As the UK is now outside of the EU, how VAT is applied and collected is now potentially more complex. So how should small businesses who trade with any EU state approach VAT to ensure full compliance?
The One Stop Shop
One of the starkest impacts of Brexit has been that many businesses stopped taking orders from EU-based customers. James Allum, VP and head of Europe and global payments provider and eCommerce enabler Payoneer, says:
"Unfortunately, we've seen many of the businesses we work with already stop trading with Europe. Many small companies simply don't have the resources to navigate the complexities of the post-Brexit trade successfully and instead choose to focus on scaling their UK operations.
“If you do wish to continue trading with Europe, be sure to evaluate how your business will be affected by the new guidelines. Remove yourself from any obsolete VAT requirements and either register for the new IOSS scheme or work with your partner digital marketplace to ensure you have all the information necessary to process sales correctly. Of course, any changes to the way you charge customers should be communicated clearly and in advance of any changes.”
Tamara Habberley, a senior VAT consultant at The VAT People, outlined the changes that are now in force as you read this: "The previous distance sales regime for sales of goods to consumers by supplies based in other EC member states and the VAT Moss systems for supplies of digital services will be withdrawn.
“These will be replaced by the One Stop Shop (OSS). The existing Mini One Stop Shop (MOSS) system is being extended and replaced by OSS and now includes supplies of all B2C services and inter EC distance sales from EC businesses to consumers. In addition, the previous distance sales threshold will be replaced by a €10,000 threshold.
“Online marketplaces that facilitate sales to EC consumers will be classed as both receiving the supply from the supplier and making the sale to the consumer. The low value import scheme which allowed goods to be imported VAT and duty free into the EU where the consignment value was E22 (or less depending on the member state the goods cleared into) will be withdrawn. Instead, the non-EC supplier will be able to register and account for VAT at point of sale of the goods to the EU consumer, via IOSS.”
How your business is currently set up and how you reach your end customers must be carefully assessed. Many companies use storefronts such as eBay, Etsy and Amazon. Look carefully where your business’s goods are held before shipping. It may be the case that VAT becomes payable to EC and none-EC sales.
Croner-i Business-inform spoke with Sarah Shears, Director and Head of VAT at Andersen, and began by asking Sarah to briefly outline the changes to VAT rules after Brexit.
“From 1 July 2021, the VAT rules on cross-border business-to-consumer (B2C) e-commerce supplies are changing. These changes aim to overcome the barriers to cross-border online sales and address challenges arising from the distance sales and importation of low-value consignments regimes.
“The existing thresholds for distance sales of goods within the EU will be abolished and replaced by a new EU-wide threshold of EUR 10,000. Below this threshold, supplies of telecommunications, broadcasting and electronic (TBE) services and distance sales of goods within the EU may remain subject to VAT where those goods are located at the time of dispatch, or transport begins, or the supplies of TBE services are made in the Member State where the taxable person is established.
“The VAT exemption at importation for small consignments of a value up to €22 will be removed. This means all goods imported into the EU will now be subject to VAT. However, a new special scheme, the Import One Stop Shop (IOSS), has been created for distance sales of low-value goods imported from third non-EU countries to simplify the declaration and payment of VAT.
“Simplification measures for distance sales of imported goods in consignments not exceeding €150 are also being introduced from 1 July 2021 where the IOSS is not used.”
Could you explain how the EU’s One Stop Shop (OSS) works?
“Online sellers, including online marketplaces and platforms, can register in one EU Member State and use this registration for the declaration and payment of VAT on all distance sales of goods and cross-border supplies of services to customers within the EU. Registration will be with the OSS.
“The Union OSS can be used by the following:
1. A taxable person established in the EU (who is not a deemed supplier) can use the Union OSS for:
Supplies of B2C services taking place in a Member State in which he is not established.
Distance sales of goods within the EU.
2. A taxable person not established in the EU for:
Distance sales of goods within the EU.
3. An electronic interface (established in the EU or outside the EU) facilitating supplies of goods (deemed supplier) for:
Distance sales of goods within the EU.
Certain domestic supplies of goods.”
What are the main challenges small businesses will face with the VAT rule changes?
