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Brace for Brexit 9: Importing low value goods

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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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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.

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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.

Thanks (0)
Replying to Kentwillumsen:
Jason Croke
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.

Thanks (1)
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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:
Jason Croke
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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