT registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge
Imports of a value above £135($173 USD):
- Businesses can opt to use ‘postponed VAT accounting’ to account for import VAT on their VAT return for goods imported from anywhere in the world
- This is as opposed to having to pay VAT upfront and recover it later (assuming the VAT is fully recoverable)
EU July 2021 ecommerce VAT Package
On 1 July 2021, The European Union (EU) will introduce new reforms to the VAT obligations for B2C e-commerce sellers and marketplaces. The EU changes are very similar to the UK changes. They include the major changes:
• Launching the One-Stop-Shop EU VAT return
• Ending low-value import VAT exemption and new IOSS return
• Making marketplaces deemed supplier VAT
Launching the One-Stop-Shop EU VAT return
The existing ‘Distance Selling Thresholds’ simplifications will be withdrawn once the reforms come into place. The single EU VAT return, One Stop Shop (‘OSS’) will then be implemented. Which means sellers shipping goods from their home country to customers across the EU will have the opportunity to opt in to use OSS to report all their pan-EU sales. In todays time the current requirement is VAT being registered in each country once the seller has passed the relevant country distance selling threshold. This reform is made into an extension of the 2015 Mini One-Stop-Shop (‘MOSS’).
Closing the loophole on import VAT exemption
The €22 ($25 USD) VAT exemption on small parcels being imported into the EU for delivery to consumers will end. Sellers have continuedly took advantage of the exemption by purposely under-declaring the import values of goods to avoid VAT. With this new reform VAT will have to be charged at the point-of-sale for consignments not exceeding €150 ($176 USD). The ‘Import One Stop Shop’ (IOSS) will have VAT be declared and paid via by this new submission. Import One Stop Shop will hope to establish a more efficient, quick and easy custom clearance.
This reform will end the disadvantaged EU sellers from non- EU sellers by having VAT on all imported goods. IOSS will make non-EU sellers have to register in one EU state to declare VAT on imports below €150 ($176 USD). If any seller chooses not to use the IOSS, the customer will have to pay the delivery or customs agent to access their goods.
Marketplaces become the deemed seller and VAT collector
Part of the July 2021 reform will require marketplaces which facilitate cross-border sales to consumers via third parties to become the ‘deemed seller’ in certain cases. The new deemed supplier rule will apply in two use cases when the marketplace is facilitating a B2C sale: imports not exceeding €150 ($176 USD); and distance selling cross-border or domestic transactions of any value for non-EU sellers. After July 2021 charging and collecting VAT on deemed seller transactions will become the responsibility of Marketplaces. For imports not exceeding €150 ($176 USD), instead of import VAT, the marketplace will charge the customer VAT at the point-of-sale and declare it instead of the seller. Both EU and non-EU sellers will benefit from reduced VAT obligations and may be able to deregister in some EU states.