Simplifying VAT and Customs Duties on E-Commerce Exports from the UK into the EU
Are you a UK-based online trading business thinking about exporting goods worth £135 and under to the EU but not sure how the new VAT and Customs Duties rules work after Brexit?
You may have heard nightmare stories in the media about delays, bureaucracy and tax headaches encountered by some UK companies exporting e-commerce goods to the EU in the early post-Brexit days, the timing of which coincided unhappily with the worst of the Covid pandemic.
We work with many UK online businesses who do successfully export into the EU using a variety of methods including IOSS, Direct Duty Paid (DDP) and Delivered Duty Unpaid (DDU). We have also encountered some businesses who have stopped exporting into the EU because of actual and perceived problems, also some who have chosen to focus on markets further afield instead.
Despite initial teething troubles when we came out of the EU, feedback we have had in recent times is that the Import One Stop Shop (IOSS) system, introduced by the EU in July 2021, has made the situation easier for some businesses. But it is certainly not a ‘one size fits all’ solution.
We thought we’d put this blog together to demystify some of the options available. This is meant as a starting point - you should check your position in detail with your legal and VAT accounts advisors. Further information is also available from Gov.uk as well as the European Union authorities.
What is The Import One Stop Shop (IOSS) and How Can It Help My E-Commerce Business Export More Easily Into the EU?
Simply put, the Import One Stop Shop (IOSS) is an electronic self-service portal introduced by the EU to reduce fraud and make the entire customs process faster and easier for retailers, customers, and customs officials.
The EU’s new VAT rules affect B2C consignments of standard goods including e-commerce sales (ie goods not being subject to excise duties such as alcohol) imported into the EU and valued at €150 (£135) or less.
For e-commerce retailers selling through marketplaces, the platform facilitating their e-commerce sales is responsible for charging and collecting VAT. The marketplace is the ‘deemed supplier’ for low-value consignments ie worth under €150 or less (£135). This really helps simplify the process and makes real costs easier for you to calculate and pass on to your customer seamlessly, thereby enhancing both yours and the customer’s experience.
IOSS registration is not compulsory, and you can always choose the ‘do it yourself’ route instead (DDP or DDU)– but check with your accounts and legal experts first. Your specialist tax advisors should be able to calculate the different costs attached to each export option based on your particular circumstances and advise you on the best options for you.
Relevant factors might include sales volume, value of the goods and type of goods exported, EU member state destination and shipping method. Allied to your market research, this price comparison should help you select the best markets for your exports, whether that is EU or rest of the world (ROW).
Shipping method could also be a factor when selecting your best markets for exports, bearing in mind that shipping/road vs.air freight can vary significantly in terms of costs, especially given the current Covid surcharge on air freight.
If you are a new business selling 5 low value items to the EU a week, for example, IOSS may not necessarily be the least costly route for you. You might want to do small-batch test campaigns first to test different markets and trial different export methods to see what works best for you. But always check with your tax or legal team first.
Some Advantages of IOSS*
1. Simplifies VAT procedures - no more multiple VAT filings in multiple countries
This allows UK sellers post-Brexit to register for VAT in one EU member state, collect VAT from all their EU sales and report on a single monthly IOSS VAT return.
2. Simplifies process greatly for sellers using online marketplaces
VAT liability (collecting and reporting) for sales in EU countries will fall on the marketplace rather than on the merchant if the consignment is valued at less than £135 (€150). This means that UK online businesses who only use online marketplaces may now be able to end any existing EU VAT registrations, as they will no longer be responsible for collecting and reporting VAT.
3. EU-based customers won’t be facing unexpected VAT payments on purchases of goods sold in the UK as it is all calculated once, at the point of purchase. This will provide customers with a better experience and help build consumer trust when buying from UK sellers.
4. Shipments containing a valid IOSS number will not be subject to import VAT, which may help them move through customs quicker.
