In our regular Q&A series, Croner Taxwise, VAT adviser, Tony Chamberlain, explains how the impending changes to the rules concerning movement of goods across the EU will affect UK businesses
Q. I have two clients that are confused by the impending changes to the rules regarding movement of goods across the EU.
One of my clients is a UK business, making distance sales of low value clothing to individuals within the EU. All goods are shipped from the UK, and they are not currently required to be registered in any other member state for distance selling.
My second client is a French VAT registered business selling kitchen utensils across the EU, including to the UK from France. All sales are made via an online e-commerce platform. We currently submit their UK VAT return as their sales into the UK from France, are currently above the UK distance selling threshold.
Both clients sell and ship frequent, but low value consignments.
Firstly, addressing the changes for your UK based client selling into the EU, from 1st January 21 all sales from the UK to a destination outside the UK will become an export, and therefore subject to meeting the normal conditions in VAT Notice 703 Section 3 can be sold zero-rated.
The EU is implementing new rules to create an import scheme for distance sales made to EU consumers from third countries (that is countries from outside the EU, which will include the UK from 1 January 2021). This scheme has been delayed to 1 July 2021 due to the pandemic, but when implemented is designed to prevent the need for non-EU businesses registering all over the EU.
The scheme will be called the Import One Stop Shop (IOSS) and will work similarly to the current Mini One Stop Shop (MOSS) for digital services.
For your client, as a non-EU business selling to EU consumers in consignments of less than 150 Euros, import VAT will not be due, instead supply VAT will be due and accounted for by your client who will have to register for an IOSS VAT registration, and account for the vat in the member state of destination. The purpose of the scheme is to speed up and simplify customs processes and avoid the need for multiple EU VAT registrations.
As an alternative to registering for the IOSS your client could elect to shift responsibility for the payment of Import VAT to the end customer, which will be collected via the ‘customs declarant’ (postal operator, courier firm, customs agents). This is a commercial decision, and your client would need to weigh up the cost for both options, as the customs declarant would presumably charge your client for this service.
For sales of goods between 1 January 21 and 30 June 21, your client will need to consider who will be responsible for importing the goods into each destination EU state – if it is your client, they would need to take local advice regarding a likely VAT registration in that country until the IOSS system in introduced from 1 July 21.
Moving on to your French business client, they will be affected by the changes to the UK’s import rules. From 1 January 21, all supplies into the UK will be imports. Like the EU, the UK are also implementing changes to when import VAT is due and how it may be collected, and distance selling rules and thresholds will be abolished.
For consignments of less than £135, the UK will no longer collect Import VAT, but instead will collect VAT at the time of supply. This means that the responsibility for accounting for VAT will move to the overseas seller, OR if they use an online marketplace (OMP) it will be the responsibility of the OMP to charge VAT to the end UK consumer and account for it.
As your client uses an OMP to make their sales, there will no longer be a requirement for your French client to be VAT registered in the UK from 1 January 21, unless they also make direct sales without OMP involvement to UK consumers, in which case they will need to keep their UK VAT registration and account for UK VAT on those sales.