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VAT changes proposed from 1 January 2021 for consumer sales purchased from overseas sellers

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, HMRC have launched a consultation as to how the movements of goods worth less than £135 in value are treated for VAT purposes when they cross the UK border for sale to UK consumers. These types of goods are typically sold via Online Market Places (OMP) such as eBay and Amazon or via the seller’s website directly to consumers. At present goods imported into the UK under £15 in value are exempt from both Import VAT and customs duty – the so-called Low Value Consignment Relief (LVCR). Goods over £15 but not more than £135 in value attract only Import VAT and not customs duty.

HMRC has announced that it will abolish the LVCR with effect from 1 January 2021 and are proposing to make all imported goods up to £135 in value liable for domestic VAT rather than Import VAT – thus shifting the point where VAT is collected from the time of importation to the time of supply to the customer.

The proposals could have significant impact for OMP and for delivery agents (such as the Royal Mail, DHL, FedEx and alike).

Firstly, where the goods are sold via an OMP, the obligation to account for VAT will shift to the OMP operator (and not the actual seller). The OMP will be obliged to collect and account for the VAT to HMRC on the sale to consumers. This measure is similar to the Fulfilment House Due Diligence Scheme (FHDDS) that was launched last year by HMRC which puts the onus on fulfilment houses (again like Amazon and others) to police and verify that traders using their fulfilment facilities are registered for UK VAT. In certain circumstances the fulfilment house can be held jointly liable for the VAT on the seller’s goods.

For traders not using an OMP, but selling goods up to the value of £135 directly to consumers via their own websites, they will be liable to register and account for UK VAT. It will no longer be possible for the delivery agent to collect the Import VAT from the consumer. Instead domestic VAT will be due, and this will extend to cover sales of EU imports and sales currently excluded under the £15 low value consignment relief. It is expected that delivery agents will need to have systems in place to identify if the seller is VAT registered and accounting for the correct amount of VAT. They may also be required to spot false valuations and mis-descriptions, as well any goods liable to excise duty and other transactions, such as private sales and gifts that will have a different VAT treatment.

These proposed changes mean that HMRC should be more effective in its compliance and tax collection functions as it will be narrowing down and dealing with a much smaller number of taxpaying entities. It should also limit the potential for fraud that occurs with the policing of VAT registrations and Import VAT systems from large numbers of overseas businesses that currently import into the UK. However, for OMPs and delivery agents, it means a bigger administrative burden, possibly resulting in increased costs to consumers buying goods online via OMPs and overseas seller’s websites.