E-commerce businesses have experienced a boom of late. The lockdowns we’ve all endured appear to have sent us lunging for our laptops. In fact, four in ten Brits have done more online shopping since the pandemic than before.
That’s great news if you run an e-commerce business. But before you get the champagne out and start celebrating, something is lurking on the horizon that you need to know about.
With effect from 1st July 2021, there will be several changes to the UK VAT system, specifically targeted at e-commerce business.
Back in the day, the EU e-Commerce Directive meant businesses could operate across borders in the UK and EU. But that’s all about to come to an end. Soon, online companies must comply with local laws specific to online commerce. Yes, that means more
Summary of Ecommerce VAT Changes
Three significant changes are coming.
- The scrapping of the £15 low-value consignment relief (LVCR)
Currently, the LVCR means goods valued at £15 or less are not subject to UK import VAT. However, once it goes, for goods sold at £135 or less, sellers must declare and pay VAT to HMRC directly.
- Postponed import VAT scheme
This means cash no longer needs to be paid upfront when you import goods into the UK (currently, import VAT must be paid so that your goods can clear customs). Instead, you must declare the import VAT on your UK VAT return (opposed to the current approach of paying when goods arrive and then reclaiming this on the VAT return).
- EU distance selling thresholds (DSTs) no longer apply to UK sales
From 1st July 2021, the EU e-commerce VAT changes will come into place. That means UK businesses will not have to directly register in each EU jurisdiction to sell physical products to EU consumers. Instead, they can make use of the new Import One Stop Shop (IOSS) scheme. This allows them to file a single VAT return for the whole of the EU, only requiring a VAT registration in one EU country to facilitate this.
Why are these VAT reforms happening?
Firstly, the main aims of these changes are to make certain goods from the EU, and non-EU countries are treated in the same way, so the UK online and high-street retailers are not disadvantaged by competition from VAT free imports.
Secondly, they are meant to improve and simplify the processes of VAT collection.
What happens if you sell through an online marketplace (OMP)?
If you sell through an OMP such as Etsy or eBay and your goods are imported from outside the UK to consumers in the UK, the OMP is responsible for charging and collecting the VAT on your behalf.
If in doubt, get advice
If these new regimes affect you and you’ve not yet made the changes needed, now’s the time to do it. If you don’t comply, there’s a chance you could get a fine, or your goods could be blocked by customers if you import stock.
The chances are, other changes may come into force as the year progresses, which is why you should stay alert and be ready for what’s coming your way.
If in doubt about how these new E-commerce vat changes will impact your business, get some advice from a professional.