BREXIT’S ONGOING IMPACT ON ECOMMERCE SELLERS
The end of the Brexit transition period has thrust cross-border eCommerce sellers into uncharted waters. Issues such as new VAT and customs regulations, import and export rules, and deferments are forcing sellers to quickly adapt to the post-Brexit era, making it difficult to effectively manage their businesses.
In this guide, written in partnership with AVASK Accounting & Business Consultants, we provide a comprehensive overview of the current European eCommerce landscape with a focus on cross-border selling between the UK and EU, including guidelines for importing from the EU to the UK and exporting from the UK to the EU, as well as changes to UK VAT policy.
Additionally, we’ll illustrate real-world scenarios that sellers are likely to now face, including what occurs when storing goods both in the UK and at least one EU country, as well as the changes to Amazon PAN-EU FBA. We have assessed the above scenarios in conjunction with VAT requirements, customs numbers, distance selling threshold (DST) rules, shipping, and certain technicalities which have arisen from Brexit.
Our hope is that you can use the information contained here to help you navigate the new eCommerce landscape. As always, everyone from Payoneer and AVASK are here to ensure your business thrives in the post-Brexit era.
IMPORT AND EXPORT GUIDELINES FOR CROSS-BORDER SALES
Now that Brexit is complete, cross-border sellers need to contend with a host of new rules and regulations for importing from the EU to the UK and exporting from the UK to the EU. The following checklist can help ensure you’re able to adapt to the changes and your business can continue functioning without a hitch.
Importing from the EU to the UK
The steps below are necessary when importing goods from the EU to the UK:
- Establish the importer of record – You’ll need to choose an importer of record, who is responsible for managing clearance requirements, including customs/import declarations, import duties/tariffs and import VAT.
- Get a UK EORI number – If you do not have a UK EORI number, you’ll need to apply for one through HMRC.
- Check for import license requirements – Certain goods, including animals, plants and agricultural products require a UK government license or certificate.
- Plan how to pay import VAT – You have several options when it comes to paying import VAT:
- Your customer can pay it at Delivered at Place (DAP) Incoterms.
- You can pay at customs.
- You can defer the payment in your UK VAT registration.
- Decide how to complete import declarations. As an importer of record, you can either:
- Complete import declarations yourself by:
- Purchasing commercial declarations software.
- Applying to be authorized to submit simplified import declarations.
- Applying for a CHIEFS badge, which is the HMRC’s import online registration system.
- Or use an intermediary:
- Freight forwarders, customs agents or brokers, and fast parcel operators are typically approved as intermediaries.
- Complete import declarations yourself by:
- See if you qualify for preferential customs tariff and rules of origin – Goods can qualify for zero customs duties if they follow the rules of origin framework, including obtaining a statement of origin from the exporter or the importer of record applying ‘importer knowledge’.
- Get a duty deferment account – If you do not qualify for zero customs duties, you’ll need a duty deferment account to allow you to postpone duty payments until the end of the month of importation. You can also use this for VAT.
- Verify that your exporter is ready by ensuring they have:
- An EU EORI number.
- EU export licenses.
- Statements of origin.
- Invoices.
- Packing lists.
- Submitted export declarations in the countries of departure.
- Prepare UK Intrastat declarations – UK requires VAT registered businesses to complete monthly reports on the movement of goods, arrivals into the UK from EU, known as Intrastat.
Exporting from the UK to the EU
The steps outlined below are necessary when exporting goods from the UK to the EU:
- Establish the exporter of record – You’ll need to choose an exporter of record, who is responsible for UK customs paperwork and export clearance, transport, insurance, etc. Typically, it’s the UK supplier.
- Get a UK EORI number – If you do not have a UK EORI number, you’ll need to apply for one through HMRC.
- Check for export license requirements – Certain goods, including animals, plants and agricultural products require a UK government export license or certificate.
- Ensure you’re eligible for export VAT exemption – Exporters with proof of the departure of goods from the UK, (through a sales invoice, customs declarations, bill of lading documents or transport documents) are exempt from UK VAT.
- Decide how to complete export declarations. As an exporter of record, you can either:
- Complete export declarations yourself by:
- Purchasing commercial declarations software.
- Applying to HMRC to register for NES and for a badge for HMRC’s online customs systems: CDS and CHIEF.
- Or use an intermediary:
- Freight forwarders, customs agents or brokers, and fast parcel operators are typically approved as intermediaries.
- Complete export declarations yourself by:
- Compile the information required for an exit declaration:
- Commodity code for the product, containing the digits identifying the product, its materials and production method. The EU uses the six-digit global Harmonised
- System (HS code) and adds two more digits CN heading.
- Departure point and destination.
- Consignee and consignor.
- Nature, amount and packaging of goods.
- Transport method.
