From January 2021 the tax implications of the export and import of goods between the UK and EU changes fundamentally due to Brexit.
For businesses with a small volume of exports to the EU, the choice from 1st January 2021 will be either to:
- Decide not to fulfil sales to the EU
- Apply zero rate VAT on sales to the EU and expect the customer to pay import VAT
What happens now? When a UK business is supplying goods to individual consumers within the EU there is currently a requirement for UK VAT to be charged on the sale. This occurs until the value of the goods sold to an individual country exceeds the distance selling threshold, at which point there is a requirement to register for VAT in that country. The distance selling thresholds vary from country to country but are generally approximately €35,000.
What happens from 1st January 2021? UK businesses will no longer be able to benefit from the distance selling thresholds from 1 January 2021, meaning a UK business selling goods to EU non-business customers must answer the question of what to do between 1 January 2021 and 1 July 2021 and then implement a plan for 1 July 2021 onwards.
If the value of the package is less than €22, then it will be exempt from VAT and duty under the existing low value consignment relief.
Options for business between 1 January 2021 to 1 July 2021
Option 1: The UK business treats the supply to EU customers as being a zero-rated export for UK VAT purposes. The goods would then be subject to import VAT on arrival into the EU, meaning that the customer would need to pay import VAT in order to take delivery of the goods, which will have commercial implications.
Option 2: Alternatively, a UK business may choose to act as the importer of the goods shipped into each EU country. This would mean that the UK business would need to register for VAT in that country and pay the import VAT (recovering it subject to the usual rules in each EU country in question), but the place of supply of the goods will be the EU country where they are sent, which means UK businesses must also charge VAT at the rate applicable in each of the EU countries where they are selling the goods.
Option 3: The third option is to choose to hold stock in one EU country and fulfil orders from this EU country. This would require the UK business to register for VAT in that EU country, but in turn this would allow the import VAT to be paid (and recovered) by the UK business. As the UK business would then be registered for VAT in the EU country, the onward supply of the goods to the customers within the EU could then be treated as intra-EU supplies in the same way as currently, i.e., subject to the normal distance selling thresholds.
Post 1st July 2021
With effect from 1 July 2021, the EU is removing the distance selling thresholds and in turn introducing new rules to prevent the need for multiple EU VAT registrations and a One Stop Shop (OSS).
By removing the distance selling thresholds and implementing the OSS, e-commerce businesses selling to different EU countries will not have to register for VAT in each EU country. Instead, a business will need to charge the relevant VAT rate in the country where the goods are being sold but would declare this VAT via the OSS return.
UK businesses can also use this OSS system but would need to register as a ‘non-Union’ taxpayer in one EU member state of their choosing. The UK business would need to submit regular domestic returns in that country as well as the quarterly OSS returns, like any other EU e-commerce business, preventing the need for them to register in every EU country they are selling goods into.
What to do now? If you are a UK business that is currently selling goods to non-business customers in other EU countries, you should consider whether you wish to treat your sales as being zero-rated exports or if you wish to register for VAT in another EU country.
System Changes Needed
Configuration changes will need to be made in online software to ensure the correct VAT rates are charged from 1st January.
Shopify changes to be made
If your Shopify store is based in the UK and you are planning to implement Option 1 from the 1st January 2021, you should go to tax settings and remove VAT from every EU country (besides the UK) from the list:
1. Go to Settings → Taxes in your Shopify admin.
2. Set the tax rate for each EU country to 0%. Keep the tax rate for the UK at 20%
Woo Commerce changes to be made
If your Woo Commerce store is based in the UK and you are planning to implement Option 1 from the 1st January 2021, you should go to tax settings and remove VAT from every EU country (besides the UK) from the list:
1. Go to: WooCommerce > Settings > Tax.
2. Set the tax rate for each EU country to 0% Zero Rated. Keep the tax rate for the UK at 20%