On 1st July 2021, the EU is changing its VAT rules for shipments both to and from the EU. If you are a UK-based B2C ecommerce business selling into the EU, you will need to be aware of these changes regardless of the quantities you are selling or risk customer’s incurring VAT charges at the border. We have summarised these changes below and outlined the schemes to help, but if you would prefer to speak to an accountant, please get in touch.
EU VAT Changes from 1st July 2021
From 1st July 2021, the EU are introducing new rules for ecommerce businesses selling business to customer (B2C).
With the rise of Amazon and Shopify, the EU are updating their rules to ensure there is a fair playing field.
Before 1 July 2021, those sending goods, such as dropshippers, into the EU did not have to charge VAT and – as a result – businesses in the EU were less competitive due to their VAT obligations.
Therefore, the EU are introducing new rules to ensure that VAT is charged regardless of where the supplier is based.
The new EU VAT rules primarily aim to ensure customers are charged the correct VAT where they are based rather than where the item originated. That means those sending items using Aliexpress now need to charge VAT to the end customer.
Those who already sell into the UK from a foreign entity will know the rules change in the UK from the 1 January after Brexit and the EU are enacting largely the same.
Even items shipping from the UK to the EU will be affected, with UK microbusinesses particularly impacted – potentially adding a reported £180m in extra red tape costs across these 26,000 businesses who haven’t had to pay EU VAT before. Luckily there are a few schemes to simplify the new VAT process for online sellers, which we will outline below:
What Were the EU VAT Distance Selling Rules for Ecommerce Companies Before?
Prior to 1 July 2021, each EU country had their own VAT distance-selling thresholds. This means that you could sell into these countries and would not have to register for VAT until you breached a threshold.
However, for growing ecommerce businesses breaching multiple thresholds this meant a lot of VAT registrations across Europe.
Each country had their own rules and European accountancy costs are normally a lot higher than in the UK.
Luckily for these businesses, the EU is making it easier to sell into Europe by using a new EU-wide scheme to avoid multiple registrations in various countries.
What Are the VAT rules for Ecommerce Companies from the 1st July 2021?
There used to be a €22 EUR low-consignment relief, so small items could go through customs and not attract VAT.
This has been abolished and now all items will be subject to European VAT. This has huge consequences for the customer experience, as they will have to pay VAT before their item is released if the company isn’t registered with one of the schemes below or using an online marketplace such as Amazon.
From the 1 July 2021, the EU has one distance selling threshold, €10,000 EUR. However, this is just for European-established businesses.
For third countries like the UK, there is no threshold and you will have to register for the new scheme or your goods will be hit with VAT at the border. No one wants an angry customer or worse, a bad review.
What are the options for a UK business wanting to sell to the EU?
The One Stop Shop (OSS) scheme is an optional scheme that allows you to account for VAT in a single EU country rather than multiple countries.
The new OSS scheme is for online sellers who have a VAT registration already in the EU and wish to distribute from that European country. Therefore, you will report your sales to the country you are registered for VAT in and charge the relevant rate for each sale.
Those who will need to register for the scheme will be those selling via Shopify or another independent ecommerce platform that hold stock in an EU country to distribute across the EU. Those selling using marketplaces like eBay and Amazon should be using another scheme, which we have outlined below.
Those who take advantage of this scheme can deregister from all but one EU country, simplifying the VAT process and saving £1000s in compliance fees.
What about those companies selling on OMP (online marketplace) such as eBay and Amazon?
This means that if you sell from a central location, Amazon will deal with the cross-border VAT so you don’t have to. Please note that you will still have to register for VAT in the country where you store and distribute your goods, however, this means you can submit nil returns.
You won’t be able to completely abolish VAT returns but the next best thing will be returns which are far less complicated.
What about those Importing Goods into the EU? Register for the IOSS
If you are selling online to the EU and distributing from a third country like the UK, you have the option to register for a scheme called the IOSS or Import one-stop-shop.
This means that you register in one country you sell in and submit IOSS returns for the whole of Europe. This is a huge simplification which means you do not have to register for multiple registrations across Europe.
The other option is not to register and the let the VAT sort itself at the border. However, for those remembering what happened after Brexit, this leaves the customer with a VAT issue if they want to receive their item. Border officials will levy VAT on the item and this could impact the customer experience and lead to negative reviews and ultimately loss of business in the longer term.
A scheme like IOSS enables you to sell to European customers as seamlessly as possible.
This scheme would be ideal for businesses selling via Shopify, Amazon or eBay and shopping internationally and are based in a third country such as the UK.
Do I need an IOSS Intermediary?
You may have read that you need to appoint a European based intermediary to register and submit VAT on your behalf. This is the case for third countries who do not have a VAT mutual assistance scheme agreed.
The UK and the EU have agreed mutual assistance for VAT but as it stands we have had no concrete information from HMRC or the Irish tax office to say that UK businesses do not need an intermediary like Norway.
As it stands the Irish tax office has said to us businesses need to have an intermediary until further notice. We anticipate they will grant this in due course but not in time for 1st July.
We would suggest waiting until that time. If you do not register for IOSS (which is optional) then you can do two things
- Continue as normal but your customer will suffer VAT at the border
- Pay for DPP (duty Paid) via royal mail or another courier, this means you will pay up front and the customer will never know.
How to Get Ready for the EU VAT Changes on July 1st 2021?
- Review your supply chains to identify if you need to register for any of the new schemes
- Work out your sales for each European country
- In some cases you can deregister for unnecessary VAT registration
- Check if you need an IOSS intermediary
- Keep an eye on Amazon and eBay and how they are going to implement the deemed supplier rules
- Talk to your accountant (or schedule a chat with a qualified ecommerce accountant)
Pre-registrations for 1 July 2021 are open now and we are registering our clients for these new schemes so do not get caught out in July.
If you want to learn more about the new UK and EU VAT rules in July 2021 and want to get set up on the relevant schemes, book a free 30-minute consultation call with us today and we will guide you through it.