New VAT E-Commerce Rules for Post Brexit Trade

Frequently Asked Business Question:

I am a clothing retailer based in Northern Ireland and my business is heavily reliant on e-commerce. The sale of goods through the company’s own website and through online marketplaces enables the business to supply customers based throughout the EU. On occasion, we travel to EU member states to showcase our clothing ranges through shows and exhibitions. Will the new EU VAT e-commerce rules impact the business?

Top Tip:

From 1 July 2021, an annual turnover threshold of €10,000/ £8,818 will be introduced for intra EU cross-border supplies of goods so that anything up to this threshold remains subject to UK VAT. Where intra-EU supplies of goods exceed this threshold, suppliers will be required to charge local VAT in the member state to which the goods are transported.

Rather than requiring traders to register for VAT in each member state to which they supply goods, a One-Stop Shop (‘OSS’) will be introduced which can be used by NI businesses to account for EU VAT on their sales of goods to EU customers. The OSS may provide significant administrative benefits for your business, removing the need for multiple EU VAT registrations. The OSS will ensure that the business is only required to file one EU-wide quarterly VAT return and make one quarterly VAT payment in respect of all EU distance sales.

The OSS system can also be used by the business to account for VAT on services provided to EU customers where the place of supply rules indicate that VAT is payable in the place where the service is performed. This would include admission to cultural, artistic, entertainment, or similar events and exhibitions. Rather than registering for VAT in each member state in which the company provides these services, the business will have the option to account for the VAT through a single OSS return.

Currently, where goods are imported into the EU from outside the EU an import VAT exemption applies for goods up to a value of €22. From 1 July 2021, this will be abolished and all commercial goods imported into the EU and NI will be subject to import VAT regardless of value. This is aligned with HMRC’s abolition of import VAT relief on goods valued at £15 or less.

This may mean that significantly more goods fall within the scope of import VAT. To simplify the declaration and payment process two new schemes will be introduced for sellers that import goods into the EU and NI in consignments not exceeding £135/ €150. This would apply, for example, to goods delivered directly from your supplier in say China to your customers based in the EU:

• The Import One Stop Shop (IOSS) will allow suppliers importing goods into NI/ EU to declare and pay the VAT due on those goods by submission of a monthly return via the IOSS. Where the IOSS is used, the supplier will charge VAT to the customer at the time of the supply and the goods will not be subject to VAT at the point of importation;
• Where the IOSS is not availed of, special arrangements are being introduced to allow postal operators, express carriers, or other customs agents in the EU who typically declare low-value goods for importation, to collect VAT from the customer and remit this to the revenue authorities.

Due to your use of online platforms, the business should also be aware that where online marketplaces facilitate certain supplies of goods they will be deemed to be making the supplies themselves and will be responsible for accounting for the VAT on those supplies. As your business is located within the EU/ UK, this will only apply to the import of goods with a value of not more than €150/ £135 into the EU/ NI. Where the new rules apply, the online marketplace will assume responsibility for accounting for VAT on the supplies.

We would recommend that you consider registration for the OSS and IOSS depending on your business model. Although registration for the UK portals is not yet open, further HMRC guidance on both schemes is expected before July 2021 and the business ought to maintain a watching brief. We recommend communicating with online marketplaces which facilitate the sale of your goods to determine what the new rules mean for your future trading relationship. We would also strongly recommend that the company ensures that systems and processes currently in place will allow the businesses to track sales per country and apply VAT at the appropriate rates in multiple jurisdictions.

Finally, it is very important to note that the new rules outlined above will apply to sales made to EU consumers only. Sales made to EU businesses will not be impacted by the VAT reform.

For more information and/or assistance, please contact our Tax Team who will be pleased to help you.