From 1st January 2021 Distance Selling no longer applies to UK businesses.
So what will replace it?
Well, from 1st January 2021 the basic position for UK businesses selling directly to consumers in the EU is that these sales will become exports, zero-rated in the UK but liable to VAT (and potentially duty) in the Member State of importation. If no action is taken by the UK business then the customer will be liable for any VAT or duty due and will have to pay the VAT and/or duty before the goods are released as imports. Unhappy customers perhaps?
There are two possible solutions but both involve registering for VAT in the EU.
Firstly, if the UK business opts to become the importer of the record and pay the VAT and Duty at importation it would have to register for VAT in the relevant Member States but the import VAT could then be recovered (a valid EU EORI would also be required). It would then make sales to consumers in those Member States and account for the VAT there.
Or it could go one step further and route all goods through a single Member State and distance sell within the EU from that Member State. VAT registration would be required in the Member State of importation (as well as an EU EORI) and in any other Member State where the Distance Selling threshold is exceeded.
But all of this could be superseded by the next phase of the EU E-Commerce Package due to be implemented on 1st July 2021. That will create an Import One-Stop Shop which would allow a non-established business to register for IOSS in one Member State and account for all VAT due in the EU on external sales of goods (or services) to consumers in the EU.
What to do? Leave it and wait for IOSS or incur cost and admin time now to set up compliance obligations which may not be needed in 6 months’ time? We think there are risks either way. For example, taking action now addresses EU VAT issues early, ensures full VAT compliance and creates an established VAT position in the EU but there could be possible additional costs or extra admin time, and there may also be further delays with IOSS.
Whatever you decide to do we can help, so by all means get in touch and we will see what we can do to make things easier on the VAT side of things in the next phase of Brexit.
So what will replace it?
Well, from 1st January 2021 the basic position for UK businesses selling directly to consumers in the EU is that these sales will become exports, zero-rated in the UK but liable to VAT (and potentially duty) in the Member State of importation. If no action is taken by the UK business then the customer will be liable for any VAT or duty due and will have to pay the VAT and/or duty before the goods are released as imports. Unhappy customers perhaps?
There are two possible solutions but both involve registering for VAT in the EU.
Firstly, if the UK business opts to become the importer of the record and pay the VAT and Duty at importation it would have to register for VAT in the relevant Member States but the import VAT could then be recovered (a valid EU EORI would also be required). It would then make sales to consumers in those Member States and account for the VAT there.
Or it could go one step further and route all goods through a single Member State and distance sell within the EU from that Member State. VAT registration would be required in the Member State of importation (as well as an EU EORI) and in any other Member State where the Distance Selling threshold is exceeded.
But all of this could be superseded by the next phase of the EU E-Commerce Package due to be implemented on 1st July 2021. That will create an Import One-Stop Shop which would allow a non-established business to register for IOSS in one Member State and account for all VAT due in the EU on external sales of goods (or services) to consumers in the EU.
What to do? Leave it and wait for IOSS or incur cost and admin time now to set up compliance obligations which may not be needed in 6 months’ time? We think there are risks either way. For example, taking action now addresses EU VAT issues early, ensures full VAT compliance and creates an established VAT position in the EU but there could be possible additional costs or extra admin time, and there may also be further delays with IOSS.
Whatever you decide to do we can help, so by all means get in touch and we will see what we can do to make things easier on the VAT side of things in the next phase of Brexit.
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