As 2024 continues, many business owners are starting to experience the changes that Brexit has brought. Today, we’re going to specifically look at the government guidance for VAT changes on overseas goods and how it affects your e-commerce business.
The UK’s withdrawal from the European Union became complete on 31st December 2020 and VAT changes are now in place. Whether you are VAT-registered or will soon be registering, here’s what you need to know. Please be aware, the guidance below is specific to England, Scotland, and Wales only unless stated otherwise; Northern Ireland has separate guidance.
What was Brexit and what does it mean for e-commerce businesses?
On 31 January 2020, the UK officially left the EU. The remainder of 2020 was treated as a transition period and new rules came into play on the 1 January 2021.
Get A Free Quote
Breakout E-commerce accountants and Xero specialists to supercharge your UK online business growth.
Until the new rules were implemented businesses did not have to make any changes, however since the agreement of the UK-EU trade deal, significant adjustments have been put into place. This includes changes to VAT on overseas goods and customs relating to imports and exports.
Why has VAT on overseas goods changed?
The way VAT is calculated on overseas goods changed due to the UK-EU trade deal that was agreed at the end of 2020. The deal meant that businesses in the UK now have to consider imports and exports in a new way.
VAT changes and customs when importing from the EU to the UK and exporting from the UK to the EU following Brexit can be complicated and the government recommends you hire a customs broker and accountant to help with imports, exports, and VAT changes.
Who is affected by VAT changes on overseas goods?
Online sellers from the UK and from EU countries will be the biggest changes to the way VAT and customs are calculated.
£135 cut-off point
Since Brexit kicked in, goods consignments with a value of £135 or less and are sold directly to customers, without the involvement of an online marketplace, will have a supply VAT charge at the point of sale. However, if the customer is VAT registered and can supply the seller with their valid VAT registration number, the VAT amount can be charged to the customer.
If you are selling in Northern Ireland, you will import VAT charged on the same amount.
What this means for you: This is relevant to you if you sell through Shopify, WooCommerce, or any other e-commerce platform directly from your own site. The £135 is the value of the whole consignment imported – not individual items or boxes within the consignment.
Exceptions:
The following have separate guidance:
- Non-commercial goods.
- Consignments containing excise goods.
- Consignments from Jersey or Guernsey where VAT is paid by the Import VAT Accounting Scheme.
Goods outside the UK at point of sale
According to HMRC guidance, if you are selling goods that are outside of the UK at the point of sale i.e., drop-shipping or print-on-demand, you must calculate the consignment value by “deciding their intrinsic value”. You can calculate this by using the price the goods were sold for less any transport, insurance, taxes, and charges unless they were included in the price and not shown separately on the customer’s invoice. If the items are sent in a consignment, you must add this value for all items included. If this is over the £135 limit, the above import VAT and Customs duties apply, less any VAT already factored into the sales price.
What this means for you: This is relevant to you if you sell items that are made to order outside of the UK or shipped in once customers purchase them. If so, you must follow the £135 guidance as we have already discussed.
Goods that are in the UK at the point of sale
HMRC states, “If you are an overseas seller who owns goods of any value that are located in the UK at the point of sale you must register and account for VAT on any sales you make directly to customers in Great Britain or Northern Ireland”. This is only relevant if you sell directly through a website. If you sell through an online marketplace such as eBay or Amazon, there is separate guidance.
What this means for you: If you sell through your own website and are an overseas seller with goods stored in the UK, you must be VAT registered. This applies to all areas of the UK. Because of these VAT changes, you may wish to investigate whether your business should continue to store items in the UK or outside of it.
Low-Value Consignment Relief
Low-Value Consignment Relief (LVCR) was an import VAT exemption for goods valued under £15. Since January 1st, 2021, this no longer applies to goods imported from outside the UK to Great Britain or to goods ordered to Northern Ireland from outside the UK and EU.
Where online marketplaces are involved in facilitating sales, in this circumstance they are responsible for collecting and paying the VAT.
What this means for you: This is relevant to you if you import items individually as you will no longer be exempt from import VAT. You may wish to investigate importing in larger consignments. We will be happy to help you calculate the most cost-effective method of importing for your store.
Shipping values of greater than £135
If your consignment value is greater than £135, normal VAT and customs rules will apply to all goods imported into Great Britain and Northern Ireland from outside the UK and the EU. If you are unsure of how to treat your shipments for VAT, please look at our VAT hub for further information.
What this means for you: If you are newly registered for VAT or soon to register for VAT, you will want to do some research and/or consult your e-commerce accountant to ensure you are following international VAT regulations. If you are already VAT registered, continue as normal for all shipments over £135.
Find out more about our e-commerce accounting services.
Flat-rate VAT scheme
The flat-rate scheme no longer applies to any sales made through an online marketplace where the marketplace is liable to account for VAT (almost universally the case). You can choose to remain in the scheme or leave it as suits your business.
What this means for you: It may be beneficial for you to remove your e-commerce business from the scheme altogether. As many stores rely heavily on online marketplace sales, you may find yourself restricted but losing out on benefits if you remain in the scheme. If you remain on the flat rate, you will need to adhere to the conditions fully, including the restriction on VAT recovery.
Next Steps
VAT changes can cause ripple effects throughout your e-commerce business, adjusting price points, storage locations, and growth. If you would like to talk through the changes and find the most beneficial path for your business, please get in touch with our team of e-commerce specialist accountants.
Why choose Unicorn Accounting?
Ensure you keep on top of your finances and tax obligations by outsourcing to an accountant. This means that you don’t need to worry about your end of year accounts, payroll, or bookkeeping requirements.
At Unicorn Accounting we are e-commerce accountants who help make your online business a growing success. We offer e-commerce accounting advice, financial management, bookkeeping, cash flow statement, and tax filing services to support and scale your business.
Our team of accountants and Xero-certified advisors have experience working with both small start-ups and family-run online stores to large-scale, international retail and e-commerce brands.
If you’ve got an online store, we have the best solution for you. Providing you with a financial arm to your business through our sector experience, and skills with innovative technologies. To see how we can help you maximise the scalability of your e-commerce brand all year round, get in touch with Unicorn Accounting today. Or click here to get a free quote.
Related articles
https://unicornaccounting.co.uk/blog/do-you-pay-vat-on-ebay-fees-2/
https://unicornaccounting.co.uk/blog/2021-amazon-vat-uk-changes/
Get A Free Quote
Breakout E-commerce accountants and Xero specialists to supercharge your UK online business growth.
