The UK: VAT on UK e-commerce imports post-Brexit
At the end of the Brexit transition period on 31 December 2020, HMRC will introduce a new model for the VAT treatment of goods arriving into Great Britain from outside the UK. This aims to ensure that UK businesses are not disadvantaged by competition from VAT free imports. It should also improve the effectiveness of VAT collection on imported goods.
Under the UK’s Brexit e-commerce reforms, online marketplaces like eBay and Amazon will become responsible for charging, collecting and accounting for UK VAT on certain transactions.
Similar reforms are proceeding with the EU VAT ecommerce package which comes into effect on 1 July 2021.
These UK B2C ecommerce reforms include the following:
- For imports of goods from outside the UK in consignments not exceeding £135 in value, VAT will be collected at the point of sale rather than the point of importation. This means that UK supply VAT, rather than import VAT, will be due on these consignments. The seller will account for VAT through its UK VAT return. Goods above this value will be subject to VAT and customs duty under the current method.
- The new arrangements will also involve the abolition of Low Value Consignment Relief, which relieves import VAT on consignments of goods valued at £15 or less.
- Where online marketplaces (OMPs) are involved in facilitating the sale below the £135 threshold, they will be responsible for collecting and accounting for the VAT.
These import VAT reforms only cover Great Britain (GB) and do not cover matters specified in the Northern Ireland Protocol.
Goods located outside the UK at the point of sale
These new arrangements will apply to sales of goods to GB customers where the consignment does not exceed £135 in value. This aligns with the threshold for relief from customs duty. This will replace the existing import VAT collection at clearance by customs, or customer import payments to the delivery agent.
For most consignments not exceeding £135 in value, instead of VAT being collected at importation or delivery to the customer, VAT will be accounted for at the point of sale, as follows:
- If an OMP is not involved in facilitating the sale, there will be a supply direct from the seller to the consumer, which will be liable to UK VAT. This will be charged at the point of sale ie, website checkout.
- If an OMP is involved in facilitating the sale, they will be deemed, for VAT purposes, to be making the supply to the UK consumer and again UK VAT will be chargeable.
In both instances the value of the goods for VAT purposes will be based on the price at which they are sold to the consumer rather than any valuation calculated at the point of importation. The seller, or OMP, must provide a VAT invoice (which may be a simplified invoice).
If the customer is a UK VAT registered business, they may provide the seller or OMP with their UK VAT number as evidence for zero-rating. The UK customer then uses the reverse charge mechanism to report the VAT due. Otherwise, sales VAT should be charged.
For goods that are located overseas at the point of sale, the new arrangements will apply irrespective of where the OMP or the business selling the goods is established.
This will lead to UK VAT registration requirements (if not already registered) for:
- any business that operates an OMP that facilitates sales of goods to UK customers; and
- any business that sells goods directly (without OMP involvement) to UK customers where the goods are (i) outside the UK at the point of sale (ii) imported to the UK in consignments not exceeding £135 in value.
The VAT is then paid through a regular UK VAT return by the seller or deemed supplier OMP.
Consignments above that value will remain subject to existing customs rules and processes and from 1 January 2021, UK VAT registered businesses will be able to use postponed VAT accounting to account for import VAT on their VAT return.
Goods located inside the UK at time of B2C sale
The goods will already have been imported into GB from outside the UK and existing VAT and duty obligations will apply at importation.
Non-UK seller using an OMP
UK VAT will be due at the time the sale of goods takes place as it is now. However, under the new rules, the OMP will be the deemed supplier and therefore will be the party liable to account for VAT on sales facilitated through its marketplace. For VAT purposes, the seller (operating through the OMP), will no longer be seen as making a supply to the UK consumer.
At the point the goods are sold to the customer, the overseas seller will be deemed to make a zero-rated supply of the goods to the OMP. The overseas seller should show the value of its supplies in box 6 of its VAT return, but will not be responsible for declaring VAT on those deemed sales made through the OMP. The OMP will then sell to the consumer at the applicable rate of UK VAT.
B2B transactions are excluded. The UK VAT registered customer would provide a UK VAT number and normal UK VAT will apply.
Sales by non-UK sellers that are not facilitated
Where sales are made by non-UK sellers not using a facilitating OMP, the existing rules apply. The non-UK seller remains liable to register and account for VAT on all such sales to UK customers.
As there is no VAT registration threshold for businesses not established in the UK, the non-UK seller is liable to register and account for VAT as soon as it starts making sales or holds stock in the UK.
OMP record keeping
Online marketplaces and direct sellers will be required to retain electronic records supporting all transactions for at least six years. For OMPs, this covers both sales they make themselves (directly to consumers) and sales by third party sellers that they facilitate as an OMP, which for the purposes of these new rules will be deemed sales by the OMP.
If you think you would be impacted by these possible changes and would like to discuss, or if you have any questions on the above, please do not hesitate to contact Sarah Shears.