From 1 January 2021 when the Brexit Transition Period comes to an end, all goods entering the UK will be treated as imports regardless of which country they are coming from. HM Revenue & Customs (HMRC) has been releasing various pieces of guidance on the new border arrangements which should all be taken in to consideration when thinking about importing goods after 31 December 2020.
This article summarises the guidance on the VAT treatment of consignments not exceeding £135 which replaces the Low Value Consignment Relief for VAT on consignments of £15 or less. This new threshold for VAT matches the threshold for relief from Customs Duty and it is worth noting that the £135 relates to the value of the whole consignment and not the individual goods it includes.
Goods subject to Excise duty and non-commercial transactions between private individuals are not subject to the changes. Consignments of goods from Jersey and Guernsey subject to the Import VAT Accounting Scheme and transactions specified in the Northern Ireland protocol on which guidance is expected later in the year are also excluded.
This guidance focuses on the sale to consumers via an online marketplace (OMP), which includes any website, platform or electronic interface that facilitates the sale of goods to customers. It distinguishes between goods that are located outside the UK at the time they are sold and are subsequently imported, and goods that are already in the UK at the time they are sold.
The guidance has already been updated by HMRC and now includes clarifications on invoicing and VAT registration requirements and the time of supply of sales subject to the new rules.
Goods located outside the UK at the point of sale
Sales to consumers
From 1 January 2021, VAT will be accounted for at the point of sale (‘supply VAT’) rather than the point of importation (‘import VAT’). This means that although the goods will still need to be imported and therefore subject to the normal customs procedures, no import VAT will be collected. Instead, where no OMP is involved in facilitating the sale, the seller will be making a direct sale to the consumer and will need to register and charge UK VAT (the supply VAT).
Where an OMP is involved in facilitating the sale of the goods, it is the OMP that will be deemed to be making a supply of goods to the UK consumer in the UK and will need to charge UK VAT.
These arrangements will apply irrespective of where the business selling the goods or the OMP is established. This means that the following types of businesses will have to register for UK VAT (if not already registered) and account for VAT to HMRC:
- any business that operates an OMP that facilitates sales of goods to UK customers
- any business that sells goods directly (without any OMP involvement) to UK customers where the goods are
- (a) outside UK at the point of sale; and
- (b) imported to the UK in consignments not exceeding £135 in value.
Sales to businesses
All sales are deemed to be sales to consumers unless the business customer proactively provides its valid UK VAT registration number to the seller or, if applicable, to the OMP.
Upon presentation of its valid VAT number the VAT liability transfers to the business customer who will account for the VAT under a reverse charge procedure on its VAT return. This VAT is recoverable as input tax on the same VAT return under the normal rules. The supplier or, if applicable, the OMP is not liable to account for any supply VAT in these circumstances.
Goods in the UK at the point of sale
Sales to consumers
For direct sales, where no OMP is involved, the existing rules will continue to apply. Any non-UK seller selling goods located in the UK directly to consumers should register for VAT if they have not done so already and account for UK VAT under the normal rules. There is no registration threshold available for non-UK established businesses.
However, where a non-UK seller sells goods located in the UK via an OMP to UK consumers, it will now be the OMP and not the supplier who is liable for the VAT. The non-UK seller will instead be deemed to make a zero-rated supply of the goods to the OMP. This will allow the non-UK seller to register for VAT in the UK and reclaim any import VAT it has paid on the goods.
These new rules do not apply to UK established sellers, as they remain liable for the VAT under the normal rules even where the sale is made via an OMP.
Sales to businesses
Again, all sales are deemed to be sales to consumers unless the business customer proactively provides its valid UK VAT number to the seller and the OMP.
Upon presentation of a valid VAT number the supply will be made by the non-UK seller rather than the OMP and UK VAT needs to be charged under the normal rules i.e. this means the reverse charge will not apply. Similarly, sales by UK established businesses are subject to the normal VAT rules.
Anyone involved in selling or facilitating the sale of overseas goods in consignments not exceeding £135 should familiarise themselves with the guidance, which includes a considerable amount of detail and definitions, and specifically the VAT and customs compliance requirements. This guidance not only impacts sellers but also businesses purchasing overseas goods. Finally, as the new border proposals have not been finalised and no trade agreement with the EU is in place yet, any future Government guidance should be monitored and taken into account.
Would you like to know more?
If you have any questions about the above or would like to discuss how it might affect your business, please get in touch with your usual Blick Rothenberg contact or Antje Forbrich whose details are to the right.