Selling to EU consumers? VAT accounting has become more complex.
Are you ready for the changes to VAT rules relating to Business to Consumer (B2C) transactions with the EU? If not, our VAT advisor, Nick Giles, is here to guide you through the new EU VAT package.
How things were
When the UK was a member of the European Union – and for the transition period that followed and ended on 31 December 2020 – the VAT treatment for a supply of goods or services to a customer in an EU member state was straightforward. Initially, a supply was treated as being made from the country the supplier was based in, meaning a UK supplier would charge UK VAT on a supply of goods or services to a customer in an EU member state. For goods, this position would change when the value of supplies to each EU member state reached a certain amount, known as the distance selling threshold. When this amount was breached, the UK supplier then had a responsibility to register for VAT in that EU member state.
Current rules
From 1 January 2021, these arrangements have no longer been in place and UK suppliers cannot benefit any more from the distance selling thresholds. This leaves UK suppliers with several options.
Sales to customers in EU member states can be treated as zero-rated exports, leaving the EU customer responsible for paying the VAT in their country on arrival before they can get their goods. The reverse of this for purchases by UK customers from EU suppliers has been much publicised, with many customers facing unexpected, and in some cases very expensive, VAT demands. This approach may not be desirable if businesses hope to remain competitive or maintain goodwill with customers.
The second option is for UK businesses to register for VAT in each EU member state where they do business. They can then act as the importer of record for their goods, pay the import VAT associated with importing the goods and then charge local VAT on to their customers.
Alternatively, a UK business could register for VAT in an EU member state and choose to hold their stock there. This would allow the business to benefit from the EU VAT rules, with sales to other EU member states being subject to the same distance selling thresholds as before.
For most services (with one notable exception being digital services), the supply is treated as being made where the customer belongs and is therefore treated as being outside the scope of UK VAT. This means neither UK VAT nor EU VAT need currently be charged.
New VAT regime from 1 July 2021
From 1 July 2021, the EU is removing the distance selling thresholds and replacing it with one EU wide threshold of €10,000. However, this will not apply to non-EU members and so UK suppliers will not be able to take advantage of it.
The “Mini-One-Stop-Shop (MOSS)” scheme currently in place for electronic services will be extended to a new “One-Stop-Shop (OSS)” scheme, covering both goods and services.
The scheme aims to simplify EU VAT administration by potentially allowing businesses to declare sales to multiple EU member states on one OSS VAT return.
The OSS scheme can be broken down into three parts. Firstly, the Union Scheme is what will be used by businesses in EU member states for the supply of goods and services. Sales to customers in other EU member states will be subject to the VAT rate in the customer's country, but will only need to be reported on one single OSS return. This scheme is an option for UK businesses, but would require them to hold their stock or have a permanent establishment in an EU member state.
Secondly, the Import Scheme applies to sales of goods from outside the EU below €150. The scheme allows a business to register for VAT in one EU member state and apply the OSS scheme to sales across the EU.
For sales of goods with a value in excess of €150, local VAT must still be paid in the customer's country which may continue to require a VAT registration in each individual EU member state where goods are sold.
The Import Scheme for goods with a value of below €150 is not compulsory, so UK businesses can still elect to zero rate their supply of goods and make the final customer responsible for paying the import VAT on receipt. The same is also true for goods with a value in excess of €150.
Finally, the non-Union scheme will allow UK businesses supplying services to EU customers to register for VAT in one EU member state and apply the OSS scheme for supplies across the EU.
The introduction of these schemes will represent a significant change for many UK businesses. Use of the Import Scheme and the non-Union Scheme will require a VAT registration in an EU member state and the appointment of an intermediary in that state if you have no permanent establishment there.
If any of this is likely to affect your business, it is vital that you put processes in place as soon as possible.
Page Kirk would be happy to discuss how you can ensure a smooth transition to the new schemes.
Just call us on 0115 955 5500 or email enquiries@pagekirk.co.uk.