Brexit – Main Implications for E-Commerce Businesses
Over recent years there has been a marked shift from traditional to online retail. The impact of the coronavirus has further strengthened this trend – the United Kingdom (UK) has one of the most highly-developed e-commerce markets in the world and the highest turnover related to online sales – 93% of Brits shop online and spend on average £780 per person, per year.
Brexit has now become reality, primarily impacting UK online sellers trading within the EU, but eBay, Amazon and other marketplace sellers in Europe are also affected by the changes ahead…
Sales to and from the UK are also subject to new regulations, customs, and duties – The customs border has been reinstated between the EU and Great Britain (England, Wales, and Scotland) which means new VAT rules for goods imported into the UK. Northern Ireland will have a dual-status post Brexit, so they will be part of the UK customs territory, but also part of the EU single market for VAT purposes.
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How are ecommerce businesses affected?
Who it affects:
- Online stores within the EU that sell to customers within the UK
- Global companies that sell both within the UK & EU
- UK businesses shipping domestically or internationally
- Businesses that import goods from the UK
How will it affect e-commerce businesses:
- EU-UK border and customs changes – stricter customs regulations for goods entering and leaving the UK/EU
- Longer shipping times for goods crossing either side (especially during early 2021)
- Tariffs on imported/exported goods
- VAT – Changes to registration thresholds / requirements. Most notably for dropshippers.
All about EORI numbers
An EORI (Economic Operators Regulation and Identification) number is an identification number you need to do business across borders. From 1st January 2021 you need an EORI number to be able to move products between the UK & the EU.
If you don’t have an EORI number, you may experience increased costs and delays – HMRC may not be able to clear your goods and you’ll incur storage fees.
What type of EORI number do you need?
Businesses in GB
- To trade goods with EU countries from the UK, you need an EORI number that starts with GB. However, if your business only moves goods between Northern Ireland and the Republic of Ireland, it will not require an EORI number
Businesses moving goods to or from Northern Ireland
- If you move goods to or from Northern Ireland, you need an EORI number that starts with XI.
Businesses making declarations or getting customs decision in EU countries
- If your business makes declarations or gets customs decisions in an EU country, you need to get an EORI number from the customs authority in that country.
In 2019, the UK government began sending out GB-series EORI numbers to businesses that it believed required them. These would have been sent to the business registered office address.
If you haven’t received an EORI number you must apply for one – EORI Application
In 2020, the UK government began sending out XI series EORI numbers. You would have only received this if they believed you needed one and if you had already received your GB EORI number.
To apply for an EORI number you will need:
- Government Gateway ID & password
- VAT number & registration date (if registered)
- National Insurance number (if sole trader)
- Unique Taxpayer Reference (UTR) for the business or yourself if sole trader
- The Standard Industrial Classification (SIC) code for the business
Changes to shipping & customs
Without the free movement of goods, there is likely to be an introduction of customs charges and other fees when shipping between the UK and the EU.
Shipping & customer declarations
From 1st January 2021, Customs Declarations are required for shipping between the EU and the UK.
With the UK leaving the EU, it will then be considered a non-EU country, meaning there will be no free movement of goods between the two.
If shipping via Royal Mail you will need to complete either a CN22 or CN23 customs declaration:
This is a customs declarations form that needs to be filled out and attached to items with a value up to £270.
This is a customs declaration form that needs to be filled out and attached to items with a value over £270.
If shipping via an international courier (UPS, DPD etc.) you must supply a commercial invoice.
Changes to VAT for online sales
The UK left the European Union’s single market on 1 January 2021. The Trade and Cooperation Agreement (TCA) was agreed on 24 December 2020
From 1st January 2021, the UK became (as far as the EU is concerned) a ‘third country market’ and therefore not a member of the EU.
EU-UK trade changed significantly from 1 January 2021, and will change again for e-commerce from 1 July 2021
Exporting from UK to EU / non-EU
- Sales from the UK to EU and non-EU will be zero-rated subject to the seller obtaining evidence of export – UK VAT is not payable, but you still have to apply a 0% VAT rate / include the exports as part of your UK VAT Return – You will also need to consider requirements for VAT Registration in the recipient country.
- Online Marketplaces facilitating sales to EU consumers (such as Amazon) will become responsible for the VAT on the third party supplier’s behalf so if selling products through such marketplaces, the VAT will be taken care of at the point of sale by the marketplace provider.
Import to the UK from EU & non EU
- From 1 January 2021, the current low value consignment relief for imported goods with a value less than £15 has been abolished – UK VAT will be due on all consignments regardless of value.
- For consignments of less than £135, relief from duty is in place
- Businesses that receive goods of £135 or less will have to account for VAT as part of the reverse charge procedure, declaring the VAT on their next VAT Return. Normal rules apply for the tax point – It will usually be the invoice date.
