Our friends at SimplyVAT have been helping businesses navigate the added complexity to cross border trade caused by the Brexit fallout. Here’s their five-minute-read piece on Brexit and what you should keep in mind to help your business thrive.
Brexit: One Month In
If you have been following the news lately, you would be hard-pressed to avoid the chaotic stories that have made the headlines; from ham sandwich confiscations to reports of businesses pulling out of the UK altogether. The Minister for Secretary of State for Environment, Food and Rural Affairs, George Eustice, referred to the issues as “teething problems”, whereas many have described the changes as “crippling” with some saying they are facing bankruptcy.
Coupled with Covid, these are challenging times, though ecommerce is one of the few winners. What, therefore, has changed for online sellers? Let’s go through some of the recent changes to trading with the EU and see what it may mean for your business.
Importing/Exporting: Costs, Fees & Charges
By far the biggest changes faced by online sellers are those made to importing and exporting. Everyone from big brands to small independent retailers have been suffering from delays and confusion. The added complexity to cross-border trade was always going to be difficult for many retailers given the relative simplicity of our previous trading arrangements. Some businesses are arguing that bureaucracy and ‘Brexit costs,’ as they’re being called, are making trade untenable, and many more are having to raise prices to cover costs.
There are some new charges that sellers are reporting when exporting to the EU, such as: additional admin fees from couriers, deferment account fees and disbursement charges. As some of these fees are charged on a per parcel basis some sellers are opting to bulk move their inventory into the EU to reduce their costs.
The announcement of “tariff-free” trade may have caught some businesses off-guard as, like most legislative changes, it comes with caveats. Several businesses have raised concerns about the rules of origin codes as they have had to pay tariffs on goods that were partly manufactured outside of the EU. These changes were introduced in the Trade Cooperation Agreement and gave businesses little time to prepare. The rules are different for every product category, but generally, to avoid tariffs, your product and its constituent parts must be entirely or at least mostly comprised of UK/EU manufactured goods. This has caused quite a stir in the media as many large firms have been caught out by this, such as M&S and their Percy Pigs.
Top tip: Research the origins of all your goods & ensure your products have the right commodity codes.
Don’t get stuck without an EORI
In addition to the above, you will also be required to get an EORI (Economic Operator Registration Identification) number when importing into either the UK or the EU.
You will need a separate EORI number for the UK, and a separate one for the EU. Your UK EORI number is no longer valid in the EU. When importing into the EU you should apply for an EU EORI number in the country you wish to import into initially. With some countries, such as Germany, you may face considerable waiting times (currently up to 2 months) to receive an EORI number so this is an important consideration when planning your supply chain.
Top tip: Consider carefully where you chose your first port of entry to be by taking into account things such as the countries EORI application times.
Changes for online sellers
“Brexit has definitely changed how marketplace sellers will record VAT in the UK. It is important to understand when you need to be VAT registered and when a marketplace is going to collect VAT on your behalf – otherwise you could end up becoming non-compliant” – Alex Wyatt, Global Projects Manager at SimplyVAT.com.
Online Marketplaces (OMPs) in the UK will now be liable to collect VAT on behalf of sellers. Whereas before individual sellers had to account for the VAT on their sales, this responsibility will now fall to the OMP. Unless your shipments are worth over £135, in which case the handling of VAT lies with you, the seller.
If you’re selling through your own website, you will be responsible for collecting the VAT on your orders. You are required to be VAT registered from your first sale when sending parcels worth less than £135 due to the removal of the Low-Value Consignment Relief.
When selling into the EU, the payment of import VAT on your sales will need to be paid by whoever is the Importer of Record (IoR). This can either be you or your customer. If you choose the customer as IoR, be aware that this can lead to a suboptimal buying experience. If you decide to go down this route, it’s important you make the customer aware that they will be responsible for payment of the import VAT. It’s worth noting that consignments below €22 can be sent to the EU import VAT & duty-free.
Top tip: There’s no one-size-fits-all approach to this, look at which method of selling works best and makes the most sense for your business.
A New Northern Ireland
What to do with Northern Ireland was a mainstay of the Brexit negotiations. Given the unique political and historical situation of Northern Ireland and its land border with the EU, there was no easy solution.
Ireland now rests in between the EU and the rest of the UK. It is part of the Single Market and must comply with certain EU regulations. For instance, it must adhere to the EU’s VAT legislation for goods and the UK’s VAT legislation for services. The Government has set up the Trader Support Service to assist in the transporting of goods into NI.
For the movement of goods between NI and the rest of the EU, the goods will be considered as intra-community acquisitions and dispatches (as opposed to imports and exports when dealing with GB-EU trade).
Top tip: If moving goods into NI, register with the Trader Support Service and check out their Northern Ireland Customs & Trade Academy.
It was inevitable that to begin with there would be a difficult phase for businesses as they adjust to the new realities of their trading relationship with the EU. Only time will tell whether the new regulations are just mere “teething problems” or whether they will need to be modified. Much of the UK’s future economic success relies on how we use our refreshed sovereignty. There has already been promising talks with several countries regarding exciting new trade deals. Whilst no one can be certain of what the future holds, we’re optimistic that sellers will adjust to the new legislation soon and any creases will be ironed out in due course.
If you’re unsure of what the Brexit changes could mean for your business and whether this may impact your international VAT compliance, please get in touch with a member of the SimplyVAT team who will be happy to help.