One of the main issues faced by UK exporters since 1 Janaury 2021 is the end of the distance selling threshold that previously applied for UK businesses selling to consumers, (individuals and non-VAT registered businesses), in the EU.
Prior to the end of the transition period a UK business selling goods to individuals in the EU, would charge UK VAT on the value of the goods. When, however, the ‘distance selling threshold’ (usually 35,000 Euros) was exceeded there was then a requirement to register for VAT in the country where the goods were supplied to. Since 1 January 2021 UK businesses cannot use this facility. The EU is also changing its rules from 1 July 2021 for such imports.
From 1 January 2021 the UK business can zero-rate the supply to the EU non-business customer. The problem that then arises is that the EU customer will have to account for VAT in the EU on their purchase, usually through the postal service or courier. This could be a disincentive for the EU customer to buy from a UK business.
How could a UK business overcome this?
An alternative would be for the UK business to register for VAT in the country the goods are going to and act as the importer. It would pay the import VAT and claim this back on the VAT return of that country and then charge local VAT to its customer. This may mean that the UK supplier will have to register for VAT in all countries it trades in.
The UK business could, instead, create an establishment in one EU country and hold its stock in that EU country. It could then make use of the distance selling thresholds for supplies to all other EU countries. This may also have direct tax consequences.
Changes to EU distance selling rules for e-commerce businesses
A further issue is that the EU is changing its rules for supplies across national boundaries in the EU. From 1 July 2021 the EU is removing the distance selling rules for e-commerce businesses. It is creating what is called a 'one-stop shop' (OSS) where one VAT return will be completed for all sales within the EU (but using the VAT rate for each of the individual states where the goods are sold).
For a UK business to make use of the OSS system it would need to register as a ‘non-Union’ VAT payer in one of the EU member states. This will create a solution for supplies made to the EU from 1 July 2021.
Currently the EU does not apply VAT to low value imports. The low value threshold is between 10 Euros to 22 Euros depending on the member state in the EU.
If you have queries on post Brexit VAT treatment, please contact us.