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Retail business must act now to meet new VAT regime

UK retail businesses selling into the EU must act now to meet the new VAT regime writes Mark Hart (Partner).

From 1 July 2021 the EU is removing its existing distance selling rules for e-commerce businesses. It is creating what is called a one-stop shop (OSS) where one VAT return will be completed for all sales within the EU, but using the VAT rate for each of the individual states where the goods are sold. For a UK business to make use of the OSS system it would need to register as a ‘non-Union’ VAT-payer in one EU member state of its choosing.

The biggest burden will fall on those small and medium-sized businesses who sell some goods to the EU, but which may not be significant. Prior to the UK leaving the EU these small businesses were able to use a simplified scheme whereby sales to the EU were dealt with by their UK VAT returns and then sums distributed by HM Revenue & Customs (HMRC) to the relevant tax authority. This is no longer available.

From 1 July 2021 small retailers essentially have three options:

  • register in an EU member state where they make the largest sales
  • use e-selling platforms to handle the sales and VAT or
  • arrange for VAT to be dealt with by their couriers.

With marketplaces typically charging 30% for handling VAT arrangements, and many couriers not willing to handle VAT, the only viable option is to register for VAT in an EU member state. Weighing up the costs if a business has more than 150 transactions a year, it is probably cheaper to register for VAT.

However, this does not come without a price as the EU Commission estimates that registration and compliance costs will amount to €8,000 per annum. The Government has a fund of £20m available to help small and medium-sized enterprises transition as a result of Brexit and small businesses can claim up to £2,000 to address issues such as this. I urge those businesses to look into accessing those funds to help with the registration and compliance cost.

Small UK businesses will still continue to be disadvantaged after 1 July as they will no longer be able to take advantage of exemptions for small consignments (under €10,000 per annum) which their EU competitors can.

Would you like to know more?

If you would like to discuss the above or how it may affect you, please get in touch with your usual Blick Rothenberg contact or Mark Hart, using on this page.

For any questions regarding the new VAT regime and how it will affect your business, contact Alan Pearce (VAT Partner) using the details on this page.

For any press queries, please contact David Barzilay whose details are also on this page.