eCommerce Brexit changes: selling to and from the UK
Update: The government’s advice is changing constantly following the end of the Brexit transition period and the UK-EU Trade Agreement’s publication. We recommend that you consult with your regulatory advisors as needed regarding the points listed below, as many of them may change following the publication of this article.
What is Brexit?
The United Kingdom is no longer part of the European Union. The UK, through a referendum in 2016, has voted to leave the EU. With the end to the transition phase in December 2020, a new trade deal with the EU has been reached. However, there is still a lot of legislation to be put in place.
When UK was part of the EU, companies enjoyed some privileges like no taxation on selling to and from the UK across the EU with no limit on the amount or volume of trade; however, after Brexit, things have changed. Moreover, citizens of the UK will no longer have the freedom to work or live in the EU based on the same rules. Similarly, citizens of the EU will no longer have the freedom to work or live in the UK unless they apply for a visa if they intend to stay for 90 days or more in 180 days during the EU.
In this article, we will focus on the trade’s deal. Since the UK is not a part of the EU anymore, it is no longer bound to EU trade agreements with other countries. Instead, it can go into independent trade agreements with other countries.
Apart from several abrupt changes, many trade rules remain the same, but they will eventually be amended. Let’s jump into the details and look into the Brexit Changes, particularly the eCommerce Brexit changes.
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Selling to and From the UK after Brexit
Now, that the transition phase is over, there are certain changes in moving goods between the EU and the UK. Below we’ve listed some details that you need to know before importing or exporting goods to and from the UK. These may come in handy whether you’re selling through your website, selling platform like OnBuy, eBay or Amazon SFP or Amazon FBA.
Economic Operators Registration and Identification Number
Economic Operators Registration and Identification number, commonly known as EORI number, is used to identify the businesses engaged in importing and exporting goods to and from the EU. After the Brexit, UK businesses now require an EORI number for both customs declarations and VAT documents.
There are two types of EORI numbers, as of January 1st 2021, that you may need depending on the nature of your dealings. An EU EORI number and a UK EORI number:
1. A UK EORI number:
- EORI number that starts with GB: If you have a business in Great Britain in order to trade directly with the EU, you will need an EORI number that begins with “GB.”
- EORI number that starts with XI: If you use the route of Northern Ireland to import or export goods to and from the EU, you will need an EORI number that begins with “XI.”
2. An EU EORI number:
You will have to apply for an EORI number in the EU member country if you make declarations in an EU member country. You will need to know the EU EORI number of the European business to which you are exporting the goods. The EU EORi number is combined out of two parts: the country code of the issuing Member State and a unique code or number.
HMRC has already started to issue EORI numbers to UK businesses based on their business history. If you have not received your EORI number till now, you can apply for one yourself.
Worldwide for the purpose classification, numeric codes are used for import and export of goods based on Harmonised System (HS) maintained by the World Customs Organisation (WCO). However, countries have given them different names. In the UK and EU, these codes are known as Commodity codes.
UK has decided to use the same commodity codes that were used prior to the Brexit and are still used by the EU. Commodity codes allow the customs to classify goods to ensure that the correct tariff and quota are applied to goods.
Taxes paid on the import of goods into the country are known as Tariffs. After the Brexit, UK Global Tariff (UKGT) has replaced the previous EU’s Common External Tariff and will apply to the imported goods from all countries where the UK does not have a free trade agreement.
Following the Brexit, the UK and the EU have reached a “Trade and Cooperation Agreement (TCA),” which has mainly two considerations:
- 0% tariff will be applicable on the goods traded between the UK and the EU. This arrangement has been termed as Preferential Treatment. Under this consideration, the UK and the EU will enjoy free trade without customs duties and without the restrictions of any limit on the quantity imported and exported. However, this arrangement does not exempt the UK or the EU from customs documentation and formalities.
- The second consideration that is linked to the preferential treatment is the rules of origin, which states preferential treatment will only be given if the goods that are being imported or exported from the UK or the EU must be originated from the UK or the EU
In other words, if the goods do not fall in the preferential treatment, it does not mean that they cannot be treaded; however, tariffs will be applicable.
Six months cushion for customs Import declaration
After Brexit, one of the best aids to businesses is that they have been given a cushion for delayed customs declaration of imported goods from the EU member countries. This cushion will last till June 30th 2021, which means that you do not have to immediately make a customs declaration (for most of the products), and also, no immediate customs payment will be required. However, there are some factors that a trader needs to meet to qualify:
- The importer must have a business in the UK.
