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UK ecommerce 2021 VAT changes for sellers & marketplaces

  • Mar 18, 2021 | Richard Asquith

The UK’s HMRC has overhauled the rules of VAT for ecommerce from 1 January 2021. This is at the same time as the end of the Brexit transition period, which brought separate VAT and customs changes. The new UK ecommerce reforms puts new VAT calculation and collections obligations on UK and overseas sellers. It also makes online marketplaces (‘OMP’) responsible for the VAT on certain transactions by there sellers.

The three 2021 key ecommerce reforms included:

1. Withdrawal of the £15 VAT exemption on imported goods being sold online to UK consumers. This is known as the Low Value Consignment Stock relief. From January 2021, all imports are liable to 20% UK VAT

2. Obligation to charge sales (or 'supply') VAT at the point-of-sale on imported sales not exceeding £135. This is supported by a simplified customs declaration. This replaces the existing process of paying import VAT when the goods arrive at UK customs

3. OMP's taking on VAT obligations - calculations and collections - of their third party sellers on:

  • Any imported sale not exceeding £135; and
  • Sales of any value within the UK by their overseas sellers

The aims of the reforms are to:

  • Simplify and improve the process for clearing imported goods being sold to UK consumers;
  • Close the import VAT exemption benefit that puts UK online and high-street retailers at a cost disadvantage;
  • Reduce the opportunities for online VAT fraud which HMRC estimates costs the UK £1.5billion per annum in lost tax revenues
The Brexit factor

These ecommerce reforms coincided with the ending of the UK’s Brexit transition period on 31 December 2020. The UK is now out of the EU VAT regime and so is free to introduce these measures. The EU is planning a similar set of reforms, the EU VAT ecommerce package, for 1 July 2021. UK and EU sellers will face new import VAT and customs obligations.

Northern Ireland included

The ecommerce reforms only partially apply to Northern Ireland (NI). Under the EU-UK Brexit Withdrawal Agreement, NI took on a dual position within the EU and UK VAT regimes.

The two important differences are:

  1. NI to EU goods remain under EU VAT rules
  2. Where an overseas seller with NI goods sells to a NI consumer via a OMP, then the VAT reporting remains the responsibility of the seller. NOT the OMP. However, the OMP does take on joint and several liability for the VAT

Avalara can help reduce the tax bill and keep your goods flowing

Whether you are a UK, EU seller or marketplace, the new rules mean complex changes which, if not managed, will result in tax fines and goods being blocked at customs. Adding the VAT and customs complexities for ecommerce businesses of Brexit, 2021 is set to be a hostile trading environment of online trade in the UK and with the EU.

Avalara can help. Our fully automated VAT determination and report solutions will take care of all the new calculations and filing obligations for all parties as a result of the UK ecommerce changes AND Brexit. Contact us to take the sting out of 2021 and keep you trading.

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How to expand into new international markets

In the wake of the pandemic, cross-border ecommerce has accelerated at two times the rate of domestic, and is set to break the $1 trillion mark in 2022. (Source: Research & Markets)

Seize the moment and plan for global growth. Join us at the Avalara Virtual Ecommerce Summit.


For more content and resources like this visit the Ecommerce VAT reforms knowledge hub

Need help with your UK VAT compliance?

Researching UK VAT legislation is the first step to understanding your VAT compliance needs. Avalara has a range of solutions that can help your business depending on where and how you trade. 

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara
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