Post Brexit Trading Notes for Online Retailers
First important point to note is the difference between selling to customers direct from your own website and selling to customers using an ‘Online Marketplace’ like Amazon or Etsy.
This is quite an important difference, so HMRC have an official definition for ‘Online Marketplace’:
So the key points are that if a platform facilitates ordering and facilitates customer payments then it will be classed as an online marketplace, such as Amazon and Etsy. We’ll come back to these in a minute….
Another important point to note is that import VAT has nothing to do with your business being VAT registered or not. The import VAT is a tax due on imports in each country and the rate is dependent on the VAT rate in each European country – it may not always be 20% like ours.
This import VAT was not so relevant for businesses before Brexit but has now become an issue due to the UK leaving the EU which facilitated more freedom of movement of goods.
As you may be aware, since Brexit, any sales to customers in the EU have caused customers to incur charges on import VAT when buying goods online from the UK. This can manifest in customers being contacted before receiving their goods and being required to pay the import VAT charges before the goods are released to them. Or they may receive their goods and then afterwards receive a payment demand in the post for the cost of the import VAT.
Obviously this has caused frustration for EU customers and UK businesses, but up until now there has been no way of dealing with it, other than warning EU customers of the situation before they purchase, or some online retailers have chosen to suspend sales to EU customers.
However from 1st July there is a new system coming in which means UK businesses can pay the import VAT on behalf of customers (for shipments of up to €150) to avoid them incurring the charges themselves, this is known as the Import One Stop Shop (IOSS).
Using this IOSS it means UK businesses can have one place for managing and paying the import VAT due across EU countries and therefore removing the barrier to EU customers purchasing their goods online.
However, while it may sound convenient, I have been informed by an international trade specialist that there are significant costs and admin involved for UK businesses using this – as well as incurring the cost of the import VAT, you also need to have a fiscal representative in each EU country (or you have to pay for one to act on your behalf) you also have to file monthly VAT returns as part of the IOSS process.
This is an awful lot of extra cost and admin for a small online retailer to take on, so the alternative to this is to continue as before - warning EU customers of the situation before they purchase, or some online retailers have chosen to suspend sales to EU customers.
*However this situation only applies to EU sales you make direct from your own website. If you sell through an online marketplace, like Amazon or Etsy then the situation is different……
When sales are made through an online marketplace then it is the online marketplace that is liable for the import VAT. The online marketplace must charge and account for the Import VAT at the point of sale. This means that if make sales to EU customers via Etsy or Amazon, then they are required to account for and pay the import VAT. There are no extra admin burdens for you as a small business… but of course Etsy/Amazon will probably add these costs into your statement and deduct the cost of any import VAT and quite likely a processing/transaction fee from your proceeds.
While this universal burden lies with the online marketplaces, in practice they are probably dealing with it in different ways. I’ve been told that Amazon issued communication to their sellers in May 2021 on this subject, but other marketplaces may be slower… or maybe not knowing how to deal with it! Brexit has caused a lot of new processes and confusion so many businesses seem to be muddling through and learning as they go. But despite this muddle, rest assured that if you’re selling through an online marketplace then you are not liable for this import VAT.