What do UK Ecommerce Sellers Need to Know about EU VAT?

Posted by AlexDobson on March 30, 2022

VAT can be a tricky subject for ecommerce sellers in the UK. What’s more, since Brexit there have been a number of changes which have changed how this is calculated.

As of 1st July 2021, the UK has been subject to EU ‘third country’ rules on VAT. The new rules impact BTC and online sellers doing trade with the EU.

So what do the new rules mean? VAT is now charged regardless of the volume of items you sell into the EU, which wasn’t always the case. The rule change has resulted in customs holdups and unexplained VAT charges for many online sellers.

If you want to steer clear of these issues when planning your EU trade, here’s what you can do:

What are the EU VAT rule changes?

Pre-July 2021, small items could pass through customs without VAT. These products benefitted from €22 low-consignment relief when sold into the EU, and the seller wasn’t charged VAT.

For larger sellers, threshold rules for distance sellers were applied. This meant that VAT was only charged when a certain volume of goods was reached in that country.

However, these rules often exempted low-cost products from China. The EU found this resulted in unfair competition and implemented the new VAT rules to combat this. Now, all items from third countries, including the UK, must pay European VAT.

Why do you Need to Follow the EU VAT Regulations?

Not adhering to the new VAT rules means your products could be held up at customs or unexpected VAT charges could be levelled on your customers. The result for your ecommerce business could be both reputational damage and unhappy business users.

The initial changes have already caused confusion, with several businesses ceasing to sell to the EU altogether.

How can businesses avoid EU VAT disruption?

If you want to avoid VAT disruption for your business, these are the schemes you need to know about.

One Stop Shop (OSS)

The EU’s One Stop Shop (OSS) scheme is for online sellers who are already VAT registered in a European country. The scheme allows you to manage, report and make VAT payments from that EU country, rather than the UK.

Import One Stop Shop Scheme (IOSS)

If your business doesn’t have an office registered in the EU, you’ll need to apply for the IOSS. This allows your business to make the necessary VAT payments direct to the EU so they don’t get passed on to your customers.

Do you need to register for IOSS?

If you sell on independent ecommerce platforms that hold stock and distribute within the EU, you’ll need to register for IOSS. This includes platforms like OpenCart, Magento, Woocommerce and Shopify.

If you sell via Amazon and eBay, you won’t need to register. These marketplaces are effectively acting as sellers on your behalf and will collect VAT at the point of sale. However, you still need to get VAT registered in the country where your goods are stored and distributed, although you won’t have to make any payments.

Will your business benefit?

If you’re a larger business then the new VAT rules could spell good news. The new rules actually simplify your VAT returns because you no longer have to make payments in different countries.

The new approach applies EU-wide, so you no longer have the time-consuming and costly process of making payments in different countries. The new scheme saves on admin and costs by requiring one set of payments.

If you’re a business selling low-cost items into the EU (below €22), there will be additional costs involved in becoming VAT registered and adhering to the new requirements.

Avoid VAT disruption for your online business

By signing up for the IOSS or OSS, UK ecommerce sellers can ensure their EU customers won’t affected by unexpected VAT charges.

For larger businesses, the streamlined and simplified VAT structure could actually help you sell into the EU by reducing costs associated with your VAT payments.

For smaller ecommerce businesses, start by taking a good look at where your business fits within the new rules and register for either OSS or IOSS. Check whether your ecommerce platform will act on your behalf and remove your business from out-of-date VAT requirements.

If you feel confused by any of the requirements, consult with specialist ecommerce accountants to help you comply with the EU VAT rules.

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