UK post-Brexit VAT on e-commerce B2C imports
- Sep 30, 2020 | Richard Asquith
The UK’s HRMC has released details of the changes to VAT on goods sold from overseas to UK consumers after the end of the Brexit transition period, 31 December 2020. At this point, the UK leaves the EU VAT regime. These changes follow the Brexit border operating model changes
Avalara can help you understand the new rules and potential VAT liabilties for sellers or marketplaces from the UK, EU or anywhere in the world.
The 1 January 2021 UK B2C ecommerce reforms will include:
- All imported goods purchased will be subject to VAT – ending the current £15 VAT exemption thresholds, known as Low-Value Consignment Stock relief.
- Imported consignments of goods not exceeding £135 will be subject to sales (supply) VAT instead of import VAT. This will be charged ot the UK consumer by the UK or non-UK seller in the checkout at the point-of-sale. The seller will then report and pay the collected VAT through a regular UK VAT return. A simplified customs declaration will still be required. Goods above this value will be subject to VAT and customs in the current way.
- If an online marketplace (OMP) ‘facilitated’ the ≤£135 import sale, it will become responsible for charging and reporting VAT. For any OMP facilitated sale of any value made by non-UK sellers where the goods where already in the UK, the OMP will also be responsible for the VAT obligations.
These import VAT reforms only cover Great Britain (GB) – the UK minus Northern Ireland. See the Northern Ireland VAT regime after Brexit.
The reforms mirror the EU’s e-commerce package reforms, due on 1 July 2021.
1. Goods located outside the UK at time of sale
1.1 Imports not exceeding £135
Imported goods consignments (i.e. including multiple goods in single package) passing through UK customs border not exceeding £135 will be subject to a new VAT regime. This will replace the existing import VAT collection at clearance by customs, or customer import payments to the delivery agent.
For these transactions, UK and non-UK resident sellers must charge sales VAT though their website checkout. Alternatively, if through a ‘facilitating’ (see below) OMP, the OMP will charge the VAT in their name as the deemed supplier. The VAT is calculated on the sales price. The seller, or OMP, must provide a VAT invoice which should accompany the consignment through customs. This may be a simplified invoice.
The VAT is then paid through a regular UK VAT return by the seller or deemed supplier OMP. The goods will have to be marked, or electronically tagged on the customs declarations, as VAT paid at checkout to avoid double import taxation at the border by customs.
The £135 threshold is based on the intrinsic value of the goods, which excludes separate transport, insurance of other import taxes. It is also the UK customs exemption threshold.
If the customer is a UK VAT registered business, they may provide the seller or OMP with their VAT number for zero-rating. The UK customer then uses the reverse charge mechanism to report the VAT due. Otherwise, sales VAT should be charged.
Excise goods and gifts up to £39 are excluded from this regime.
1.2 Imports exceeding £135
Imported goods above £135, or consignments of multiple goods with a combined intrinsic value above £135, will use the existing import VAT procedures. This means the seller may pay the import VAT (and duties) on clearance, and reclaim if they have a UK VAT number. Alternatively, the seller may opt to have their customer may pay at customs or to the delivery agent.
2. Goods located inside the UK at time of B2C sale
2.1 Non-UK seller operating via OMP
When a non-UK seller sells to consumers via a facilitating OMP goods already in the UK prior to the sale, then the OMP becomes the deemed supplier. This applies to any value of goods. This does not apply to UK-resident sellers.
The seller will have already paid import VAT and any duties to clear the goods into the UK prior to the sale. Or paid input VAT if the goods were purchased domestically. In both cases, this is reclaimable through a UK VAT return.
To effect the deemed supplier transaction, the non-UK seller will first sell the goods as a zero-rated supply to the OMP. This can be declared in their UK VAT return in box 6. The OMP will then sell to the consumer at regular UK VAT rates.
B2B transactions are excluded, and a UK VAT number will serve as evidence. Normal UK VAT will apply.
2.2 Non-UK seller operating on own website
Where there is no facilitating OMP in the transaction, the existing rules will apply. The non-UK seller must be UK VAT registered, and charge UK VAT to businesses or consumers.
3. Facilitating Online Marketplace (OMP)
3.1 What is a facilitating OMP?
OMP’s are electronic interfaces (website or mobile application) such as a marketplace, platform, portal or similar that facilitates the sale of goods to customers. ‘Facilitating’ shall mean where any of the following conditions are met
- sets the general terms and conditions of the sale;
- authorises the charge to the customer for payment; and
- involved in ordering or delivering the goods.
A business which only provides one of the following will not be regarded as an OMP:
- the processing of payments in relation to the supply of goods;
- the listing or advertising of goods;
- the redirecting or transferring of customers to other electronic interfaces where goods are offered for sale, without any further intervention in the supply
3.2 Information requirements for OMP’s to determine VAT
As a result of the new obligations for OMP’s to charge and collect VAT, they will need to collect several pieces of data for the correct calculations. These include:
- Ship from country, where the seller’s goods where at the time of the sale
- If an import, the intrinsic value of the goods consignment to determine if not exceeding £135
- If the goods are within in the UK, whether the seller is non-resident
- If the customer is a VAT registered business entitled to zero-rating on imported goods not exceeding £135. In the case of non-UK seller domestic sale of any value, this should not be a deemed supplier transaction.
- Nature of the goods to determine correct standard, reduced or zero-rated VAT treatment.
3.3 Online Marketplace VAT liabilities
OMP’s potentially could be held liable for underdeclared VAT on their deemed supplier transactions. It is therefore important that they are vigilant that the above information they receive is accurate.
OMP’s will be expected to take ‘all reasonable steps within their power to ensure that the correct VAT is charged’. They will be expected to undertake reasonable and proportionate due diligence, and consider all the information available to them in determining the correct VAT treatment.
3.4 OMP record keeping
Online marketplaces will be required to retain electronic records supporting all transactions for at least six years. This covers both transactions where: they have acted as the facilitating deemed supplier; and where they have not and the seller has been responsible for the VAT.