- Any certificates and licenses.
- Exporter statement of origin to allow your importer to qualify for zero tariffs.
- Prepare to export your goods – You or your customs intermediary must submit the completed customs export declaration to NEW for a unique consignment number, enabling you to export the goods and clear customs.
- Verify that you’re ready for the EU import process:
- Apply for an EU EORI number.
- Secure import licenses.
- Have the exporter’s statement of origin to qualify for EU zero tariffs under the rules of origin requirement.
- Complete EU customs import declarations for the EU member state of import, which is filed with the relevant country’s customs system.
- Apply for deferred VAT/postponed VAT to ensure you do not have to pay import VAT.
NAVIGATING THE LATEST CHANGES TO UK VAT POLICY
HMRC’s recently published legislation covering changes to the VAT treatment of overseas goods sold to customers (B2C transactions) include the abolishment of low consignment relief, which relieves import VAT on consignments of goods valued at £15 or less. For consignments of goods not exceeding £135 in value, VAT will be accounted for at the point of sale rather than at importation.
If an online marketplace (OMP) is involved in the facilitation of the sale, they will be responsible for collecting and remitting VAT to HMRC. If an OMP is not involved in facilitating the sale, there will be a supply direct from the seller to consumer, and UK VAT will be payable by the seller.
According to the new legislation, any business that operates an OMP facilitating the sales of goods to UK customers, as well as any business selling directly to UK customers with goods located outside the UK and under £135 in value, will need to register for UK VAT.
In addition, for Amazon businesses based outside of the UK, but storing their goods in the UK and selling them to UK customers, Amazon will be deemed supplier for the transactions and collect and remit the applicable VAT to HMRC.
There are two strands to the new measure, which will change the way VAT is collected on sales of goods in the following circumstances:
1. Goods sold to UK customers where the goods are located outside the UK at the point of sale, and the supply involves the importation of the goods into the UK.
- If an OMP is not involved in facilitating the sale, there will be a supply direct from the seller to the consumer, which will be deemed to take place in the UK and is liable for UK VAT.
- If an OMP is involved in facilitating the sale, they will be deemed, for VAT purposes, to be making the supply to the UK consumer. They will be responsible for collecting and remitting the VAT to HMRC.
Please note that the above is in relation to B2C sales to UK consumers. If the sale is made to a UK VAT registered business (B2B) and the customer can provide a valid UK VAT number, the responsibility to account for VAT switches to the UK VAT registered business customer, who will account for it by means of reverse charge. This means that the OMP/direct seller will not be responsible for collecting VAT in these circumstances.
2. Goods sold to UK customers where the goods are in the UK at the point of sale, sold by an overseas seller and where an OMP facilitates the sale.
This strand of the new measure will apply to goods of any value where:
- They are owned by a seller who is based outside the UK.
- They are located in the UK at the point of sale.
- The supply is not to a VAT registered business.
- The seller sells the goods to a customer in the UK through an online marketplace.
These goods will have already been imported into the UK and the existing import VAT and import duty obligations will apply. UK VAT will be due at the point of sale as usual. The difference is that, providing the four conditions above are met, the OMP will be classed as the deemed supplier and will therefore be liable for collecting and remitting the VAT. The responsibility is no longer on the overseas seller.
However, this does not mean that the overseas seller is redundant from UK VAT registration. At the point of sale, the overseas seller must make a zero-rated supply to the OMP. This will mean that the supply will be recorded on the overseas seller’s VAT return.
It will also mean that any import VAT that the overseas seller has paid at customs will be reclaimable on the VAT return as usual.
The above rules apply to B2C sales to UK consumers. If the sale is B2B to a UK customer and they can provide a valid UK VAT number, the VAT obligation falls on the overseas seller rather than the OMP. Usual VAT rules will apply here, and no reverse charge will take place. The OMP will be responsible for notifying the overseas seller that they need to account for VAT on such transactions and must provide the overseas seller with the UK VAT number of the customer.
Finally, for transactions that are not facilitated by an OMP where the goods are in the UK at the point of sale, the existing rules remain unchanged, and the overseas seller must account for the VAT on such transactions.
Scenario One
“I am storing and selling goods via a UK warehouse (FBA) and I want to store and sell via an EU warehouse.”
From a shipping point of view, sellers are to continue using their UK EORI number for importation of goods to the UK. However, further guidance is awaited on this matter from HMRC. Sellers are advised to keep good record of their stock levels in the UK and in the mainland EU country where they will also be holding stock. Furthermore, they should conduct comprehensive research on services, delivery times, admin requirements and fees on freight forwarders experienced in cross-border freight forwarding across the Channel.
Moreover, the requirement for filing EC sales lists and Intrastat reporting will no longer be necessary in the UK, and reverse charge rules will no longer be applicable as B2B transactions with UK-based businesses will be treated outside the scope of VAT.
