From 1st July 2021, the EU are introducing new VAT rules for B2C ecommerce sellers in the UK, which will impact all online sellers selling into the bloc.
The new rules are designed to create a fairer trading environment, by ensuring that VAT is charged regardless of the supplier’s location.
There is the potential for disruption with customers in the EU potentially facing VAT charges and delays after this date. Below, we outline what UK ecommerce sellers need to do to avoid this disruption.
How are the EU VAT Rules Changing on 1st July 2021?
Previously the EU allowed a €22 EUR low-consignment relief on items sold into the EU, so small items could go through customs without incurring VAT. Furthermore, many small-scale online sellers into the EU didn’t use to pay VAT due to the EU’s old distance selling threshold rules where VAT was only paid after a certain volume of sales was reached.
From 1st of July, this will be scrapped and all items sent from ‘third countries’ such as the UK will be subject to European VAT.
This has the potential for large-scale disruption, loss of reputation and ultimately business for UK sellers as charges will be levied on the customer at the border before they can be released.
On the flip side of this, for larger ecommerce businesses selling to the EU, the new rules may actually simplify their VAT returns process. Previously, the EU implemented distance selling thresholds on a country-by-country basis, meaning you pay VAT and associated costs in every country where you breach a certain amount.
The new rules mean country-specific distance-selling thresholds are being abandoned in favour of an EU-wide approach which can help cut down on costs and tricky red tape.
How Can UK Businesses Avoid VAT Disruption when Selling into the EU?
When these changes come into force on 1st July 2021 they could cause a similar level of confusion and disruption as to when the initial VAT changes that came into force in January 2021 after Brexit which saw many UK businesses abandon their plans to sell in Europe.
Businesses can mitigate against this disruption issues by signing up to the EU’s One Stop Shop (OSS) scheme for VAT before the deadline.
The new OSS scheme is for online sellers who have a prior VAT registration in a European country and want to report sales from this country as opposed to the UK. Therefore, you will report your sales to the country you are registered for VAT in on an EU-wide basis.
Those who will need to register for the scheme will be those selling independent ecommerce platform such as Shopify, Magento, Woocommerce etc. that hold stock in an EU country to distribute across the EU.
For businesses without a registered office in the EU, you will need to apply for the Import One Stop Shop (IOSS) scheme, which allows the sellers to collect, declare and pay the relevant VAT to EU tax authorities without the need for the customer to pick up the bill.
Note, that does not apply to online marketplace sellers such as eBay and Amazon at present as they are effectively acting as the seller on your behalf and collecting VAT at the point of sale. That said, you will still need to register for VAT in the country where you store and distribute your goods, although with zero declared as your VAT return.
How to Prepare for the EU VAT Changes on July 1st 2021?
These changes don’t have to negatively impact your business, although if selling into the bloc, you will need to act before 1st July to avoid disruption.
To make sure you don’t give customers in the EU any nasty VAT charges it’s best to assess how your business complies with the new guidelines, remove yourself from any defunct VAT requirements and apply for the new OSS or IOSS schemes where relevant.
If unsure, talk to an ecommerce accountant, ideally one specialising with online businesses who will be able to advise you on the best steps for your business.
About the Author
Ben Sztejka ACA is the founder of Your Ecommerce Accountant – a specialist accountants for online businesses. As a former online seller on eBay and Amazon, when Ben trained as a Chartered Accountant, he found that traditional accountants did not understand eCommerce clients. In 2018 Ben founded Your Ecommerce Accountant with the aim of providing a knowledgeable service for online entrepreneurs.