Holding mobile phoen

Further VAT changes on the horizon for online retailers

Rob Janering, VAT Director
Holding mobile phoen

It has been almost five months now since Brexit and businesses are beginning to get to grips (for better or worse) with the VAT changes that brought. For online retailers, it predominantly involved managing import VAT and duty charges when items arrived at the border. This was because the VAT Distance Sales rules previously applicable to supplies between the EU and UK ceased to apply from 1 January 2021.

Goods arriving at the UK or EU borders from either location are now subject to taxes. The UK put in a simplification scheme on 1 January 2021 that saw no import VAT or duty payable on packages up to £135 in value. However, the flipside of this was that the supplier needed to register and account for UK VAT on those sales. That was unless the sale was made via an online market place (OMP), in which case the OMP took responsibility for accounting for the UK VAT due.

The EU was due to implement a similar scheme at the same time as the UK but it was delayed because of Covid-19. That delay is nearly over though and from 1 July 2021, businesses delivering goods into the EU for sale to consumers will need to understand those new rules.

New EU rules

The EU’s rules are very similar to those adopted by the UK. Any packages valued at up to €150 will be free of import VAT and duty when arriving in the EU if the supplier has registered for the Importers One Stop Shop (IOSS). An IOSS registration number on the package will indicate that the supplier is accounting for VAT on the sale (“supply VAT”) by reference to the Member State where delivery takes place.

If the sale is made via an OMP and the package is below €150, the OMP will account for the VAT due in the place of delivery. Looking at the value of the package and not the sale price is important, as whether the supply can fall within this scheme depends on that.

For packages above this value the normal import rules will apply. This means that import VAT will be charged and potentially customs duty. This will be for the supplier or customer to pay depending on who is the importer. The supplier can only recover the import VAT if it is the importer – doing that will result in a need to register where the import takes place.

Goods delivered within the EU which are being sold on a B2C basis also have new rules to consider. Previously these would have been subject to Distance Sales thresholds, so VAT was due in the country of despatch unless the value of sales to a specific Member State exceeded the threshold (normally €35k or €100k). When this happened, the supplier had to register for VAT in that Member State and account for VAT there.

The EU recognised this led to many businesses having multiple VAT registrations to manage, all of which were subject to different filing and administrative requirements. To simplify matters, from 1 July 2021 there will be a single €10,000 pan EU threshold which, if exceeded, will make all B2C deliveries from one Member State to another subject to VAT in the place of delivery. To account for this VAT suppliers can use a One Stop Shop (OSS), where all the EU VAT due can be declared in one return.

Under the OSS scheme, OMPs facilitating supplies by non-EU entities will have liability for the VAT due. EU entities will have to account for the VAT themselves. To also be noted, domestic supplies (those within a single Member State) will not be reportable within the OSS return.  A normal VAT registration will be needed for those supplies.

How to get ready

These changes should be positive for many businesses in that reporting VAT due will become simpler and should be less expensive. There are also opportunities particularly for those delivering into the EU to enhance the customer experience by eliminating any additional charges that can occur if import VAT and duty is not managed appropriately.

To enjoy these benefits, you should take the following steps as a minimum, so that you are prepared for the changes and you are meeting all compliance obligations.

  1. Document all the different routes to market that are used, to include both your own website and those of OMPs; (mapping your legal and physical supply chains).
  2. Confirm how the fulfilment of sales takes place. Where are goods despatched from and how is that delivery managed? (Who is the courier, are goods stored in multiple locations, etc.?).
  3. For items being delivered into the EU, who is currently treated as being the importer of record and what happens if packages over €150 are sent?
  4. Is it possible to identify at the time of sale how items will be sent, so that a decision on taxation can be made at that point? For instance, if two items valued at €80 are sold will they be delivered individually or together? – The answer to this will influence the tax treatment.
  5. If OMPs are involved, have they communicated to you yet how they intend to manage these new rules? Will it have an impact on the amounts you receive or will there be extra charges to help the OMPs cover costs of implementation?
  6. Can you capture accurate data on the different supplies being made to ensure that the right amount of VAT is reported to the tax authorities?  If multiple systems are used can their outputs be bought together in one place?
  7. How will you message the change to customers, particularly where the existing process will be changing? (Different VAT rates might now apply, will this impact your pricing?).

The above list is not exhaustive but a starting point to help you with preparation for the changes about to happen.

If you have any questions or would like to talk through your situation we are happy to help.  Please speak to your usual Crowe UK contact or you can email [email protected] directly.

Contact us

Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services