CHANGES TO VAT
MEMBER INSIGHTS: CROWE UK
Crowe UK is a leading audit, tax, advisory and risk firm and an independent member of Crowe Global, the eighth largest accounting network in the world. They offer insights and pragmatic advice to assist many overseas businesses with managing their UK VAT obligations, this includes advising on the VAT treatments and rates that apply, as well as completing and submitting VAT returns.
VAT CHANGES FOR B2C BUSINESSES
- The UK – EU Trade deal means that the UK is no longer part of the EU Customs area or subject to its VAT rules.
- This has resulted in the UK implementing new rules to help collect VAT when goods are sold to UK consumers (i.e. B2C sales).
WHAT USED TO HAPPEN?
If goods were delivered from Belgium to the UK and the customer was not VAT registered, the supplier would charge Belgian VAT. This was the only compliance burden to manage and, on the basis that most suppliers were already VAT registered, not a big burden.
The situation only got more complicated if the value of the supplies made to the UK in a calendar year exceeded £70,000. When this happened, the seller had to stop charging Belgian VAT and start charging UK VAT to its customers. To do this a UK VAT registration would be obtained.
HOW HAS BRitains exit from the eu CHANGED THIS?
Until 31 December 2020 the goods moving between Belgium and the UK stayed within the same Customs area. Now, they leave one and enter another. This means you have an export from Belgium and an import into the UK. At import there is the possibility of import VAT and duties being charged. It is also necessary to complete documentation for each stage of the journey.
The party who is liable to complete the import documentation and pay any taxes that become due will be determined by the terms of trade between the parties. These are often referred to incoterms, a key consideration is who will act as “importer of record” into the UK
WHAT ARE THE NEW RULES?
When goods are delivered from Belgium to the UK and the customer is not VAT registered, they should not be subject to Belgian VAT. This is because they will be treated as an export and hence be zero rated (sometimes referred to as exempt with credit).
However, when the goods arrive in the UK the value of the package being imported and how it is sold will dictate the implications for VAT and duty purposes. These different scenarios are set out below:
Package of a value of £135 or less sold via seller’s website
- VAT – there will be no import VAT charged. However, the seller will need to account for UK VAT when it sells the goods (i.e. at the point of sale). This charge is referred to as “supply VAT”. The seller will need to register for UK VAT in order to account for this tax.
- Duty – there will be no import duty to pay
Package of a value of £135 or less sold via an online market place (OMP)
- VAT – there will be no import VAT charged. VAT will need to be accounted for on the sale. However, this will be accounted for, declared and the tax paid to the tax authority by the OMP. The seller does not need to account for UK VAT nor be VAT registered there
- Duty – there will be no import duty to pay
Package of a value of more than £135 sold via seller or OMP
- VAT – import VAT will be charged at the border. If the customer is the importer then they will need to pay it and the seller has no UK VAT obligations. If the seller is the importer of record they will need to pay this import VAT. They will also need to register and account for UK VAT on the sale to the consumer. The import VAT they incur can usually be recovered.
- Duty – duties will be payable if the goods have origin from the EU. If they do not then duty will apply. This cost is not recoverable irrespective of who the importer is.
HOW TO MANAGE THESE CHANGES:
Much has been written in the press about how these VAT changes make life more difficult for non-UK businesses. However, if those businesses were already making sales valued at more than £70,000 a year into the UK they would have already been VAT registered and charging UK VAT to customers. If the packages being delivered are under £135 in value there will be no import VAT or duty to pay and hence, their situation will remain largely unchanged save for the need to complete customs declarations.
For businesses that were not already UK VAT registered and have packages valued at more than £135 or sell via OMP, the position is more complicated. To determine what your obligations are we would recommend reviewing the following questions:
1. What are the value of my packages?
- Do note that the new rules focus on the value of the package and not the value of the items making it up. This is important if multiple items are sent together in a single package. Other costs such as transport and insurance can also be excluded if they are charged for separately. Understanding the valuation rules is important in ensuring that the correct VAT rules are followed.
2. If selling via an OMP will you met the conditions for them to take on your obligations to account for UK VAT?
- If you believe so then you should discuss this with them as it will impact your selling price and the amount passed back to you by the OMP (i.e. sale price after their costs and taxes are deducted)
3. If your packages are going to be over £135, what will the customer experience be like if they have to pay extra import costs in addition to your charge?
- Will it be better for you to register for UK VAT and save the customer that burden, with you collecting the VAT at point of sale? Many overseas sellers are registering for UK VAT because of such concerns.
4. If packages will be over £135, will any duties be payable?
- They probably won’t apply if you make your product in Belgium or elsewhere in the EU. But if they are imported from outside of the EU and then only repackaged in Belgium before onward supply, duties are likely to apply as the products may fail the “origin” requirements of the UK-EU zero-tariffs trade deal. Given this is a cost it should be substantiated in order to its impact to be understood.
For further information or questions please contact:
Natasha Begg, National Senior Marketing Executive at Crowe UK
Watch the Chambers webinar discussion on the future of UK-EU trade flows, where panellists from HMRC and Simmons & Simmons will give you practical guidance on the changing landscape in the field of VAT.
The information provided on this page does not constitute legal advice and is subject to change in line with government rules and laws. While BritCham will endeavour to keep the information on these pages as current as possible, we advise you to seek expert independent legal advice an any matters relevant to your situation