Understanding import VAT post-Brexit
STEPH GUBAS, accountant at Page Kirk, discusses the more complex arrangements over VAT that have come into place since the UK left the European Union.
UK businesses have faced difficult challenges over the last couple of years, since the UK officially left the European Union. The uncertainty that ensued and the need to learn and understand copious amounts of new rules, whilst trying to run a successful business, has been no mean feat. It has been especially difficult for UK e-commerce businesses selling to customers in the EU. This is due to the additional customs and reporting requirements that have been put in place since Brexit. One area that has been heavily affected is the import VAT requirements for these businesses.
From 1 July 2021, all commercial goods imported into the EU from a third country are subject to VAT irrespective of their value. The Import One Stop Shop (IOSS) allows suppliers selling imported goods to buyers in the EU to collect, declare and pay the VAT to tax authorities instead of making the buyer pay the VAT at the moment the goods are imported.
The IOSS is for business-to-consumer sales from outside the EU into the EU and can be used for consignments below €150/£135 with a consignment being the total order per customer. For UK businesses to utilise the IOSS, they must register through an intermediary, as the company which submits the monthly IOSS returns must themselves be established in the EU. Once registered, companies will receive an IOSS number, and this must be displayed on each consignment to show the import VAT has been collected. In addition, businesses must include the import VAT at the point of sale, so that the customer sees the total amount they must pay.
There is also the possibility of using a marketplace such as Amazon or eBay in order to pay the import VAT on sales to EU customers. For these sales, the UK seller will use the marketplace IOSS number, and the marketplace will declare and collect the VAT on their behalf. This reduces the administrative burden, but the fees associated with using such a service can be high.
The Union One Stop Shop is for collecting, declaring and paying the VAT over to tax authorities on sales between two EU countries. The main differences are there is no €150/£135 threshold and companies only have to submit quarterly rather than monthly returns. UK businesses can still use this service, however, only if they have suppliers based in the EU.
There are various other methods of declaring and paying the import VAT such as Delivered Duties Paid (DDP), which is done through a courier, or Delivered Duties Unpaid (DDU), where the UK seller does not ask their customer for tax or duty and the EU recipient is contacted in country and pays the VAT owed before receiving the item. As you can imagine, this final option does not provide the best service to customers and may affect the likelihood of repeat custom.
There are several benefits to using the IOSS which you will find below:
- With a single registration, UK businesses can trade with all 27 EU members
- Reduces reporting requirements
- Easier and improved process for the buyer who will not face any surprise fees when the goods are delivered.
If you're interested in finding out more managing VAT within the EU, the please call us on 0115 955 5500 or email enquiries@pagekirk.co.uk.