Ellen Main-Jeffrey, Head of VAT Services, assesses the key changes coming for businesses selling to consumers in the EU in July.
The removal of the low value consignment relief for imports into the EU up to €22 and changes in the treatment of goods sold directly to end consumers online or through an electronic sales platform will have a significant impact on UK e-commerce businesses.
Both changes come into effect on July 1, 2021.
The removal of the low value consignment relief means that all imports will be liable for import VAT and duty (where applicable) regardless of value.
The second change is more complex. Where goods are sold by a seller online and imported into the EU at the time, and they are sold in a consignment of up to €150 in value, the seller must account for sales VAT in the customer’s country rather than pay import VAT at the port.
This can be declared by the seller through monthly returns submitted though a new online portal system called the Import One-Stop-Shop (IOSS) or collected and paid on their behalf by their courier or freight agent.
The courier or freight agent is likely to charge per consignment for dealing with this, but as businesses choosing to use IOSS will have to appoint a fiscal representative to act on their behalf, it is clear that there are going to be additional costs in doing business with end consumers in the EU whichever way you choose.
However, the benefit of using IOSS is that even if you sell goods all over Europe you will only have to register to use it in one EU Member State to report the VAT due on these sales.
There are likely to be additional costs where businesses sell through an electronic sales platform too, where the platform facilitates sales by allowing the buyer and seller to enter into a contract via the platform rather than simply redirecting the customer to the seller’s website.
In this case, the electronic sales platform is responsible for collecting and accounting for the local sales VAT to the authorities.
Businesses and electronic sales platforms can apply for IOSS registration online with effect from April 1 to ensure they are ready on July 1.
Whichever route is chosen sellers will need to ensure they are capable of displaying the amount of VAT to be paid by the buyer at the very latest when the ordering process is finalised – and show the final prices in Euro where possible.
There is also a long list of other data and record keeping requirements, so it is essential that businesses prepare early to avoid a disruption to their trade.
Clearly leaving the EU was never going to be easy, but this type of anti-fraud measure is not unique to businesses supplying consumers in the EU.
The UK adopted a very similar arrangement for non-UK suppliers selling to consumers in the UK on the January 1 and as public finances are stretched by the global pandemic, further measures are likely to be introduced to close the tax gap.