- There will be an option to import multiple low value parcels (each less than £135) on a single, combined declaration. As there is no duty, this declaration requires a reduced data set making it less detailed than a full declaration.
- Consignments with a value greater than £135 will be subject to VAT and duty and normal customs declarations. If the seller is the importer of the goods into the UK, it will need to register for UK VAT.
- The government has also introduced ‘Postponed Accounting’ from 1 January 2021 for import VAT on goods brought into the UK – UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT when goods arrive at the UK border. However, customs declarations and the payment of any other duties will still be required.
Exporting from the EU
- If a UK company holds stock in an EU member state, it must register for VAT in that member state.
- Sales to customers in that member state will be subject to VAT and any sales to non-EU customs will be treated as zero-rated.
January 2021 to June 2021
- Existing distance selling rules apply for supplies of goods from the EU to consumers in other member states.
- These rules require an EU supplier to charge VAT in the country of dispatch unless the supplier makes B2C sales in a calendar year that exceed a certain threshold in any member state (either €35k or €100k depending on the member state).
- In this event, it must register for distance selling in that member state and account for local VAT when B2C sales are made.
Post July 2021
- Distance selling thresholds will be abolished and B2C sales to EU consumers will be reported via a single One Stop Shop return (‘OSS’) similar to the IOSS mentioned above.
- This will mean that sellers will have an OSS registration in a single member state and account for VAT at the local rate applicable in the customer’s location in a single return.
- As with IOSS, payment is made to the Tax Authority in the member state where registered and the funds are distributed across the other tax authorities as appropriate.
Import/Export from the EU
Importing from the EU:
The existing rules for imports from non-EU countries now applies to imports from the EU. The government has also introduced ‘postponed accounting’ from 1 January 2021 for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT when goods arrive at the UK border. However, customs declarations and the payment of any other duties will still be required.
From 1 January 2021, VAT on imported goods with a value of up to £135 is collected at the point of sale, not the point of importation.
Online marketplaces (OMPs) involved in facilitating the sale of imported goods, are responsible for collecting and accounting for the VAT, even when the goods are in the UK at the point of sale.
Exporting to the EU:
VAT registered UK businesses continue to be able to zero-rate sales of goods to EU businesses. EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries. This means import VAT and any customs duties are due when the goods arrive in the EU.
Businesses may be able to use the Common Transit Convention (CTC) to complete some customs procedures away from the border and defer import VAT and customs duties until goods reach their final destination.
UK VAT registered businesses no longer have to complete an EC Sales List. Instead, UK businesses exporting zero-rated goods to EU businesses need to retain evidence to prove that goods have left the UK.
‘Internal’ Transfer of goods
There are some new changes in place to the way you can ship your stock between international warehouses and to avoid holdups. Although not currently a statutory requirement, we are finding clients are being requested to provide a nil value sales invoices with details of number of items with this transfer of goods to avoid hold ups and customs checks.
The way VAT is calculated for Dropshippers is changing…
Prior to 1st Jan 2021), when dropshipping goods from outside of the EU into the UK, the supply was considered to have been made outside of the UK. This meant the business making the sale did not need to collect the VAT from the customer.
Instead, VAT was due when the goods entered the UK by the Importer on Record. In dropshipping scenarios the Importer on Record is almost always the customer – So technically the customer was the one liable for dropshipping VAT.
However, as most goods were small and relatively low value, they were either not picked up by Customs or no Import VAT was technically due.
Changes from 1st January 2021
Simply put, the VAT will now be due at the Point Of Sale rather than on import into the UK.
If you sell via an online store, the Point of Sale will be the payment gateway (Stripe, Shopify Payments, Paypal etc.) This will mean that you need to collect VAT when you make the sale through your online store
This means you will need to include the VAT within your listed selling price as you cannot add VAT at checkout.
VAT registration for dropshippers
In addition to the changes being made to VAT calculation, when you need to register for VAT is also changing.
Previously, if your taxable turnover was above £85,000 you had to register for VAT. However, now the rules have changed.
Now if you are making sales directly to UK customers, you must register for VAT immediately as of 1st January 2021.
Small business support
New government guidance and support has been released to help small businesses navigate new ways of doing business with the EU and to ensure they’re able to trade smoothly.
The Government has announced a £20 million SME Brexit support fund. This is to help small & medium sized businesses adjust to new customs, rules of origin & VAT rules when trading with the EU.
SMEs who trade only with the EU and are therefore new to importing and exporting processes will be encouraged to apply for grants of up to £2,000 to pay for practical support including training and professional advice to ensure they can continue trading effectively with the EU.
Applications for grants are now open. Click here for more info.
Need more help?
If you need help sorting out your accounts, our ecommerce accountancy experts can be contacted by clicking here.