EU VAT changes for UK retail businesses

Overview

UK retail businesses selling into the EU need to make sure they are prepared to meet the new EU VAT regime starting on 1 July 2021. Any business selling goods to individual customers in the European Union (EU) will need to understand and apply new VAT rules.

On 1 July 2021, the European Union is introducing new reforms to the VAT obligations for B2C e-commerce sellers and online marketplaces. However, everyone in the e-commerce supply chain is affected, from online sellers and marketplaces/platforms both inside and outside the EU, to postal operators and couriers, customs and tax administrations, right through to consumers.

Introducing the One-Stop-Shop EU VAT return

There will be a single EU VAT return for eCommerce distance selling. The existing ‘Distance Selling Thresholds’ simplifications will be withdrawn and replaced by a One Stop Shop (‘OSS’). Sellers shipping goods from their home country to customers across the EU may opt to use OSS to report all their EU sales.  The revenue that can be reported through OSS will be subject to destination VAT regardless of whether OSS is used.  If you decide to sign-up to OSS, you must use it for all supplies made to EU consumers. To use the non-Union OSS for services, non-EU businesses will have to register with the tax authority within an EU country of their choice. A €10,000 turnover threshold for ‘TBE services’ (telecommunications, broadcasting and electronic) is carried over from the older Mini One Stop Shop scheme but will now also apply to intra-community distance sales but notably no other services. Each EU Member State will have an online OSS portal where businesses (including marketplaces) can register.

This single registration will be valid for all sales to consumers in other EU Member States

Abolishing of Low-Value Consignment Relief (LVCR) and new IOSS return

From 1 July 2021, the VAT exemption for the consignments entering the EU with a value not exceeding EUR 22 will be removed. Therefore, all goods imported into the EU will be now subject to VAT. This exemption has been abolished to stop sellers fraudulently declaring high-cost goods at the lower value to avoid paying import VAT. It was undercutting EU companies who had no other choice but to charge and to pay VAT at the approximate rates on the same products.

The IOSS covers the sale of goods from a distance that are:

• dispatched or transported from outside of the EU at the time they are sold;
• dispatched or transported in consignments with a value not exceeding a total of EUR 150 (low value goods) even if the order contains more than one item;
• not subject to excise duties as it only covers item which are not subject to these duties (excise duties are typically applied to alcohol or tobacco products).

IOSS additionally requires businesses not established in the EU to appoint an intermediary to act on their behalf in the country of registration. Currently the UK does not have a tax arrangement around mutual assistance for the recovery of VAT with the EU, so an intermediary will be required for now.

You will not need to charge VAT on sales of goods in the following circumstances:

• You sell several goods to the same buyer, and the consignment value is exceeding EUR 150. These goods will be taxed at importation in the EU Member State;
• Your distance sales of goods are facilitated by an electronic interface such as an online marketplace or platforms. In this situation, the marketplace is responsible for the VAT due.

Making online marketplaces deemed supplier for VAT

If the sale of goods is facilitated through an online marketplace to buyers in the EU, the online marketplace will be considered to have made the sale and it will be liable for the payment of VAT. The online marketplace is considered to have facilitated the sale of imported goods when it allows a buyer and a seller to enter into contact via that electronic interface, where the end result is the sale of goods to that buyer.

When an online marketplace facilitates the sales of imported goods from a supplier and the goods are:

• dispatched or transported from outside of the EU at the time they are sold;
• dispatched or transported in consignments with a value not exceeding EUR 150 (low value goods);
• not subject to excise duties (typically applied to alcohol or tobacco products).

The European Commission estimates that registration and compliance costs with new VAT rules will amount to €8,000 (£6,900) per annum. The UK government has announced £20m SME Brexit Support Fund available to help SMEs transition as a result of Brexit and small businesses can claim up to £2,000 to pay for practical support for importing and exporting.

Despite this help, small UK businesses will still have disadvantages after 1 July because they will no longer be able to take advantage of exemptions for small consignments (under €10,000 per annum) which their EU competitors can.

More information regarding new EU VAT rules, IOSS and online marketplace can be found here.