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Brace for Brexit 9: Importing low value goods

There will be a choice of VAT treatment for an overseas supplier who is selling goods with a shipment value of no more than £135 to a customer in the UK.

20th Nov 2020
Independent VAT Consultant
Columnist
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Brace for Brexit 9

It is reasonable to conclude that some VAT registered businesses in the UK have suffered a trading disadvantage for many years, trying to compete with VAT-free imports arriving from abroad, often through the post, because the imported goods have not been declared by the overseas seller as far as VAT and duty is concerned.

This should change on 1 January 2021 because all goods shipped into Great Britain (GB) by overseas sellers, will be subject to ‘supply VAT’ if the shipment value is less than £135 rather than ‘import VAT’. I refer to ‘GB’ as different rules will apply for Northern Ireland, which is outside GB but within the UK.

What is the significance of £135? It is the threshold for duty purposes – however, customs declarations are still needed for the goods in question.

There are a number of different scenarios.

Supply VAT v import VAT

It is important to be clear about the difference: a shipment with a total value not exceeding £135 will be subject to ‘supply VAT’ when the goods arrive in GB from anywhere in the world, based on the value of the sale to the GB customer. For shipments above this amount, the goods will be subject to ‘import VAT’ on arrival, although if the GB buyer is the importer and is VAT registered, the VAT can be postponed as I explained in Brace for Brexit 2.

Example 1

A print cartridge imported into GB, with shipment value of £70 will be subject to ‘supply VAT’ but two print cartridges of that value arriving in the same shipment will be subject to ‘import VAT’ because the shipment value of £140 obviously exceeds £135.

Direct sales by overseas seller

From 1 January 2021, an overseas seller importing goods into GB with a shipment value of no more than £135 will need to be registered for UK VAT, and account for supply VAT rather than import VAT. The VAT treatment will then depend on whether the buyer is VAT registered or otherwise.

Example 2

Steve the plumber lives in Brighton (GB) and is not VAT registered. He buys a set of taps online for £100 from a French supplier, the goods are held in France. The French supplier will need to be VAT registered in the UK from 1 January 2021 and charge £100 pus £20 VAT on the deal. A sales invoice must be included with the goods when they are shipped to Steve.

Example 3

Annie the plumber is VAT registered and lives in Manchester (GB), she buys a set of taps online for £100 from a French supplier, the goods are held in France. She provides her VAT number at the time of placing the order. The French supplier will charge £100 and no VAT but with an instruction on the sales invoice sent with the goods that Annie must account for the VAT on her own return by doing a reverse charge entry. This will be output tax of £20 in Box 1 and the same amount claimed as input tax in Box 4.

The seller should confirm Annie’s VAT number is correct using HMRC’s online service that will be available from December 2020.

Online Market Place (OMP)

Imagine that you get a call from the French supplier, who desperately wants to sell goods in GB – all shipments are worth less than £135 - but he does not want the hassle of registering for VAT. Is there an alternative solution? The answer is ‘yes’, he must only sell his goods through an OMP and not directly. The OMP will then take responsibility for the VAT.

Example 4

Steve from example 2 buys a set of taps online for £100 from a French supplier via an OMP, the goods are stored in France. The VAT on the sale will be dealt with by the OMP from 1 January 2021, which must be registered for UK VAT. It will charge Steve £100 pus £20 VAT. A sales invoice will be issued by the OMP.

Example 5

Annie from example 3 buys a set of taps online for £100 from a French supplier via an OMP, the goods are stored in France. She provides her VAT number at the time of placing the order. The OMP will charge her £100 and no VAT, with an invoice instruction for her to account for the VAT on her own return by doing a reverse charge entry.

If Annie fails to provide her VAT number in either of the above examples, the VAT outcomes will be the same as for Steve. It is the buyer’s VAT number that changes the sale from B2C to B2B.

Conclusion

I hope the new procedures will result in a more level playing field between domestic and overseas sellers of goods. That would be very welcome if it can be achieved.

