As 2021 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.
Guidance from HMRC is still developing as trade deals are cemented and new systems created, but 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.
£135 cut-off point
Since Brexit kicked in on January 1st 2021, 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.
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.
The following have separate guidance:
Goods outside the UK at point of sale
According to HMRC guidance, if you are selling goods that are outside of the UK at 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; 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 for goods ordered to Northern Ireland from outside the UK and EU.
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 on all goods imports 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.
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.
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.
The best time to act is now.