Three months today, the transition period will have ended and a new relationship with the EU will be in place. The January 1 bank holiday will be over, with January 2 the UK’s first business day following the UK’s legal departure from the European Union on January 31 2020 – and the end of the transition period that has been in place since then.
There’s still uncertainty about how ecommerce and multichannel retailers will trade from January but, at the same time, much is already clear and can be planned for, says William Bain, policy advisor and Brexit specialist at the British Retail Consortium (BRC). “Many of the issues are known, so in terms of ecommerce and online purchases there are not really going to be an enormous number of surprises,” he said. Bain says that the biggest players in the sector, Amazon and eBay, have already done “considerable amounts of preparation” and are “as prepared as they can be”.
In this series of pieces we’re identifying, with advice from William Bain, key areas that retailers of all sizes need to consider, although for detailed advice they’ll need to speak to their own advisors. Today we start with VAT on imports, exports and between Great Britain and Northern Ireland, and we’ll continue next week with customs, warehousing and logistics before moving on to rules of origin and data.
In a sister story today, we also share some of the practical steps that Top500 retailers have already taken in their own Brexit strategies, as identified in their financial reports. We’ll also update this series of reports as more information emerges over the next three months.
As members of the European Union, the UK was a member of its common VAT area. Goods were transferred between countries with VAT charged by the retailer at the rate that applied in the customer’s country. But, says the BRC’s William Bain, it’s been known since February, when decisions were taken not to pursue a negotiation based on regulatory alignment, that would no longer be the case following the end of the transition period.
“All that changes from January 1,” he says. “From that point everything going from GB to EU and EU to GB becomes either an import or an export.”
VAT on imports from the EU
VAT is liable to be paid on imports from the EU. The UK government has agreed that UK end customers will not have to pay import VAT, but retailers selling to the UK will have to set up an account with HMRC to pay that VAT via a new digital system that is still due to be released.
Amazon, for example, has dealt with this by saying that its European sellers need to get their goods into its UK warehouses to make them available for sale.
UK companies will have to account for goods that they import and that are worth more than £135 via their quarterly VAT return. Some of the big platforms, such as Amazon and eBay, will be liable to collect any VAT due from their sellers from January 1 and send it to the HMRC.
Retailers selling from the EU to the UK will need to have an EORI number, as assigned by the member state in which they operate. Here’s a link to the EU information on this.
VAT on exports to the EU
From January 1, the UK government says most goods being exported to the EU will attract a 0% UK VAT rate.
Instead, import VAT will be chargeable when it arrives at the destination country. Since VAT is dealt with by member states, the BRC’s Bain says, “people sending goods to customers in the EU will need to be aware of the different rules in each member state about whether import VAT will be liable at the border or whether you can defer the accounting of it to the importing person’s quarterly return. That’s not a matter for the European Commission, that’s down to the member states.”
Bain says: “VAT is now going to be a real compliance issue for sellers online. Of course the big online retailers have the capacity to work through all this and find solutions but if you are a small seller on a platform, it’s going to be very difficult.” The EU has delayed introducing a scheme that will require platforms to collect and account for VAT on behalf of sellers until July 1 as a result of of Covid-19.
Exporters from the UK to the EU will need to have an EORI number to show they are a recognised trader.
Here’s a link to the UK government step-by-step guidance on exporting goods from UK to the EU, which includes the link to get a UK EORI number.
VAT between Great Britain and Northern Ireland
Bain says that retailers sending goods between the two are very likely to be filling in VAT forms under a “very complex system” that’s “not fully in place”. In effect, Northern Ireland will have a split VAT system since the Northern Ireland Protocol that’s in place as a result of the EU Withdrawal Agreement only applies to goods rather than services. “In relation to VAT on goods, Northern Ireland will follow EU rules. It will be treated as if it is part o the EU despite being nominally part of the UK’s VAT area, so for example, a company sending product from France to Northern Ireland will not incur import VAT. That’s seen as an intra-EU supply of goods. Whereas for the same company supplying goods from France to Great Britain, that will involve import VAT.
“So it’s a very different set-up and of course that means goods going from Great Britain to Northern Ireland will also involve accounting for VAT. At our instigation, the Treasury introduced an easement, whereby instead of having to pay money up front and then pay it back, affecting cash flow, it produced a postponed accounting system again, for goods worth more than £135. So basically if you’ve got imported product moving across you would account for any import vat on your quarterly VAT return. For goods of under £135, the picture is not so clear.” Bain says that there are still issues about VAT for ecommerce between Great Britain and Northern Ireland that still have to be resolved – including the move to abolish low volume consignment relief at the same time – but this should become clearer in coming weeks.
Here’s a link to the UK Government guidance on exporting to the EU from January 2021.