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.
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.
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.
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.
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.
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.
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.
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.