The end of the Brexit transition period saw the UK leave the EU VAT area, and meant new rules and processes when moving goods between the UK and EU. The EU is rolling out further rule changes from 1st July 2021 which will change VAT for ecommerce sellers and online marketplaces in any country who sell directly to EU consumers.
The key date for the e-commerce VAT changes in the EU is
1st July 2021.
What are the new e-commerce VAT rules?
The EU is introducing changes affecting VAT on B2C sales (where the business sells directly to consumers buying for their own personal use).
We’ll come back to these in more detail, but the new rules include:
These arrangements have an impact on what the rules mean for you depending on whether your business is in Northern Ireland, or in Great Britain (England, Wales, Scotland). We’ll go through the new e-commerce VAT rules in more detail, and how the changes might affect your business on the basis of location.
The new EU distance selling rules for VAT
Like the name suggests, distance selling means that you are, literally, selling at a distance, rather than in-person in a shop. Under the previous rules, sellers could make distance sales to consumers in other EU countries without needing to register for VAT there, until they reached the distance selling threshold for that country. Once they reached the distance selling threshold for that country, they would need to register for VAT there.
When the new rules kick in on 1st July 2021 the distance selling thresholds for each EU state will be replaced with one universal threshold.
The new universal distance-selling threshold is
The new rules take all EU distance sales into account, rather than operating a country-by-country basis.
Before 1st July 2021: You might reach the distance sales threshold in one country, but not in another. You can register for VAT in one country, but continue selling into others under distance selling rules.
From 1st July 2021 onwards: You’ll take the total of your cross-border distance sales into consideration. Once the total of your distance sales hits the threshold, you’ll need to start registering for VAT in other EU countries.
Remember, though, that British businesses (in Wales, Scotland, and England) are no longer covered by distance selling rules, but those in Northern Ireland are.
The new EU One-Stop Shop (OSS) for VAT
The changes to the distance selling rules tie into the new One-Stop Shop (OSS) for VAT. The OSS is an optional system which aims to make it easier for businesses to report the VAT collected on distance sales.
If you’re in the EU or in Northern Ireland, you can register for the OSS alongside your normal VAT return. You’ll be able to continue using the OSS to report your distance sales until you hit that €10,000 threshold, at which point you must register for VAT in the country that you’re selling to.
The end of Low-Value Consignment Relief (LVCR) in the EU
The Low-Value Consignment Relief allowed sellers to import goods for EU consumers without paying import VAT, as long as they were valued at €22 or less. The UK stopped using the LCVR for imports when the Brexit transition period ended on 31st December 2020.
LVCR will stop for all countries from 1st July 2021.
So, VAT now needs paying on everything, but there are changes for whose responsibility it is to collect the VAT. The process for doing so depends on the value of the shipment, and whether the buyer is a consumer or a business. Sellers and online marketplaces can collect import VAT on consignments worth less than €150.
‘Collecting the import VAT’ means you’ll charge VAT on the sale using the rate of import VAT in the customers’ country. But what do you do once you collect it? And who actually collects it?
The Introduction of the Import One-Stop Shop (IOSS)
Sellers and online marketplaces in the EU and NI can sell to an EU consumer, and collect the VAT on shipments worth less than €150.
Rather than registering for VAT in the buyer’s country, and then reporting the VAT there, the seller can register for the new Import One-Stop Shop (IOSS) in their own country, alongside their existing VAT registration. They can then submit an IOSS return to report the import VAT that they collect, and do this alongside their regular VAT return.
Can I register for IOSS in Great Britain (England, Wales, Scotland)?
British sellers are the same as other non-EU sellers now. You’ll be able to register for IOSS, but you won’t be able to register for it in the UK – that’s only available to businesses in Northern Ireland.
A British business can only register for IOSS in an EU country, and to do that you must register for VAT there. And that means appointing a VAT fiscal representative, and so on. That is, if it’s actually your responsibility to collect it, which we’ll cover next.
VAT on cross border sales through online marketplaces
From 1st July 2021, an EU or NI customer buying through an online marketplace pays the import VAT at the point of sale. The marketplace will collect the VAT, making them responsible for the appropriate VAT registration, not the seller. The UK already has these rules in place for British customers, following the end of the Brexit transition period.
That just leaves the seller to think about what VAT might do to their sale price. Do they simply add VAT at the checkout, or include it in the existing price (which will chomp into their profit margin)? Our article about VAT and pricing goes into the subject in more depth.