Post-Brexit changes in trade
introduced from 2021
In recent years Brexit has raised many questions not only among the British citizens but also among entrepreneurs conducting businesses or planning to expand the scope of their businesses to the British market. For months there have been much speculation about the changes resulting from Britain's withdrawal from the EU. Today, we can finally rely on verified information regarding changes in trade with the UK and tax consequences resulting from them.
This article presents two types of goods sold to customers from the UK – goods located in the UK at the point of sale and goods imported to the UK. Other criteria differentiating between the two (such as value of the imported goods, where and how the goods are sold, and legal entities liable for VAT) will be introduced later in the article.
All of the changes described below apply from 1 January 2021.
Import of goods from outside the UK in consignments not exceeding £135 in value
To begin with, let us consider goods sent from overseas and sold to UK customers. If such goods do not exceed £135 in value, VAT should be collected when:
goods are sent directly to customers without intermediary warehouses (e.g. Amazon), in other words, selling goods via your own website directly to customers in the UK
goods are purchased via marketplaces such as Amazon and are sent to customers in the UK
The key aspect which determines VAT settlement method is not exceeding £135 in value. Cost calculation methods will be discussed later in this article.
In both cases mentioned above the transaction takes place in the UK, therefore the UK VAT rules must be applied. The two instances differ, however, in determining which party is responsible for VAT settlement.
In the first instance, the party responsible for settling VAT is the seller, in which case, tax rate should be specified at the point of sale. Importing goods to the UK on these terms requires registration as a VAT payer with HMRC.
In the second instance, it is the online marketplace which is responsible for settling VAT.
The situation changes when goods are sold to a business customer. If a customer has a British VAT number, then it is their responsibility to settle VAT. Contrary to non-commercial customers, business customer is issued an invoice (either by the seller or by the online marketplace) which includes information on settling VAT on their own, otherwise known as “reverse charge”.
Transferring obligation to settle VAT onto the customer constitutes one exception when the abovementioned rules do not apply.
Other exceptions include:
import of excise goods, in which case, either the standard import rules apply or one can choose excise tax settlement on their VAT declaration
import of goods from Jersey and Guernsey which are subject to Import VAT Accounting Scheme rules
It's important to notice that all of the instances described above apply only to goods which do not exceed £135 in value – consignments exceeding £135 are subject to standard VAT and customs rules. The maximum value of £135 pertains to the total value of all goods in a consignment, not to the value of particular items. To calculate the total value of goods in accordance with the new VAT rules, take net value of the goods being sold (not the declared value), excluding possible insurance and custom duty. It is important for choosing a proper VAT calculation method.
There are several aspects that a VAT payer (a seller or an online marketplace) should consider to correctly calculate VAT for goods imported to the UK which do not exceed £135 in value. These aspects include:
registering as a VAT payer
estimating the nature of goods being sold in order to calculate the right tax rate
verifying information for keeping a proper record of goods sold
What about goods located in the UK at the time of sell?
Selling goods located in the UK to UK customers
The £135 limit does not apply to the sale of goods located in the UK to UK customers, as all such goods of any total amount are subject to VAT, regardless which party settles tax. Goods located in the UK are understood as goods located on the territory of the UK at the point of sale. They can be stored in the seller’s warehouse, in a warehouse rented by the seller or in one of the online marketplace warehouse chains, such as Amazon as part of the FBA service. In accordance with the EU VAT regulations, the seller must also be registered as a VAT payer.
Notice: it is the shipping address to which the goods are sent, and not customer’s citizenship, permanent address or billing address, that determines whether the customer is subject to UK VAT rules.
If the seller delivers their goods directly to the customer (either a business customer or an individual customer) without using services of an online marketplace, then they are subject to the standard VAT rates.
What about sellers who do use online marketplaces?
When goods are sold to customers via online marketplace, that online marketplace is subject to VAT under the British tax rules.
These rules do not apply if the buyer provides the online marketplace with their VAT number. In such a case, the buyer is deemed as a business customer, and it is the seller who is subject to VAT. Therefore, previously discussed reverse charge cannot be applied.
In summation, the new changes in trade with the UK present a number of variables which must be considered when settling VAT. This article provided only a general scope of the matter, serving as an introduction to the subject. Unfortunately, the new regulations will probably lead to restructuring of many enterprises. Changes in document circulation, additional data verification methods, as well as monitoring prices require more work and specialized knowledge. In order to avoid errors in tax settlement or accounting it is best to turn to experienced specialists. We offer expertise in international accounting and VAT compliance. The scope of cooperation depends on client’s individual needs and the pricing is agreed upon individually.
We encourage you to contact our experts free of charge.