UK retailers that heavily rely on online sales to EU consumers will soon need to comply with VAT reforms, which are being introduced on 1 July 2021.
The new rules are not being led by the UK Government or the Treasury's VAT regime, and are being brought in by the EU.
They were originally designed to stop an estimated €7 billion in annual VAT fraud by non-EU ecommerce sellers, mainly those in China.
But after the UK left the EU at the start of the year, around 26,000 small and medium-sized ecommerce businesses in the UK will need to comply.
Ecommerce retailers in the UK are said to be facing an estimated £180 million in additional red-tape costs as a result.
Three reforms to the EU's VAT regime will affect all sales from outside of the EU. Let's explore those in more detail.
1. Low-value import VAT exemption ends
Those who export online goods to EU customers face the biggest upheaval, with VAT exemptions for SMEs and shipments of €22 or less being removed.
James Sibley, head of international affairs at the Federation of Small Businesses, said:
"UK small firms will lose exemptions for small consignments, while those within the bloc making cross-border sales under €10,000 a year will continue to enjoy [tax] breaks."
2. One-stop shop for EU VAT
Sources suggest around one in ten UK ecommerce businesses will need to register for VAT for the very first time via the EU's new one-stop shop.
These firms will need to nominate any single EU country to register for VAT and file their returns.
The European Commission estimates preparing for this change will cost most of these companies around €8,000, around €208m in total.
A large part of those costs involves ecommerce retailers in the UK overhauling their systems to enable VAT payments at the point of sale.
3. Marketplaces deemed supplier
The final reform involves online marketplaces and platforms becoming the deemed supplier when they facilitate cross-border sales.
If a UK exporter uses an e-selling platform, such as Amazon or eBay, they can subcontract VAT to the marketplace or platform.
However, be aware that doing this typically costs retailers around 30% of gross prices and it's not a one-size-fits-all solution.
Should an UK ecommerce business sell more than 150 goods a year to customers in the EU, they might be better off registering for VAT in the country where they sell most of their goods.
There is also a special arrangements scheme that enables sellers or deemed-supplier marketplaces to opt-out and pass the import VAT collection role to postal services or customs agents.
Government support
It might not be much but don't forget that there is Government support available to help the UK's ecommerce retailers affected by these reforms.
The Brexit Support Fund, which was set up to help with VAT issues, allows small businesses to claim up to £2,000 each to get professional advice.
To apply, if you haven't already done so, you need to go through PricewaterhouseCoopers - but be quick, it's due to close on 30 June 2021.
Contact us if these VAT reforms affect your business.