The UK is no longer part of the EU Customs Union, the Single Market or the EU’s VAT regime after officially leaving the EU on 30 January 2020, after lengthy Brexit negotiations. Thousands of businesses across the UK face customs and tariff obligations on trade transactions with the EU such as VAT on exports and VAT on EU purchases. The UK is still grappling with the bureaucratic fallout brought on by its complicated relationship with the EU in a new trading landscape. This has been accentuated by the economic challenges brought on by the COVID-19 pandemic that have seen a seismic shift in consumer shopping behaviours from physical to online shopping with online retailers recording unprecedented profits throughout 2020 and 2021. We take a deep dive into the consequences of these Brexit VAT changes.
How can British businesses looking to reignite a robust trading relationship with the EU and navigate through its old stomping ground with the introduction of the new EU VAT rules? The uncertain economic horizon continues to cause frustration for UK businesses selling goods to the EU after Brexit and vice-versa. New EU VAT rules came into force on the 1 July, 2021 and apply mainly to cross-border business-to-consumer (B2C) for e-commerce suppliers. The previous threshold for selling goods to the EU has now been abolished and instead a new EU-wide threshold of €10,000 (£8,513) has been introduced. Under this limit, any supplies of telecommunications broadcasting and electronic (TBE) services and also distance sales of goods within EU member states can continue to be subjected to VAT depending on where those products are located at the time of distribution. This also applies to the origin of transported goods and where the supplies of such goods are dispatched or where the taxable person is established.
What are the benefits for UK businesses selling goods to the EU after Brexit under the new EU VAT landscape?
One of the main benefits for B2C suppliers of goods is that the VAT rules provide a uniform and seamless system for businesses and consumers and reduces the administrative burden for companies engaged in online intra-EU sales. Prior to July 2021, businesses often struggled with an over-complicated system when paying VAT on goods and engaging in cross-border transactions.
As a result of the sweeping changes EU businesses can electronically declare and pay VAT for all their intra-EU sales through a single quarterly return. They also have the advantage of working with their own tax administration based in their member state of origin and through their own language even when a business trades across EU borders.
So what are the new EU VAT registration platforms available to British businesses?
Two new platforms for businesses and taxable persons have been created to ease the administration burden especially for smaller ecommerce businesses looking to sell their goods to member states. The One-Stop Shop (OSS) and Import One Stop Shop (IOSS), can be used to record VAT on goods and services sold online reducing compliance costs by up to 95%. Online marketplaces such as Amazon and Ebay can also register in one EU member state utilising the registration platforms to declare and pay for VAT on all distance sales of goods and cross border supplies of services to consumers across EU.
Prior to the 1 July deadline, all packages entering from outside the EU were exempt from tax on goods up to €22 (£19). This threshold has now been abolished to create a more level playing field for European businesses who can now compete on an equal footing with non-EU businesses who were exploiting this tax break. So why is this important for UK businesses and VAT on sales to the EU? All goods that a UK business sells to EU consumers will be subject to VAT but the new system allows for the continuation of trade easily through the use of IOSS and OSS platforms putting British companies on the same footing as any other EU member state.
IOSS is an online registration platform that can be utilised by UK businesses to ensure that they comply with EU VAT rules. This system saves time and effort for both British businesses and the consumer as the VAT requirements are met at the point of sale rather than the point of import and subsequent onward deliveries to the consumer.
If a UK based business sells goods to EU customers worth less than £135 (€150) then IOSS is an ideal option especially for ecommerce businesses that export low valued goods to consumers across EU member states. It also offers peace of mind to the consumer as VAT requirements are satisfied at the point of sale so the recipient of a package does not have to worry about hidden costs prior to delivery of a package once a British business is registered with IOSS or OSS. It is important to stress that both IOSS and OSS are optional platforms for UK businesses selling into the EU and are not compulsory. For UK businesses, it does however allow for a more efficient movement of goods across EU member states with less bureaucracy involved and also reduces price confusion for the consumer.
What is the difference between OSS and IOSS and which one should I choose for my UK business?
OSS is best suited for businesses that are located within the EU and that are selling to consumers in other EU member states while IOSS is designed for non-EU companies that sell goods to customers in the EU, at a value of €150 (£135) or less.
For goods above the £135 threshold standard VAT rates apply. The location of a UK business is the main factor in determining whether to register for OSS or IOSS. So if your company is established in another EU member state then it is a simple matter of registering with OSS. The post-Brexit fallout continues to pose many challenges for UK businesses trading with the EU in the shadows of the new VAT rules but it also offers opportunities. Forewarned is forearmed and British e-commerce businesses can avail of these simple EU VAT tools to trade more effectively with EU member states and create more certainty around vat on exports to the EU after Brexit.
The new VAT rules are modernising a once complex VAT system to not only benefit ease of trade within the EU but also facilitate trade from the UK into the EU-bloc. Even as the fog lifts after almost two years of economic uncertainty brought on by the pandemic, e-commerce has provided the green shoots of growth demonstrating strong resilience and expansion in a difficult trading year. As economies begin to open and online shopping looks like it is here to stay, it is important that UK businesses are cognisant of the new VAT landscape in the EU so they are not left behind or buried under a mountain of bureaucracy.
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