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VAT on e-commerce sales to the UK in 2021

We summarise HMRC's various pieces of guidance on the new border arrangements.

From 1 January 2021 all goods entering the UK are 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 into consideration when thinking about importing goods to the UK after 31 December 2020.

Sales of goods below £135 from outside the UK

The new VAT treatment of consignments not exceeding £135 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 limit is exclusive of VAT and relates to the value of the whole consignment and not to the individual goods it includes.

For such direct B2C sales, VAT will be accounted for at the point of sale (‘supply VAT’) rather than at the point of importation (‘import VAT’) from 1 January 2021. This means that although the goods will still need to be declared for importation by the seller, or their shipping agent, they are subject to simplified customs procedures and no import VAT will be collected. Instead, a foreign seller will need to register and charge UK VAT at the time of the supply. UK sellers in such arrangements may or may not be registered for VAT, but the value of such sales will count towards the £85,000 VAT registration threshold.

Where a UK or foreign online marketplace (OMP) facilitates a direct sale from any seller to a UK based consumer, the OMP will be deemed to make the supply and the OMP must register for VAT in the UK if it is not already and account for the UK sales VAT.  The same simplified customs procedures apply, and no import VAT will be collected.

If the UK customer is identified as a business by providing their UK VAT number, then a seller’s supply is outside the scope of UK VAT and the customer accounts for UK VAT under the reverse charge mechanism on their VAT return. The seller notes on the invoice that the reverse charge will apply.   Where an OMP is involved it is the OMP that is not required to charge and account for VAT and can add a note on the invoice that the reverse charge will apply.

Sales of goods above £135 from outside the UK

Sales of goods to consumers (B2C) above £135 can be sold on either tax exclusive or tax inclusive terms. When selling goods on tax exclusive terms, the UK consumer will be regarded as the importer and will need to pay any import VAT and customs duties due, which is collected on delivery by the parcel operator. When the goods are sold on tax inclusive terms, either the seller will have to import the goods into the UK first, account for import VAT on their UK VAT return and account for UK VAT on the sale to the consumer, or the customer is again the importer but the seller pays the import charges on the customer’s behalf having already built them into the inclusive selling price.

Where a UK or foreign online marketplace (OMP) facilitates a direct sale from any seller to a UK based consumer for goods above £135, the OMP will not become part of the supply chain and the seller remains liable to import the goods into the UK first and then charge VAT on the supply to the consumer.

Sales of goods to business customers (B2B) above £135 in value follow the normal customs procedures and VAT rules, i.e. either the seller or customer must clear customs and account for import VAT in the normal way.

Sales of goods located in the UK at the time of sale

A UK seller will apply normal VAT rules including the VAT registration threshold and whether selling in the course of business.  They may have already had to deal with import matters if the goods originated from outside the UK.  A foreign seller selling goods already in the UK will of course already be VAT registered (no registration threshold).

Where a UK or foreign OMP is involved in facilitating the sale of the goods for a foreign seller and the goods are already located in the UK, then the OMP becomes the deemed supplier for any B2C sales and must register for VAT in the UK if it is not already and account for the UK sales VAT.  In such circumstances the foreign seller must have already cleared customs and accounted for import VAT prior to the sale, or reclaimed input VAT if the goods were purchased in the UK.

Prior to the deemed sale by the OMP, the foreign seller will first make a deemed zero-rated supply to the OMP, which will have to be reported on the seller’s UK VAT return. The OMP will then sell to goods to the consumer as a regular supply with VAT.

Any B2B sales via an OMP are excluded from these provisions and such sales follow the normal VAT rules. The UK VAT number serves as evidence for identifying the customer as a business. 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. The OMP must then notify the overseas seller and provide them with the VAT number of the business customer so that they can charge VAT on the sale.

Would you like to know more?

If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business, please contact your usual Blick Rothenberg contact or one of the partners on this page.

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