5. Northern Ireland-based companies (NI) may enjoy an exemption threshold.
NI firms can join the alternative intra-EU OSS scheme. Providing their sales to the EU don’t exceed £8,818/€10,000 per annum, NI-based organisations will be exempt from paying VAT. Details of the intra-EU OSS scheme can be found here: https://www.gov.uk/government/publications/eu-e-commerce-package/eu-vat-e-commerce-package and https://ec.europa.eu/taxation_customs/ioss_en
6. Speeds up UK sellers’ EU shipments by creating a fast-track customs clearance ‘green channel’ for consignments not exceeding £135/€150.
7. Shipping can be cheaper than the DDP alternative.
*these guidelines are not intended as a substitute for specialist legal or accountancy advice
Some Drawbacks of the Reformed EU VAT Rules, including IOSS*
1. Previous VAT exemptions for SMEs on EU shipments worth £19/€22 or under have now been removed Meaning that these shipments will now be subject to VAT. These low value goods will therefore also require formal customs clearance, although most goods valued up to €150 remain exempt from customs duties. What this means in practice is that around 26,000 UK e-commerce sellers will need to register for VAT for the first time or stop selling to the EU. If they use IOSS, however, this can greatly ease the burden.
2. EU estimates suggest it will cost around £6,900 for each UK company on average to register and comply with IOSS regulations as a ‘non-Union’ user. This excludes Northern Ireland sellers.
3. Unlike EU-based One-Stop-Shop users, UK-based IOSS users* don’t qualify for the new £8,818/€10,000 threshold before they need to pay VAT.
*Northern Ireland sellers (under the terms of the Northern Ireland Protocol) do retain this option.
4. IOSS only applies to deliveries of items valued under the £135/€150 threshold
For all goods over that amount, UK businesses have three options:
- ensure their customer pays the import VAT at Customs
- offer the option of delivering with all duties paid (DDP)
- or hold stock somewhere in the EU and register for VAT there
5. Confusion still exists around registration and appointing an intermediary to register and file returns or whether this requirement is waived for UK sellers because the UK-EU trade deal includes a tax and VAT mutual assistance agreement.
The Republic of Ireland recently stated, for example, that it doesn’t yet recognise the VAT mutual assistance agreement so it still seems that an intermediary agent is needed there at the time of writing, whereas France and Germany have recognised the agreement for UK sellers so no intermediary is required – although having one might help make life easier. This patchy approach is not very helpful for UK sellers at the moment.
Specialist advice is available from official VAT Intermediaries registered in the EU and they can help you navigate the whole process, advise on loopholes and represent you in all 27 EU member states. This could be a useful starting point if your e-commerce business is serious about exporting into the EU, but one which will unfortunately come at a price.
*these guidelines are not intended as a substitute for specialist legal or accountancy advice
Useful Checklist for your Business
- Identify which areas of your e-commerce business are impacted by the new EU VAT rules
- Assess your VAT accounting needs for the EU: identify and apply the appropriate VAT rates in multiple jurisdictions whether going for IOSS or an alternative
- Consider registering for IOSS platform if you want to use a single registration to pay VAT throughout the EU for B2C shipments up to €150
- If you do register for IOSS, you may need to appoint an intermediary to handle tax compliance on your behalf in the EU if you don’t have an EU-based establishment
- Review and potentially cancel existing foreign EU VAT registrations if you wish to replace these with a single IOSS registration
- If you choose not to register for the IOSS platform, you need to arrange an alternative way of paying VAT and customs duty in all the jurisdictions of interest instead
- If you are selling through an online marketplace, you might want to contact them to understand and confirm who is responsible for VAT for your B2C shipments up to €150
- If you choose to pass on import charges to your consignee, you may be best advised to inform them upfront that import fees will be due for their shipment to avoid unwelcome surprises and rejection of the consignment at the other end. You may also need to check your t&cs to ensure that your position is clear and that you are covered
UPS Webinar: https://www.youtube.com/watch?v=zQwIa-5jv-c