On a final note, sellers who are storing goods in the UK and wish to ship directly to customers based in an EU country through merchant fulfilled orders, will need to conduct thorough research on shipping costs (and their product costing analysis) and request advice from an expert on fiscal representation requirements when shipping to Europe.
Furthermore, as per the EU 2021 VAT OSS rules scheduled to come into effect from 1st July 2021, sellers will be subject to VAT at the point of sale for small consignments up to €150, determined by the country where the customer is based. This new rule replaces the VAT exemption of transactions up to €22 that applies to date. Sellers operating via merchant fulfilled orders should liaise with their tax advisor to plan regarding their low consignment transactions and their VAT implications in the post-transition Brexit period.
Scenario Two
”I am storing and selling goods via an EU-based warehouse (FBA) and I want to store and sell via a UK-based warehouse.”
Amazon sellers who are storing and selling goods via an EU-based warehouse and wish to store and sell in the UK via a UK-based warehouse will need to register for VAT in the UK.
From a shipping point of view, sellers should keep their EU EORI number if they are to ship goods from the EU to the UK and consult with an experienced freight forwarder to comply with customs declaration rules, filing import declarations and advise on delivery times.
Moreover, the requirement for filing EC Sales lists and Intrastat reporting will still be in place in the EU without considering the UK. Reverse Charge rules will still be applicable amongst the EU countries, excluding the UK as transactions will be deemed as “outside the scope of VAT”. Finally, sellers are to continue making use of the DST rules except for the UK.
On a final note, sellers storing goods in the EU not wishing to hold stock in the UK and wishing to ship directly to UK customers through merchant fulfilled orders, will need to conduct thorough research on consignment costs and potential import tariffs (along with keeping good record of their product costing analysis). We recommend they seek advice from a tax expert on fiscal requirements and a highly experienced freight forwarder when shipping across the English Channel, considering the EU 2021 VAT OSS rules that enter effect as from 1st July 2021.
Scenario Three
”I am already storing and selling goods via the UK and in at least one EU warehouse (FBA).”
For sellers who are storing and selling goods both via a UK and an EU warehouse, there is no action to take place, as they will already be VAT registered in the UK and in the mainland EU country where they are storing their goods. For those sellers who have an EU EORI number and wish to continue importing goods from overseas (incl. UK) there is no action to take place as they can continue using the same EORI number.
In terms of DST, sellers can continue making use of the DST rules for the rest of the EU by excluding distance sales to the UK as sales will be deemed as “outside the scope of VAT”.
From a shipping point of view, sellers are advised to keep good record of their stock levels in the UK and in the EU country(-ies) where they will be holding stock and ensure they conduct comprehensive research on services, delivery times, admin requirements and fees on freight forwarders for shipments across the English Channel. Moreover, the requirement for filing EC Sales lists and Intrastat reporting will still be in place for transactions within the EU without considering the UK. Reverse Charge rules will still be applicable amongst the EU countries, excluding the UK as transactions will be deemed as “outside the scope of VAT”.
On a final note, sellers storing goods both in the UK and the EU and wishing to ship directly to their customers via merchant fulfilled orders will need to keep good track of their stock levels in each side of the English Channel and run product costing forecasts in view of the EU 2021 VAT OSS rules. In any case, it would be advisable that sellers seek expert advice from highly experienced freight forwarders on cross-border shipment in terms of consignment costs, tariffs and admin paperwork if required.
Scenario Four
”I am storing and selling goods via the Amazon PAN-EU FBA Programme and I want to continue using the same format.”
If you are storing and selling goods via the Amazon PAN-EU FBA Programme, you will already be in possession of VAT numbers in the countries where you are storing your inventory, UK included.
For those sellers who have an EU EORI number and wish to continue importing goods from overseas (inc. UK), there is no action to take as they can continue using the same EORI number. Should sellers wish to ship their goods from the EU to the UK or from overseas to the UK, they will need to apply for a British customs clearance number.
As with all scenarios, sellers must keep a clear record of their stock levels in the UK and in the EU country(-ies) where they will be holding stock. Moreover, the requirements for filing EC Sales Lists and Intrastat reporting will still be in place for the remaining 27 EU Member Countries, without taking the UK into account anymore. Reverse charge rules will still apply among the remaining EU countries except for the UK, where transactions will be deemed to be “outside the scope of VAT”.
CONCLUSION
Brexit’s impact on the eCommerce sphere is far reaching, with cross-border sellers in the UK and EU needing to make significant changes to how they sell their products, their VAT compliance and their logistics operations. While navigating the post-Brexit world will require changes to how you operate your business, the guidelines and tips outlined here can help you do so while maintaining business continuity.