Brace for Brexit 18: New one stop shop
Jason Croke examines how UK businesses trading with EU consumers (B2C) will change from 2021, and how the new one stop shop (OSS) rules will work from 1 July 2021.
Both the UK and EU are implementing new rules which will see the liability for VAT shift to the seller on imports to consumers. The customer will no longer have the option of going to the post office and paying the import VAT. Any non-EU business selling to EU consumers will be required to register for VAT in each jurisdiction it sells to.
The UK will no longer be treated as part of the EU from 1 January 2021, so whilst these changes are not strictly Brexit related, the fact the UK becomes a third country means these changes will affect UK sellers equally as suppliers in China, Australia or USA.
Multiple VAT registrations can involve considerable cost. The new OSS aims to simplify matters by allowing the non-EU seller (including the UK) to register for VAT in one EU member state and collect VAT from all their EU sales and report on a single VAT return.
This works in the same way as Mini One Stop Shop (MOSS) which currently exists for the sale of digital services to consumers, OSS is an extension of that scheme to cover goods.
If the seller trades via an online marketplace (OMP) such as Amazon or eBay, then the seller has a choice:
- have an OSS VAT registration or else; or
- the OMP is liable for collecting the VAT on behalf of the seller and paying to the respective VAT jurisdiction.
In theory, this approach is designed to level the playing field. Many sellers on OMP’s are based in China and can sell goods without duty or VAT and the tax loss is immense. A seller who doesn’t register for OSS will see their listing price on Amazon increase by 20%. It may well make their products not much cheaper than a domestic seller, which is the whole point.
Practical pricing problems
For a UK business, its website pricing needs to cover the variations in standard rates of VAT across the EU. Consider a product that sells for £100 excluding VAT (£120 including 20% VAT in the UK).
The business could set its website to be geo-locked so say a Spanish customer can only visit the Spanish website with Spanish prices (product sells for £121 including Spanish VAT).
Alternatively, where the business has a single location website, it may need to increase prices to factor in the higher VAT rates that might apply to sales to EU customers in say The Netherlands or Ireland (currently 21%).
If the business continues to sell for £120 then it is not factoring in higher EU VAT rates.
The business may decide that the market cannot tolerate more than £125 for the product, so it will make a smaller margin if it fixes the price at £125 irrespective of where the buyer is located. This is easier to manage and requires less intervention from the web designers.
The extra profit made where the VAT rate is less than 25%, is likely be swallowed up in the additional costs involved in filing an OSS VAT return.
The OSS simplification doesn’t come into effect until 1 July 2021.
From 1 January 2021 a UK seller has to decide whether to register for VAT in each country where they sell into the EU. The alternative is to let the customer pay the import VAT and reduce the customer experience, or to collect the foreign VAT as described in the earlier example.
This six-month delay in implementing the OSS is quite inconvenient, as makes it difficult for UK businesses to establish an approach that they can explain to customers and maintain some level of continuity. The long-term solution will be OSS: charging EU customers their local EU VAT rate.
A UK business has to consider the customer experience and who pays the VAT, from January 2021, and then from July 2021 the OSS makes the decision for you.
UK new rules
The UK is implementing its own version of OSS, with effect from 1 January 2021.This will require any non-UK sellers who sell to UK consumers, to register for UK VAT, or if they sell via an OMP, the OMP will be liable for collecting the UK VAT.
It may be the case that the OMP removes the non-UK sellers from their platform altogether, although the reality is that the OMP is likely to increase its fees to sellers who do not have the requisite OSS VAT number or UK VAT number.
OSS is about goods entering the EU from outside the EU, so if your business holds stock in the EU, for example, you may hold a stock of handbags in France and sell exclusively via fulfilled by Amazon (FBA) then as the stock is in France, then that would still necessitate a French VAT registration.
Businesses should review their supply chains and interactions with both suppliers and customers in the EU, and consider if any aspects of the way they currently do business will change in 2021.
The examples in this article are simply to explain scenarios and concepts and are not specific solutions. I hope they give some insight into the challenges that businesses may face and provide indications of actions businesses can undertake to reduce the impact of Brexit. However, it is inevitable that there will be additional costs and administration, whatever the outcome.
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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...