Following the deal made with the EU, what is the difference for UK businesses selling to consumers in the EU post Brexit?
Although it was publicised that there would be no tariffs under the deal, this only applies to goods that comply with certain rules of origin (broadly speaking, they are made from materials originating in the UK or EU). Therefore, it is still important to check whether Customs Duty may apply to goods that are being sent to the EU, especially if UK businesses are importing components from outside the EU.
UK businesses will no longer have the benefit of accounting for UK VAT on sales until the distance selling threshold is breached and the current EU Mini One Stop Shop (MOSS) for non-EU businesses only covers services, not goods.
There is no registration threshold for non-EU established businesses, so the first sale of any goods delivered to a consumer in any EU member state on a B2C basis will result in a VAT registration liability in that EU member state. Therefore, UK businesses selling goods to EU consumers on a B2C basis will have the following options:
- UK businesses can be responsible for importing the goods into the EU member state concerned and for the delivery of the goods to their customers (ie on delivery duty paid terms).; they will have to pay local import VAT and charge local VAT (once registered).
- UK businesses can ask their consumer to be the importer in which case no UK VAT would be charged to the consumer, but the customer would be responsible for import VAT and any duty (there shouldn’t be any under the terms of the deal for most goods see above) when the goods reach the EU member state concerned (ie on delivered-at-place terms)
- As a result of the issues concerning the options above, many UK businesses selling to multiple EU jurisdictions are suspending sales to the EU until July 2021 when the EU is launching a new system for non-EU businesses. Therefore, UK businesses can choose to wait until July 2021 to make EU consumer sales and to then use new rules for goods with a value of less than €150 (see separate section).
- Another option would be to obtain EU premises, register for VAT in that EU member state concerned and to fulfil all EU orders from these premises
What are the key considerations in choosing which option above?
The disadvantage of option one is that UK businesses may be required to register for VAT in every EU member state they have consumers in. This, combined with the need to appoint a local fiscal representative, increases the administrative burden and compliance costs involved in selling to EU consumers. The UK business will need an EU EORI number which will apply across all EU member states.
The disadvantage of option two is that the consumer is inconvenienced in having to deal with paying VAT and Duty before the goods are delivered to them, and they may have to visit a local depot to collect their goods. There is also the difficulty of consumers not knowing the true cost of an item when it is ordered. However, it may be possible for parcel companies and freight forwarders to pay the VAT and Duty on the customers behalf so that the goods can be delivered to them hassle free (but this does not remove the cost of course).
The obvious issue with option three is the lack of trade in the meantime, whilst businesses wait for July 2021. This is especially costly in the current climate of lockdown when there is an increase in online mail order goods being sold.
The costs associated with this option would be higher than the other options as businesses would have to operate the premises and would still be liable to account for VAT in the EU member states in which consumers are located (subject to the distance selling thresholds until July 2021). There would be local administration and compliance requirements to deal with, as well as the logistics of operating the premises and distribution of goods. However, you would be entitled to use the MOSS/OSS.
What are the new rules being introduced for EU B2C sales from 1 July 2021?
The EU will be launching a new Import One Stop Shop (IOSS) for non-EU businesses. Under the scheme, which is optional, UK businesses can register for VAT in one EU member state and account for VAT on sales in all other member states through that registration. There will be no import VAT or Customs Duty payable (subject to compliance with rules of origin) if the consignment is valued at less than €150. A monthly IOSS return will be required which will account for VAT on all EU sales on a country-by-country basis (at the various differing VAT rates). The scheme will resolve a lot of the administrative issues that would otherwise be the case (ie under option one set out above).
As far as the UK is concerned, these sales will be treated as zero-rated exports assuming that the appropriate evidence is retained.
As a result of the above, many UK businesses are likely to choose to register for VAT in Ireland, because of the shared language. There are already unprecedented backlogs and delays in obtaining this registration, as a result of Brexit, and this is likely to increase in July 2021. We have close links to our MSI Global Alliance associates in Ireland and can assist UK businesses with VAT registration if required.
What if we supply digital services to EU consumers?
As with the sale of goods, there is again no registration threshold for the sale of digital services (eg music downloading, videos, online gaming, apps, software services etc), therefore UK businesses would be required to register for VAT in each EU member state where they have consumers.
Alternatively, they can use the EU MOSS scheme for non-established businesses. This will mean having to register in one EU member state for the VAT MOSS non-union scheme as a non-EU provider and accounting for VAT on all EU sales (at the various differing VAT rates) through the one MOSS return.
As a result of the above, many UK businesses will choose to register for VAT in Ireland. As previously mentioned, there is already unprecedented backlogs and delays in obtaining VAT registration in Ireland, as a result of Brexit, and this is likely to increase in July 2021. We have close links to our MSI Global Alliance associates in Ireland and can assist UK businesses with VAT registration if required.
Any changes for any other services (non-digital) to EU consumers?
HMRC has changed their policy in respect of the place of supply of certain services which would previously have attracted UK VAT when provided to EU consumers before Brexit, this will no longer be the case. These services will now be outside the scope of VAT with the right to reclaim related input VAT (ie effectively zero-rated). This applies to most professional services to consumers (legal, accounting and advisory) and more detailed commentary is available in our article here.
Non-UK businesses selling into the UK
What are the requirements for non-UK businesses selling goods to UK consumers?
If you are a business without an establishment in the UK, the VAT treatment will depend on the value of the goods (each consignment) being sold and whether this value exceeds £135 or not as follows:
- Goods not exceeding £135 in value: 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: the importer of the goods is required to be registered for UK VAT and will have to charge UK VAT on these supplies. However, in this case, there is an option to have the end consumer take responsibility for the cost of import into the UK. If businesses opt to take this route, the consumer is required to pay the import VAT when the goods arrive, but the overseas business does not need to charge VAT to the customer so would not be required to register for UK VAT.
More detailed commentary of these rules is available in our article here.
Are there any special rules for Online Marketplaces (OMP)?
If goods are already in the UK and are being sold through an OMP, the OMP will be deemed to be making the supplies for VAT purposes. In addition, OMP’s are now jointly and severally liable for any UK VAT that is due on any sales made through the OMP. Therefore, OMP’s will now have to not only take careful consideration of their own VAT position but will also have to keep an eye on and police the VAT treatment adopted by their users.
If you are a business affected by the changes above and require any assistance with UK VAT registration, or assistance in respect of EU B2C sales, we have a dedicated team of experts experienced in this area and would be pleased to help. We would be pleased to advise you further and can assist with VAT registration applications, as well as any future compliance requirements. If you wish to discuss any aspect further, please contact Kamlesh Chauhan, Senior VAT Manager, on 020 7969 5584 or via email email@example.com.