One of the consequences of Brexit is that exports of goods from GB to customers based in the EU are now zero-rated as far as UK VAT is concerned. However, if the consignment is valued at more than £22 there will be an import VAT liability at the other end. This isn’t too much of a problem for B2B sales where the customer is VAT registered – they can simply claim back the VAT according to the particular process relevant to that country. However, for unregistered businesses and B2C customers, there are issues.
One problem is that customers who are used to paying UK VAT at 20% may now be faced with higher rates, for example a customer in Sweden will need to pay 25% on standard-rated goods. There are reports of EU customers abandoning UK businesses due to the complications and extra costs.
There are further, more complicated, rules to consider where the goods were originally imported to GB from outside the EU. Customs duties, such as dumping duty, may be payable depending on the country of origin.
Becoming the importer
Some customers simply don’t want to be responsible for the customs procedures in their home country. A freight forwarder may be able to handle this for the seller, paying the import VAT due over to the VAT authorities directly (usually on a monthly basis). This will smooth the process for the customer but will incur fees for the selling business. There have also been reports of the system breaking down, for example where insufficient import VAT is paid meaning the goods are held up at customs, despite the seller assuring the customer that this would be avoided.
A further potential solution is for an exporting business to register for VAT in the customer’s country and import the goods themselves. In this way, they become responsible for the customs declarations and import VAT – which they can then reclaim via their overseas VAT returns, charging their customer sales VAT. The problem with this is that it requires registration in every individual country that the seller exports into. There are legal requirements in some countries that mean a local fiscal representative must be appointed, i.e. the seller can’t use their UK-based accountant. The local representative may be required to accept joint responsibility for any unpaid VAT, which can make this avenue prohibitively expensive due to the (understandably) high fees.
However, there is some good news in this regard with the introduction of the Import One-Stop-Shop (IOSS) – due to launch in July 2021.
IOSS – July 2021
From 1 July 2021, the £22 low consignment exemption will be scrapped. All EU imports will then be subject to VAT in the relevant country of import. However, for consignments with a total aggregate value of less than £150 the VAT will be charged at the point of sale, rather than at the point of arrival in the customer country. UK-based businesses can register for the IOSS as “non-Union sellers”. This should help small traders selling goods directly to consumers, as the result is more akin to the pre-Brexit position for the customer. However, the reporting requirement will be different.
In order to report the VAT, the seller can use the new IOSS. This will require VAT registration in just one EU member state, rather than each individual country sales are made in. A business registering for the IOSS will receive a unique number that must be quoted on all shipments to the EU. A single IOSS VAT return will then be filed monthly to declare all import VAT due. A single cash payment will then be made to the tax authority in the chosen country of IOSS registration. UK input tax related to those sales will of course continue to be included on the domestic UK VAT return, so a payment will still be required – even if the UK return shows a refund is due. Any VAT paid on expenses in the EU will not be claimed on either a UK VAT return or an IOSS return. A separate claim must be made in a paper format to the tax authority where the VAT was paid, known as a 13th Directive claim. See the EU published guidance for information on how to do this.
The IOSS is optional and a business can opt to follow the overseas registration route to pay and reclaim the import VAT, or use the Special Arrangements (e.g. a freight forwarder or customs agent) to have the import VAT collected from the customer instead.
Further information about the IOSS should be published later in the year.