27th January 2021
EU businesses selling goods to UK consumers should be aware of the new rules that are now in place from 1 January 2021. Following the change, there may be a new requirement for EU businesses to register for UK VAT.
Prior to 1 January 2021, when an EU business supplied goods to a UK private consumer (B2C), the EU supplier charged EU VAT to the customer. This was the standard until the value of the supplies made to the UK exceeded the distance selling threshold (currently £70,000), at which point the EU business was then required to register for VAT in the UK and begin charging UK VAT to the consumers.
From 1 January 2021, the rules have now changed. The changes are as follows:
Goods not exceeding £135 in value
Previously if there was an import of goods into the UK with a value of less than £135 this could be treated as being VAT-free under the Low Consignment Stock relief. This relief is no longer in place from 1 January 2021, so all goods with a value of less than £135 will now be treated in the same way.
If the value of the goods being imported into the UK does not exceed £135, the point at which VAT is collected becomes the point of sale rather than the point of importation. This means that if an EU business (or any overseas business) is selling goods to a private consumer and the value of the goods is less than £135, there will be a requirement for the EU business to register for UK VAT and charge UK VAT at point of sale on the supply being made to the end customer.
Goods exceeding £135 in value
If the value of the goods exceeds £135, the previous import VAT procedures continue to apply. This means that if the supplier is responsible for the import of the goods then there is a requirement for that supplier to be registered for UK VAT and charge VAT on these supplies, but they can then recover the import VAT. This includes EU businesses.
However, there is an option to have the end consumer take responsibility for the cost of import into the UK. If EU businesses opt to take this route, the consumer is required to pay the import VAT when the goods arrive but the EU business does not need to charge VAT to the customer so would not be required to register for UK VAT. However, customers may be unwilling to pay additional VAT charges to secure the release of their goods and we are aware that many customers are refusing to do so leading to goods being returned.
Facilitating Online Marketplace (OMP)
A further point to note is that if goods that are already in the UK are being sold by an Online Marketplace (OMP), it will be the OMP that is deemed to be making the supplies for VAT purposes.
So what should an EU business do now?
If you are an EU business that is selling goods to UK consumers, or an OMP, you should consider whether the new rules will lead to a requirement for you to register for VAT in the UK. We would of course be happy to assist with any VAT registration applications and future compliance requirements.