GUEST COMMENT No-deal Brexit threatens billions in ecommerce customs and VAT costs

The UK’s current course to leave the EU without a transition-deal on 29 March threatens internet retailers with billions in customs declarations, tariff and VAT costs. HMRC is now acting to alleviate some of the worst risks, but ecommerce businesses need to act now to get these measures in place.

Brexit triggers new customs and VAT liabilities

Some of the new burdens for the e-retailers selling between the EU and the UK include: 

• Sales from the UK to EU consumer will automatically incur EU tariffs on average of 5.7% 
• Exporters will have to complete customs declarations for each shipment to the EU; these cost up to £55 each if outsourced
• An estimated 27,000 small ecommerce business will face thousands of pounds in costs for new EU VAT registrations as they will lose the right to sell under their UK VAT number to EU consumers – known as the distance selling thresholds
• Other larger online retailers with existing EU VAT registration for their B2C selling will have to appoint expensive fiscal representatives in most EU 27 states

Limiting tariff headache

As the UK leaves the EU Customs Union, it moves to World Trade Organisation rules which will impose automatic tariff charges on goods. There are over 10,000 Harmonised System (HS) codes to pick from, which rates from 0% to over 40%. So it is vital businesses pick the right ones to limit costs. HRMC now offers a free advice service to select the appropriate codes, and will guarantee the right rates for three years.

HMRC is also offering grants of just over £1,000 for staff training on customs procedures. There are also IT grants of up to £180,000 for customs declarations investment.

For e-retailers importing goods into the UK for online sales, there is a new Roll On Roll Off (‘RoRo’) speedy customs clearance and tariff deferred payments scheme. Known as the Transitional Simplified Procedure, it may require a guarantee to be given to HMRC.

Speed customs clearance

All goods coming into the UK from the rest of the EU will face customs checks and controls, meaning delays in deliveries and fulfilment. Major online retailers, bringing goods into the UK, should consider applying for Authorised Economic Operator status. Whilst a challenging application process, requiring detailed explanations and verifications of stock recording and control, it does mean near automatic goods clearance. Otherwise, small retailers should consider the Customs Freight Simplified Procedure. This is less formal to achieve; but may require a bank guarantee.

Help on limiting import VAT

Goods being sent to the EU or coming into the UK will become liable for local import VAT for the first time since the UK leaves the EU VAT regime, too. The positive news is that HMRC has just confirmed that it will offer companies and option to not pay this through the ‘postponed accounting’ system. This allows the importer to just record the VAT due, with a contra-VAT entry paid to cancel it out. This will start from 30 March.

Similarly, 19 of the EU 27 states offer the same scheme. For online retailers, it may be worth looking at using the Netherlands or Belgium to channel goods through into the EU. They have very simple import VAT deferment schemes which are very popular with the online work.

Keep VAT compliance costs to a minimum

Possibly the biggest new cost burden from a no-deal Brexit will come for smaller online retailers who will be forced to open additional VAT registrations in EU countries where they sell. One of the many simplifications in VAT that will be lost after Brexit is the distance selling threshold. This enables smaller sellers to use their UK VAT registration to report EU B2C sales below fixed thresholds. These are generally €35,000 per annum, except for Germany, the Netherlands and Luxembourg which are all €100,000.

After 29 March, such businesses will immediately have to register in each country separately. However, this can be avoided by holding stocks in just one EU state, and selling from there. This enables the UK seller to again benefit from the thresholds.

Existing registration will require a special tax agent to be appointed as the UK becomes a non-EU country. These are called Fiscal Representatives, and are jointly liable for any UK business’ unpaid VAT. They therefore charge high fees and potentially bank guarantees. As an alternative, online commerce companies should evaluate forming an EU trading subsidiary which reinstates their EU VAT status, and means they do not require Fiscal Representatives.

Last call on easy EU VAT reclaims

Finally, 30 March 2019 is the last time UK businesses can use the simple online EU VAT reclaims portal. This enables a single submission to claim VAT suffered in the rest of the EU on promotion, travel, hotel and entertaining costs. So for ecommerce businesses attending expos etc, this will be important. Post-March 30, companies will have to use the old paper-based scheme, and apply country-by-country.

Richard Asquith is VP of global indirect tax at Avalara