As part of the process of aligning how the UK treats EU and non-EU goods being imported into the UK post 31 December 2020, HM Revenue & Customs (HMRC) has launched a consultation as to how the growing and ubiquitous movements of goods for commercial sale worth less than £135 in value are treated for VAT purposes when they cross the UK frontier.
These types of goods are sometimes sold directly to consumers in Online Market Places (OMP) and via websites such as eBay and Amazon. At present, goods being imported into the UK under £15 in value are exempt from Import VAT and customs duty; this ‘relief’ is called Low Value Consignment Relief (LVCR). Goods worth over £15, but not more than £135 in value, attract only Import VAT but not customs duty. Goods over £135 in value attract both Import VAT and duty.
Importantly, HMRC is not only considering abolishing the LVCR but also making all these goods which are up to £135 in value liable for domestic VAT and not Import VAT – thus shifting the point where VAT is collected. This also shifts the burden to OMP operators (and not the seller) to collect and account for the domestic VAT on sales to consumers (B2C) through its OMP in the UK even when the initial sale is made overseas. Similarly, on B2B sales, HMRC want to shift the VAT burden away from the frontier and charge VAT as if goods were supplied in the UK. Overseas businesses that do not use an OMP but sell directly to customers (through their own website) will still be required to register and account for VAT as they do now.
These potential changes also impact businesses who sell their goods via OMP when the goods are already in the UK. In this case, the burden may also shift to the OMP to account for domestic VAT as they will deemed to be the supplier.
How fast parcel operators and couriers organise these movements, and the records they will need to allow HMRC compliance checks and details as to how multiple consignments are shipped and recorded – especially to the same customer, will also change. At the moment some fast parcel operators pay Import VAT (and duty) on behalf of their non-UK clients on B2C movements. However, the product identification requirements placed on sellers and the fast parcel companies will dramatically increase – both from HMRC and the OMPs – to fulfil their domestic reporting and compliance obligations.
Coincidently, this measure comes after the Fulfilment House Due Diligence Scheme (FHDDS) was launched last year by HMRC which also put the onus upon fulfilment houses and warehouses – again affecting Amazon and others – to police the system and verify that overseas traders using the fulfilment centres were correctly registered for UK VAT.
This development means that HMRC want to narrow and make more effective its compliance and tax collection functions against a smaller number of entities. Its aim will also be to ease the potential for fraud that occurs with the policing of the domestic VAT registration and Import VAT systems for the numerous smaller overseas businesses that export to the UK. However, for OMPs it means a bigger administrative burden and will likely result in bigger costs to consumers when using OMPs to buy their goods.
This article is taken from the latest edition of our Customs Digest newsletter, looking to help businesses and individuals keep up to date with the latest customs and excise duty regimes and issues. If you would like to receive future editions of this publication, please register on our insights page here.
For more information, please contact Simon Sutcliffe.