New EU VAT rules set to cost British SMEs £180m
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New EU rules intended to tackle VAT fraud are set to cost British SMEs £180m according to a report in the Financial Times. The new rules are mainly directed at sellers from China, but thanks to Brexit, they will apply to the UK due its new status as a third country.
According to tax consultancy Avalara, the changes mean that around 26,000 ecommerce sellers, just over 10% of the UK sector, will need to register for VAT for the first time under the EU’s new “one-stop shop” system. This, as reported in the Financial Times, will cost most these companies a minimum of €8,000 per annum each, which equates to a total of around £180m.
Richard Asquith, who leads on VAT at Avalara, told the Financial Times that the EU reform was the latest example of UK companies with deep trading ties to the bloc being “buffeted by our third country status”.
As this guide from FedEx explains, between now and July 1st, 2021, shipments can be imported into the EU free of VAT when the total value of the goods is less than €22. However, after July 1st, all shipments will attract VAT regardless of value. The VAT will apply at the rate set in the buyer’s country of residence.
In addition to the above, for e-commerce consignments of €150 or under, the EU is introducing an optional Import One-Stop Shop (IOSS) for customs clearance. This allows sellers or online marketplaces to charge VAT at the point of sale and remit it directly to the authorities. This simplifies the process and makes it more transparent for the consumer.
In orders to register a IOSS, most non-EU sellers will have to appoint an intermediary to register and declare the VAT on their behalf (unless they are already established in the EU). After this, they will be required to provide their IOSS number to the customs declarant (the shipper).
When it comes to VAT for B2C sales imported into the EU, declarations are to be submitted via a monthly tax return in the nominated EU member state. That must also be forwarded with the VAT declaration and payment to the tax authorities in the EU destination countries. As a result, companies will not have to bother registering for VAT in every EU country do business in.
Finally, another element of the new VAT rules concerns online marketplaces. As a result of the changes, some online marketplaces, rather than their sellers, will have the responsibility of collecting, reporting and remitting the VAT due from the end-consumer – if they have registered under the IOSS. The IOSS will then apply to B2C imports of consignments up to €150 into the EU, facilitated by the online marketplace.
According to the UK Government website, the changes will affect businesses:
- who sell or supplying goods from Northern Ireland to non-VAT registered customers in the European Union (EU)
- who make supplies of goods from the EU to non-VAT registered customers in Northern Ireland
- who send low value goods to Northern Ireland (or the EU) from outside the EU and Northern Ireland (including from Great Britain (England, Scotland and Wales))
- non-EU businesses with goods located in Northern Ireland at the point of sale
It also affects online marketplaces that facilitate the sale of goods:
- located in Northern Ireland (or the EU) by non-EU businesses to non-VAT registered customers in EU and Northern Ireland consumers
- from Great Britain to consumers in Northern Ireland and the EU
Commenting on the news, retail analyst Mark Pilkington told Fashion news website Drapers Online:
“Under the new rules, all shipments will be subject to VAT, which will clearly hurt smaller online sellers. The new law also shifts responsibility for VAT to online marketplaces such as Amazon, which will have to check if the seller is VAT-registered, so this will tighten things up. The only upside of the law is that it makes registering for VAT in the EU easier, by allowing sellers to register in one country, and then do all their EU VAT accounting through one account.”
Photo credit: piqsels