Tax is always one of the more complicated parts of a trading relationship, and changes to VAT regulation have been confusing for both importers and exporters since the UK’s withdrawal from the European Union (EU).
In this section we look at what has changed since the EU-UK Trade and Cooperation Agreement was signed and what your obligations are in the post-Brexit commercial environment.
What has changed?
When the UK officially left the (EU), it withdrew from the single market, and, as a consequence from the EU VAT system.
What does this mean for you?
Withdrawal from the EU VAT places different rules on trading with EU customers and deciding on whether VAT is or isn’t applicable on the sale of the goods from Great Britain (GB). Your choice of incoterms will determine the overall the accountability for VAT.
For GB traders who are now selling into the EU on a business to business (B2B) basis, with incoterms such as EXW/FCA/DAP, you are not officially the importer of record and not liable for any VAT owed. You can exclude it from your sales invoice.
However, for companies selling direct to consumers (D2C) into the EU, VAT is still an ongoing issue. Who is liable to pay currently depends vary on who is acting as the importer of record and this is where the incoterms you use are an important consideration, as well as the specific EU member state into which you are selling.
What about EU VAT reform?
Form 1 July 2021, all 27 member states of the EU rolled out the most significant changes to the VAT system in a generation, by establishing the Import One-Stop Shop (IOSS) scheme.
In theory, the scheme will simplify a company’s VAT obligations and bring to an end the need for VAT registration in each EU country that a business trades in.
So, what exactly is the IOSS scheme?
imply, it applies to goods sold with a total consignment value under €150.
GB traders who are not registered fiscally in another EU member state can apply as a third country, to register for the scheme, which allows for goods sold in the EU and valued at less than €150 sold to have VAT accounted for at the point of sale. These goods will then benefit from a VAT exemption upon importation, allowing a fast release at customs.
Is it compulsory to sign up for the IOSS scheme?
No, it is a voluntary scheme and you decide to enrol, you will need to make sure you have fiscal representation within one of the EU member states on both counts.
If you chose not to become part of the IOSS, a second simplification mechanism will be available for imports. Import VAT will be collected from customers by the customs declarant (e.g. postal operator, courier firm, customs agents), which will pay it to the customs authorities via a monthly payment.
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Understanding IOSS obligations
The new Import One-Stop Shop (IOSS) scheme applies to goods being sold into the EU with a total consignment value under €150. If you need help navigating this change Avalara are on hand to help.
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Questions from our members
From 1 July, any consignments under €150 have to be taxed at the point of checkout, at the VAT rate of the country where the customer is based. For example, if a French customer makes a sale, they will pay 20 per cent (French standard VAT rate).
The seller collects the VAT and remits it to the tax authorities via the monthly IOSS return. The IOSS VAT number will have to be included on the import documents in order to clear customs.
If selling exclusively via marketplaces, the seller has to declare the export from the UK, but the marketplace will have to provide their IOSS number and declare the import. Please see the Useful resources section above for more information on IOSS.
When using FBA, the seller will still require individual VAT registrations in each country where they have joined FBA, or are otherwise holding stock (directly or via third parties). If selling exclusively via marketplaces, the marketplace will declare the sale in their OSS return, and there is no requirement for the seller to have an additional OSS registration.
When holding stock in an EU country, the seller will still require individual registrations in each country. Domestic sales are declared in the domestic VAT return, while distance sales (to other EU member states) are declared in a separate OSS return, which requires an OSS registration.
From 1 July 2021, intra EU sales will require VAT to be applied at the rate of the destination (customer location) of sale, and returned through an OSS to the country of registration, who will then forward the tax to the relevant countries.
For sales from outside of the EU, consignments below €150 can be returned through IOSS, while anything over €150 euros will require a registration in a nominated country to facilitate an IOSS return. Please see the Useful resources section for more information on IOSS.
No, you are not required to charge customers VAT at the point of sale unless you are using the new IOSS simplification. If you do choose to ship goods to consumers using an incoterm like DAP, it would mean your customers would receive an extra bill to pay before they receive the goods, this could lead to customers sending orders back if they refuse to pay the extra fees which can lead to unhappy customers.
Whether you are VAT registered does not currently affect whether VAT is due, this is determined by the consignment value. There is currently a de-minimis value of €22 where goods are not subject to VAT. In the new EU VAT reforms, they are removing this threshold so every sale to the EU will be subject to VAT. They will still be exempt from duty if below the €150 threshold.
Yes, you can collect this from your customer at checkout and instruct your carrier to send your goods to your consumers using the incoterm DDP, your carrier will pay the customs fees due on your behalf. The new IOSS simplification procedure requires you to charge the VAT at point of sale if you want to use this reporting simplification.
Your GB EORI number is no longer valid for shipping to the EU, so you will need to obtain an EU EORI number. You will need to contact the customs authority in an EU country to get an EORI number. You do not need an EORI number from an EU country if you already have an EORI number starting with XI.
Yes, if you have the correct HS Code you will be able to determine the VAT and potential duty rate if above the threshold. Many businesses include this information as part of the checkout process, it's either used to inform the customer of the additional charges they will receive or to collect and remit on the customers behalf.