How does Brexit affect US retailers and marketplaces selling into Northern Ireland and the UK?

Updated April 15, 2021; originally published January 27, 2021.

The United Kingdom wanted “complete and unfettered” control over its own laws, and it got it: As of January 1, 2021, the U.K. is outside the European Union Customs Union and the European Single Market, with a last-minute Brexit deal to boot. In exchange, the U.K. is losing customs and VAT simplifications and other perks of EU membership.

Americans have been watching Brexit unfold with a combination of fascination and trepidation, wondering how it will impact business dealings in the U.K. Understanding the intersection of Great Britain (i.e., the U.K. minus Northern Ireland), Ireland, and Northern Ireland is a useful first step.

Although they share an island, the Republic of Ireland (Ireland) and Northern Ireland (NI) have been separate countries since 1921. NI is part of the U.K.; Ireland isn’t. One of the many hurdles of Brexit negotiations was figuring out how to handle the flow of goods and people between NI, Ireland, Great Britain (GB), and the EU.

Under the Brexit Withdrawal Agreement and the Northern Ireland Protocol deal that went into effect January 1, 2021, British and Irish citizens can continue to move freely between Ireland and NI, and the rest of the U.K. Similarly, goods flowing between the EU and U.K. — and therefore Ireland and NI — are subject to no new tariffs or quotas.

However, because the U.K. is now a “third country” outside the European Single Market and EU Customs Union, EU-U.K. cross-border sales are subject to a host of new nontariff trade barriers, including new customs declarations (i.e., paperwork) and safety checks (i.e., delays). And most goods arriving in the U.K. are liable for any or all of the following taxes:

• Customs duty
• Excise duty
• Import VAT

Although part of the U.K.’s customs territory, NI remains within the European Single Market too, bound by EU regulations. Thus, it retains many EU-member benefits no longer open to Great Britain. The trade-off is that NI businesses now face tariff and nontariff trade barriers when selling into GB, and GB businesses must comply with tariff and nontariff trade barriers when selling into NI — just as they do when selling into the EU.

This complex web complicates tax compliance for U.S. businesses selling throughout the U.K.

Brexit itself doesn’t necessarily affect U.S. companies. However, the new U.K. ecommerce VAT package does. Effective January 1, 2021, it changed tax obligations for non-U.K. retailers — both individual sellers and online marketplaces — selling directly to consumers throughout the U.K.

The U.K. ecommerce VAT reforms apply to Northern Ireland. However, sales from the EU to NI are not affected by these reforms because of Northern Ireland’s dual position within the EU and U.K. VAT regimes.

New VAT collection requirements for U.S. businesses selling into the UK

All U.S. ecommerce businesses selling into the U.K. that haven’t already registered for VAT should do so as soon as possible. Registration may take a month or more for Her Majesty’s Revenue and Customs (HMRC) to complete. According to HMRC, “You should get a VAT registration certificate within 30 working days, though it can take longer.”

To clear goods with customs and send them to customers in the U.K., U.S. businesses need a U.K. Economic Operator Registration and Identification (EORI) number. Without a valid EORI number, goods will not clear customs.

Effective January 1, 2021, U.S. retailers selling directly to customers in the U.K. must collect VAT at the point of sale for all shipments valued at or below £135, or about $180, depending on the exchange rate. This includes goods valued ≤£15, which were previously exempt from VAT, because the U.K. has eliminated the low-value consignment stock relief measure. Sellers may indicate VAT has been collected via a new simplified customs declaration.

Commercial invoices and other documents should clearly state that VAT has been collected at checkout, so VAT isn’t charged a second time upon entry, by customs.

For goods valued above £135, import VAT and applicable customs duties continue to be due upon entry into the U.K., as prior to January 1, 2021. In the event VAT isn’t collected at checkout, shipments will be held at customs until the customers pay the VAT, along with any customs duty due. Unless this is clearly explained in advance — and even if it has been — it could lead to disgruntled customers. For this reason, some businesses opt to collect VAT at checkout, along with applicable customs duties (a practice known as DDP shipping), even when not required to do so.

For U.S. businesses, selling into Northern Ireland is the same as selling into the rest of Great Britain: The new ecommerce rules apply. 

Moving forward, NI will benefit from any free trade agreements between the U.K. and other countries. Yet although U.K. Prime Minister Boris Johnson has spoken optimistically about securing a trade deal with U.S. President Joe Biden’s administration, such an agreement seems unlikely before 2023.

OMPs now the deemed supplier responsible for VAT in the UK

New requirements for online marketplaces (OMPs) also took effect January 1, 2021. Requirements vary depending on the nature of the seller (U.K. resident or non-U.K. seller), the “ship from” country (within or outside the U.K.), the value of the shipment, and other factors.

For example, if a U.S. marketplace seller has goods stored in the U.K. prior to the sale, the OMP is considered the deemed supplier no matter the value of the goods (above or below the £135 threshold). Since the marketplace seller must pay import VAT and applicable customs duty to clear the goods into the U.K. (or pay input VAT on goods purchased in the U.K.), it makes a zero-rated supply sale to the OMP; in turn, the OMP sells to the consumer at the applicable U.K. VAT rate.

When goods are shipped from outside the U.K., and the value of the shipment is at or below the £135 threshold, the OMP is the deemed supplier of shipments and is responsible for:

• Collecting VAT at checkout
• Remitting VAT to HMRC
• Properly documenting the transaction (OMPs must retain records for at least six years)

Retailers that sell only through marketplaces (i.e., make no direct sales) and don’t store inventory for sale in the U.K. don’t need to register to collect VAT. However, marketplace sellers with inventory in the U.K. need to be registered, as do marketplace sellers that make direct sales into the U.K.

As the seller of record, OMPs are under a great deal of pressure to get VAT right and comply with all reporting requirements. This may inspire them to crack down on sellers suspected of trying to cheat the system in any way. Sellers that fail to register as required may be blacklisted from all major marketplaces.

Failure to comply with the U.K.’s new ecommerce requirements can cause numerous headaches, and worse. For example:

• Goods could be held at customs if VAT wasn’t collected at checkout as required
• U.K. customers could be overcharged VAT by customs officials unable to confirm VAT was collected at checkout as required
• Marketplace sellers could be blocked from doing business on all major marketplaces for failure to register for VAT as required before listing goods

Avalara’s end-to-end marketplace solution helps cross-border sellers mitigate risk and streamline global tax compliance without adding headcount or negatively impacting customer experience.

Read this 2021 U.K. ecommerce VAT overhaul for more detailed information, and to learn how Avalara can help sellers with VAT and EORI registrations, VAT reporting, and customs and duties.