HM Revenue & Customs (HMRC) has released guidance on the impact of the new EU rules on UK businesses where it is important to remember that Northern Ireland (NI) remains part of the EU VAT regime for goods but not for services.
Summary of the new rules
The EU changes from 1 July 2021 are broadly similar to the UK rules introduced on 1 January 2021 and will affect the movement of goods from Northern Ireland (NI) to the EU, imports of low value goods into the EU or NI, and supplies made through online market places (OMP). Low value goods refer to consignments not exceeding £135.
Two new IT systems will be introduced – one for the collection of VAT on imports of low value consignments and the other for the collection of VAT on intra-EU Business to Consumer (B2C) transactions of goods and services (distance sales). Both systems are designed to reduce administrative burdens on businesses and to facilitate the collection of VAT across the EU.
While the intra-EU part of the e-commerce package applies to both goods and certain electronically supplied services, supplies of services to or from Northern Ireland do not count towards the distance selling threshold.
The imports part of the package applies to goods that are imported into NI or the EU from outside the EU.
Distance selling within the EU and NI
Distance selling of B2C goods between EU member states and NI will remain, but the current individual country thresholds will be replaced with a single pan-European threshold of €10,000 (£8,818). This means businesses selling B2C goods from NI to the EU and from the EU to NI will be affected by the new rules if their sales exceed the new distance selling threshold.
To avoid compulsory registration in each EU member state they sell to, businesses can opt into the new online One Stop Shop (OSS) in any EU member state or in the UK* which allows to account for VAT on all distance sales. To use the UK OSS an XI VAT registration is required, even if the normal UK VAT registration threshold of £85,000 has not been breached.
Normally a VAT registration requires VAT to be charged on all sales but HMRC says it is keen that this does not apply to domestic supplies in these circumstances and will release further guidance.
* HMRC does not expect that the UK OSS registration portal will be fully implemented for the 1 July 2021 launch and will provide further guidance for NI businesses.
OMP liability will not apply to sales of goods by Great Britain businesses to Northern Ireland customers.
Imports from non-EU countries
Instead of having to register in each EU member state they sell to, businesses can opt into a new online Import One Stop Shop (IOSS).
Like other non-EU businesses, businesses in Great Britain (GB) can register for IOSS in any EU member state or in the UK**. If they do, they can also pay any VAT on consignments not exceeding £135 to customers in NI and report their IOSS number to HMRC prior to the goods moving to Northern Ireland. Further guidance will be issued.
GB businesses that are registered for IOSS but below the UK registration threshold will be able to report their IOSS number to HMRC prior to the goods moving to NI but will not be required to charge VAT.
GB businesses not registered for IOSS should continue to use the existing VAT treatment, i.e. treat these sales as domestic supplies of goods.
** HMRC does not expect that the UK IOSS registration portal will be available for the 1 July 2021 launch and further guidance is expected.
OMPs and imports
In addition to the changes to imports into NI already implemented in the UK on 1 January 2021, where an OMP is registered for the IOSS, the OMP will be liable for the supply VAT on low value imports into the EU and NI. For imports into NI, where the seller or OMP are not registered for IOSS, there will be no changes to the import VAT collection.
Businesses selling via OMPs not registered for IOSS can appoint an EU-established intermediary to represent them and to account for VAT on their sales through IOSS. Alternatively, where IOSS is not used, there will be no change and import VAT will be due on importation.
OMP liability will not apply to sales of goods by GB businesses to NI customers.
Online marketplaces and supplies within the EU
OMPs will be liable for the supply VAT on goods located in the EU or NI that are sold by overseas sellers outside of the EU and UK to EU and NI customers. The OMP liability will also apply in relation to the sale of goods located in NI at the point of sale to EU customers, but not to customers in NI.
There will be a deemed supply by the OMP and where there are distance sales, the OMP can account for those via the OSS.
Points to note
- Online retailers and OMPs should familiarise themselves with the new EU rules, including for intra-EU transactions, bearing in mind that NI continues to apply the EU rules for goods.
- HMRC has clarified that an OSS or IOSS VAT registration does not mean that the normal UK VAT registration threshold for domestic supplies will be overridden.
- HMRC says that the announced UK OSS and IOSS will not be fully operational or not even available at all on 1 July 2021 so any business affected might want to consider registering for OSS or IOSS in an EU member state instead.
Would you like to know more?
If you would like to discuss the above, please get in touch with your usual Blick Rothenberg contact or Antje Forbrich whose details are on this page.