Replies (8)

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By debrahuzzard
23rd Nov 2020 09:42

This is good news, the unfair competition for UK businesses has been awful. Does still rely though on the exporter telling the truth. I try to support UK businesses but recently slipped up, not realising I had ordered from China, and received a box of assorted goods costing £80 described as "barbed wire" value £15. is there anywhere to report that?

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By Kentwillumsen
23rd Nov 2020 10:22

The above article seem to bind the UK to EU based rules.
Both VAT and "level playing field" are EU inventions.
Once out of the EU we should abandon VAT and any "level playing field" with the EU and do our own thing.
Maybe a simple sales tax on sales and imports (on both goods and services), which should replace both VAT and business rates.
This would equalise high-street with on-line sales; and domestic sales with overseas on-line sales.
No more transfer pricing, VAT triangulation, reverse charge, IP charges, double Dutch sandwich etc.

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Replying to Kentwillumsen:
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By Jason Croke
23rd Nov 2020 15:02

The UK/EU have been working towards this for some years, both UK/EU were to implement January (regardless of Brexit), but EU postponed their version until July 2021, but with UK cracking on from January.

Remember that VAT is a very popular and cheap (for government) mechanism for raising revenue.

Many Countries across the globe operate VAT. The Middle East introduced it last couple of years to replace lost oil revenues and mirrors the UK/EU system, which makes sense as UK/EU VAT has decades of case law that clarifies definitions and supports decisions as to why something is zero or standard rated.

I doubt the UK will move away from VAT, it brings in almost as much as income tax, it is relatively fair (zero rate VAT on food, education, books, healthcare, other services at reduced rate or exempt), it's now all gone digital with MTD, so even cheaper to patrol and easier to find non-compliance, kerching!

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Replying to Jason Croke:
By Kentwillumsen
24th Nov 2020 11:05

Hi, I think you misread my comment.
What I suggest is to replace VAT and business rates with a sales tax.
For instanse Japan has got a simple sales tax.
The sales tax would be income neutral to the UK but much more fair to domestic SME businesses.

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By propraxis
23rd Nov 2020 10:51

Hi Neil

Many thanks.
So are you saying that on the 1st Jan 2021 even if 'Steve the plumber' who is not VAT registered can confirm he is a business he will be charged VAT as the transaction is deemed B2C and not B2B?

And therefore if all his purchases are from the EU would he be better off being VAT registered, even though he would have to charge his customers VAT?

Regards
SteveB

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Replying to propraxis:
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By Brian Gooch
23rd Nov 2020 17:11

In answer to the last question, on the assumption that all his customers are consumers, and his price to them will be the same whether or not he is accounting for VAT on it, then provided he is making a profit he wouldn't be better off VAT registered, because broadly speaking it will cost him VAT on his margin on the materials (not including what he charges for his time).

If his customers will stomach a 20% price increase (or enough of them will, price elasticity of demand and all that) then although you would think he might be better off being registered he's probably still just better off increasing his rpices.

e.g. purchases £1,000+VAT, total price for job including his time £2,000. By default he makes £800 profit.
Option 1 - register for VAT & charge it to the customers on top. Customer pays £2,400, Steve makes £1,000 profit.
Option 2 - don't register but increase price to cover VAT. Customer pays £2,200 and Steve still makes £1,000 profit.
So unlikely there would be a scenario where registering for VAT voluntarily is preferable if his work is for non-business customers.

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By Brian Gooch
23rd Nov 2020 17:15

We've just had HMRC refuse a registration for a US company who are already making direct sales below £135 each to consumers, so will be registrable from 1 January 2021. It seems the registration team haven't yet been told about the changes!

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Replying to Brian Gooch:
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By Jason Croke
25th Nov 2020 11:29

I've had this before, HMRC seem to randomly reject overseas traders on the basis "you don't seem to be making taxable supplies in the UK" and you roll your eyes and email HMRC back explaining client has stock in the UK.

You would think HMRC would be expecting many more such registrations because of the new rules and yet it seems the AI used to filter applications is still on pre-Brexit logic.

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