Updated: Dec 21, 2022
New EU VAT rules came into place on 1 July 2021 which may have implications for your business and your customers if you are supplying goods to customers based in the EU. This article only considers the VAT implications and not the customs duty impact (although there should be no duty on goods moving into the EU which are of EU or UK origin).
What has changed?
When the UK was in the EU, it was part of the same common trading zone. As such, the concept of ‘import VAT’ was not applicable on sales of goods between the UK and the rest of the EU. The UK is now treated in a similar way to the US and Australia, and import VAT is charged on goods being brought into the EU.
When an EU customer imports a good from the UK, ‘import VAT’ will be added to the cost for the customer. The Import VAT rate that applies will be that which is equal to the VAT rate for that particular good in that country.
WHEN THE CUSTOMER IS A BUSINESS
The EU business can claim back the cost of the import VAT on their local VAT return, so there shall be no monetary disadvantage to a business.
WHEN THE CUSTOMER IS A CONSUMER
Delivery companies are helping with this VAT charging exercise, they charge the consumer the VAT and release the good to the consumer after the VAT has been paid, and the delivery company subsequently pays the VAT to the tax authority in that country. On face value this sounds like a good service. However, these companies are also adding ‘handling charges’ for this service. It is these ‘hidden’ charges, which the customer is paying, that is affecting trade between the UK and EU in the post-Brexit world. You can imagine the surprise to a consumer who needs to pay the VAT and the handling charges – it leaves a rather sour taste in the mouth and if not addressed early by UK business, they may find their consumer customers in the EU do not repeat their purchases in future.
Is there an alternative to the ‘hidden’ handling charges for the consumer? Yes, the Import One Stop Shop (IOSS)
Import One Stop Shop (IOSS)
This is an EU reporting scheme which allows a UK company to register for VAT in one EU country, and report (and pay) the VAT to that one EU country. In essence this requires the UK company to:
Charge VAT to the customer at the point of sale;
Keep a record of the VAT charged to consumers in each country; and
Report the sales and related VAT for each country on one single VAT filing
As you can see there are a few things to consider, not least whether your e-commerce platform on your website can handle the application of different VAT rates for different countries, or if it can distinguish a business customer from a consumer customer.
Does it all sound like too much to think about? Please get in touch email@example.com