Elimination of the exemption from import VAT on imports of goods of low value (below €22).
Cross border operations UK
For cross-border sellers who want to enter the UK e-commerce market, the information presented here provides clarification on trade policy and VAT issues. In what follows, details of specific changes in this area are given.
The transition period for the UK to leave the EU began in January 2019 and ended in January 2020. With the completion of Brexit, the UK left the jurisdiction of the EU, which means that EU distance selling regulations no longer apply. Due to this, sellers can continue to use UK EORI numbers starting with the letters GB an Economic Operator Registration and Identification Number (EORI) – is a unique ID code used to track and register customs information in the EU to export goods to the UK.
With this being said however, EORI numbers from EU countries will no longer be applicable for local customs clearance of goods in the UK. Directly leading to the flow of goods from the EU to the UK for storage requiring both an EORI number starting with GB and a local UK VAT number.
On January 1, 2021, a new border operating model for the VAT treatment of goods entering the UK was introduced. This was to ensure that goods from EU and non-EU countries are treated in the same way, meaning UK businesses are not adversely affected by VAT reductions on imported goods. The new arrangements were intended to improve the efficiency of VAT collection on imported goods, while addressing the problem of sellers outside the UK failing to pay the full amount of VAT on sales of goods already in the UK at the point of sale.
Summary of changes
- Removal of low value consignment relief (LVCR). Before Brexit, this VAT relief applied to consignments of £15 or less. Now that this has been withdrawn, low-value goods are also subject to import VAT.
- The point at which VAT is levied on imported goods not exceeding a value of £135 has been shifted from the point of import to the point of sale. This means that goods with a value below £135 are subject to customs declaration only and are no longer subject to import VAT. The following types of consignments are excluded:
- Non-commercial consignment sales, e.g. gifts (up to a value of £39, reducible).
- Any goods subject to excise duty.
- Non-UK sellers, shipping from within or outside the UK and selling to UK customers without OMP participation need to register for and pay VAT on their goods.
- UK online shopping platforms (online marketplaces, or OMPs) will be responsible for collecting and accounting for VAT.
Cross border operations EU summary of changes:
For goods imported into the EU and sold to EU consumers with a value not exceeding €150, the e-commerce platform or customs declarant may withhold VAT on their behalf.
For sellers who are not EU enterprises, where goods have been warehoused in advance in the EU and sold to consumers in the EU or sold from one EU country to another, e-commerce platforms may be able to collect VAT on their behalf.
All sellers will be required to provide the postal cost of their items with the VAT rate separately so that the platform can determine the correct amount of VAT to be charged.
Impact of EU tax reform
Rising costs – VAT is already included in the selling price of goods, and after the implementation of the VAT withholding system, operating costs will rise. Most sellers on European sites may face about a 20% cost increase, and profits may be reduced by over half.
Since costs have been rising, is it feasible to increase the selling price of goods?
The problem is that price increases will weaken the merchant’s price advantage, thus affecting sales. It is hardly surprising then, that most European site sellers have decided not to increase their prices within the month following the increase of VAT in the UK.
Therefore, the decision about whether to increase prices and if so, by how much? Depends on many factors, including the nature of the goods and the market situation. It is no easy decision.