- The goods that are being imported before importing to the UK must have been in free circulation in the EU.
- For availing or using this simplified declaration, you will need the authorisation of HMRC which can be done through a customs broker or freight forwarder.
- You will need a duty deferment account with HMRC to avail of the simplified declaration (See our Customs Bonded Warehouse Service that can help you defer duty and VAT charges).
Once the six months period comes to an end on June 30th 2021, from July 1st 2021 onwards, you have the choice to either continue using Simplified Customs Procedures or switch to full customs declaration. Due to the deal’s complexity, you may want to consider using the services of a customs agent or a freight forwarder.
In order to import certain goods into the UK and export certain goods into the EU member countries, you might need a license to import any of the following:
- animals and animal products
- plants and plant products
- high-risk food
- veterinary medicines
- human medicine
- controlled drugs
- tissues and cells for human application
- products containing F gas
- precursor chemicals
- hazardous chemicals
- nuclear material
- guns, knives, swords and other weapons
- weapons and goods that could be used for torture or capital punishment
Please note this list may change, so for more details, please refer to HMRC website for the most up to date information.
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Brexit and VAT on Selling to and from the UK
Value Added Tax (VAT) or consumption tax is paid by the final consumer. EU member countries have a set of standard VAT rules and some reduced or discounted rate VAT that allows the EU member countries to ensure easy trans-border selling in the EU. These standardized EU VAT rules/ regulations allow EU member country businesses to apply a standard set of rules in relation to VAT instead of registering for VAT in each member country.
Now, with the Brexit behind us, the EU customs and VAT rules no longer apply to the UK. Traders on both sides will now have to meet custom formalities and procedures to trade with each other. Import VAT will no longer be payable on those goods that are shipped into the UK. Instead, postponed VAT accounting will apply to all goods imported, which means the tax will be accounted for and paid in VAT returns.
EU merchants that want to sell to the UK will have to register for VAT in the UK. On the other hand, UK sellers exporting to the EU will have to register in the member state they are selling to, and their goods will be subject to import VAT.
Apart from the VAT rules, some terminologies have been amended as well. For example, the UK/EU trade, previously known as Dispatches and Acquisitions, is now referred to as Import and Exports.
VAT on Imports- Buying from the UK
With the Brexit, UK B2C eCommerce reforms include the following:
- VAT will now be applicable on all imported goods purchased means that the low-value consignment stock relief will no longer be applicable. In other words, the £15 VAT exemption thresholds on goods imported online have been called off. From January 2021, 20% UK VAT will be applicable on all imported goods.
- Imported goods having a value less than £135 will not be subject to import VAT instead, a sales VAT that will be charged at the checkout at the point of sale by the UK or non-UK seller. After the sale, the seller will be required to report and pay the collected VAT through a UK VAT return that is a simplified customs declaration that replaces the existing process of paying import VAT at the arrival of the goods to the UK at customs. If imported goods have a value greater than £135, they will be subject to import VAT. The seller will have to pay the import VAT and may reclaim the same subject to the condition that the seller has a UK VAT number. The seller may ask the buyer to pay the VAT at customs or at the time of delivery to the delivery agent.
- In case a sale is made by a non-UK seller through an online marketplace (OMP) will be responsible for collecting and reporting VAT. Moreover, in a case where the sale goods at the time of sale were already present in the UK since the seller would have already paid the import VAT at the time of import of goods to the UK or domestic VAT if the goods were purchased locally, the VAT can be reclaimed by the seller through UK VAT return.
VAT in terms of Exports- Selling from the UK
With the Brexit as of January 2021, the VAT situation also changes in terms of exporting goods to EU member countries. Exports to EU member countries should apply Zero-added tax, which means it will be treated like exporting to other non-EU countries irrespective of the fact whether you are selling to consumer (B2C) or to a business (B2B). The distance selling regulations will no longer be required to be observed. The Zero-rated UK VAT, however, does not mean that the VAT will be ignored entirely. The same will be reflected in the VAT accounting of the seller, however, with a 0% VAT rate.
Businesses selling from the UK will be required to take into account the VAT rules of the country they are exporting their goods to and might need to register for EU VAT in that country or may have to appoint a fiscal representative depending on the requirement of that country so that the tax and other conditions are timely met.
With the transition period end, new VAT duties and trading regulations had come to force. It is worth considering getting in touch with tax experts as the post Brexit rules continue to change, and businesses can make the most out of it while staying compliant with the new trade and VAT rules.