“If you are an electronic interface making supplies of goods both under and over the Euro threshold, you may be a deemed supplier for some supplies and not others. This can also result in your customers having a different experience depending on how much they spend. Therefore, it will be very important to keep good records and ensure that systems are correctly set up to correctly deal with these challenges.
“Also, if you are an electronic interface facilitating supplies of goods to customers in the EU and the underlying supplier for all your sales is not established in the EU, you will be the deemed supplier in all cases and will need to account for the VAT accordingly.
“The UK also brought in new e-commerce rules on 1 January 2021. Therefore, these rules will also need to be considered.”
What is your critical advice to small business owners to reduce the impact of VAT changes on their enterprises and their customers?
“Map out your transactions and consider which of these rules, if any, will affect your business. For example, are you a facilitating marketplace, or are you selling through an online marketplace?
“If you operate a facilitating marketplace, are your underlying suppliers based in the EU, non-EU or both? Are all your transactions B2C? Where are your customers based? Consider which rules will apply for which customers, which suppliers and if there will be a difference depending on the value of the supply. Take advice if required and make sure you register for the OSS and/or IOSS in time if required.”
What about selling through online marketplaces like eBay and Etsy?
“Special provisions are being introduced whereby online marketplaces and platforms facilitating supplies of goods are deemed for VAT purposes to have received and supplied the goods themselves (‘deemed supplier’).
“From 1 July 2021, electronic interfaces such as online marketplaces or platforms such as eBay and Etsy will have new roles for VAT purposes in the EU:
They may become deemed suppliers.
They will have certain record-keeping obligations.
The online marketplace will be a deemed supplier if it facilitates:
Distance sales of goods imported to the EU with a value not exceeding €150; and/or
Supplies of goods to customers in the EU, irrespective of their value, when the underlying supplier/seller is not established in the EU (this is in respect of EU domestic supplies and distance sales within the EU).
“To declare and pay the VAT due in other Member States, online marketplaces and platforms will be able to register for the One Stop Shop. If you use an online marketplace to facilitate the above types of sales, the marketplace will declare and pay the VAT due.
“The electronic interface facilitating the sale will not become a deemed supplier for the following transactions:
Goods in consignments whose value exceeds €150 imported into the EU, irrespective of where the actual supplier/seller is established.
Goods supplied to customers in the EU, irrespective of their value, in case the underlying supplier/seller is established in the EU.
“Therefore, if a UK company sells goods from the UK to an EU consumer through an electronic marketplace and the value exceeds €150, the marketplace will not be a deemed supplier. The customer will be required to account for the import VAT due on importation into the EU. This can sometimes result in an unexpected extra payment due by the consumer.
“To provide a smoother customer experience and avoid these unexpected costs for the customer, some businesses are opting to change their business model by importing goods into the EU themselves (an EU VAT registration number would be required) and then making an onward supply within the EU.”
Will any businesses that have a presence on Amazon be impacted by the VAT changes?
Following the rules outlined above, from 1 July 2021, Amazon will charge the customer the appropriate VAT rate at the point of sale for transactions from stock held in an EU country and sold by a non-EU based business. This is because Amazon will be the deemed supplier for supplies of goods to customers in the EU, irrespective of their value when the underlying supplier/seller is not established in the EU (and the sale is an EU domestic sale or a distance sale within the EU).
“As a UK/non-EU based business, the sale would be reported on your VAT return as a zero-rated supply to Amazon. However, if you hold stock within an EU country this will still trigger a VAT registration requirement. When making cross border sales of goods across the EU, you will therefore still be required to register for VAT in each of the countries where fulfilment warehouses are located.”
What are the main steps to meet VAT compliance for new business start-ups selling to a global audience?
“Register for the OSS and/or the IOSS as required. Ensure that you have systems in place to determine what VAT, if any, is due and under which VAT registration. If you hold stock within the EU, ensure that you have the appropriate local VAT registrations in place.
“Whilst the rules have been brought in to simplify the declaration and payment of VAT, the rules are complex, and a single business can be impacted by a number of the different rules (even sometimes within the same customer purchase). Make sure you are ready for the changes and seek advice where required.”
As with any tax questions your business might have, always take qualified advice, and don't assume anything. How VAT is managed across your business could be multifaceted depending on where your goods are warehoused and the location of your end customers, and whether your company uses a third-party storefront.