Brace for Brexit 13: Selling goods to consumers
Jason Croke looks at how GB businesses selling to EU consumers (B2C) will change from 2021 and how the customer experience may well drive the VAT approach.
Take the example of a consumer in Spain (B2C) who buys a handbag from a UK seller. Currently, the supplier charges UK VAT (20%) to the Spanish customer and the goods are shipped to Spain and received by the customer duty free and with VAT paid in UK and therefore not subject to Spanish VAT.
If the UK sells more than €35,000 of goods to Spanish consumers, then the distance selling rules require the UK seller to register for VAT in Spain. Then all future sales to Spanish customers would fall under the Spanish VAT registration, subject to Spanish VAT and no longer be subject to UK VAT.
In terms of experience, the customer pays VAT – either UK or Spanish – and this is as it should be.
- Handbag sells for £100 + £20 UK VAT (declared to HMRC).
- If distance selling in play: handbag sells for £100 + £21 VAT (Spanish standard rate is 21%), paid to Spanish tax office.
VAT is a tax on EU consumers and whether it is UK or Spanish VAT being charged, VAT is applied. From the consumers perspective, they could choose to buy the handbag from a non-EU source (assuming a comparable product was available) and in that instance, the non-EU supplier would not charge VAT, the goods would enter Spain and it is pot luck as to whether Spanish customs intercept the package and apply import duty/import VAT, or whether the goods slip through untaxed.
Post Brexit transition
A business based in Northern Ireland will follow UK VAT rules for services and EU VAT rules for goods from 1 January 2021. The Brexit VAT changes for goods only apply to a business based in Great Britain (England, Scotland, Wales).
As we discovered in Brace for Brexit 1, from 1 January 2021 goods from Great Britain to EU will be exports. The transaction is zero-rated, distance selling regulations will no longer apply. However, when the goods arrive in Spain, someone will have to pay import duty (if the package is worth over €150 or £135) and import VAT.
The customer experience will be different; either the customer must pay import VAT, or the seller has to.
If the customer is responsible for the taxes on import, it means their parcel may be delayed until they pay the VAT to their local post office or the courier/shipping firm being used to deliver the parcel. The consumer could get lucky, in the same way if they purchased goods from China, but the consumer may not be comfortable with the risks of buying goods from China on eBay or Amazon, but for the last few decades did not have the same issue when buying from businesses in Great Britian.
The alternative is the seller pays the import VAT, in practical terms this would mean the courier/shipping agent pays the Spanish VAT using their own deferment account and then invoice the GB supplier for the VAT plus their admin fee. This Spanish VAT is not recoverable unless the UK business registers for VAT in Spain.
If the GB supplier only sells to handbags to Spanish consumers then a Spanish VAT registration might be practical and ensure the customer experience is the same as pre-Brexit with no uncertainty as to VAT or duties. But if the GB supplier sells to several EU member states, then maintaining multiple VAT registrations might be cost prohibitive.
The same handbag that was £120 before the end of the Brexit transition:
- In 2020 the handbag sold for £100 + £20 VAT (or £100 + £21 Spanish VAT) and customer was happy to pay £120 or £121.
- In 2021 the actual transaction is zero rated (£100 + £0 VAT) but if the seller is going to be the importer, they need to collect the import VAT from the customer at time of sale and so price would remain as £121 (Spanish VAT rate applied).
The Spanish import VAT is not declared to HMRC. The UK supplier is not Spanish VAT registered either, so the UK supplier simply retains the full price of £121. When the shipping agent recharges the Spanish VAT back to the UK supplier, the supplier already has £21 from the customer. The UK supplier is not strictly out of pocket, but then factor in the administration fee from the shipping agent, the additional shipping paperwork, and it is not so seamless as it was before.
The other alternative is to sell the product as £100, zero VAT and clearly inform the customer that the goods may be subject to import duty/import VAT and that may delay the delivery of the product and involve customer having to pay an additional amount to receive their goods. Thus, the customer experience is an important consideration to factor into the equation.
If the business has large volumes of sales to Spain, then it could register for VAT in Spain, but for the other EU member states it might only have a few hundred euros of sales per year, and so those customers may be better served as the customer being treated as the importer.
Selling to the UK
The VAT rules work in reverse for EU suppliers wishing to sell into the UK. A French seller may charge French VAT (at present 20%) and then UK VAT if distance selling threshold is in play.
From 2021 the sale will fall under new UK rules. These rules apply when a non-UK seller, sells goods to UK consumers where the value is less than £135/€150. In that situation, the non-UK seller must register for UK VAT and charge UK VAT at the checkout/time of sale. The seller does not have the choice to shift VAT liability onto the customer.
One Stop Shop
All the above will apply from 1 January 2021 (non-UK selling to UK consumers), but then in July 2021, the EU are implementing a new system, called One Stop Shop (or sometimes referred to as Import One Stop Shop, IOSS) which will operate similar to the UK implementation in January 2021.
This will be discussed in greater detail in Brace for Brexit 18 and it is recommended to read that article alongside this one to hold a greater understanding of the changes that are coming for B2C businesses.
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Jason has over 20 years’ experience working exclusively in indirect taxes (VAT, import duty, SDLT) with owner-managed businesses, corporates and not for profit sectors. He particularly enjoys challenging HMRC decisions, representing clients in tribunals or during inspections.
Experience includes land and property, partial exemption and...