Brexit Blog: Brexit means changes to the rules on VAT – and that means more admin and confusion

A black keyboard showing a red return button highlighting the Brexit date

When the UK leaves the European Union on January 1, importers and exporters will face new VAT rules - Credit: Getty Images/iStockphoto

Whether there is a deal or not, a new model for the VAT treatment of goods arriving into the UK will be introduced on January 1 – and for low-value goods in particular, the change will have a big effect both on cashflow and time spent on administering the new system. 

Currently, under the Low Value Consignment Relief (LVCR) a UK business importing goods from outside the European Union of a value below £15 is not required to pay import VAT. 

Rob Geary of Lovewell Blake

Rob Geary of Lovewell Blake says Brexit is adding complications into business procedures - Credit: Blanc Photography/Lovewell Blake

The government has confirmed this relief will be withdrawn from January 1, 2021, once the Brexit transitional period ends, meaning import VAT will be charged on all imports where there is no relevant separate relief (for example, the existing zero rating for sales of children’s clothes).

There will be no changes to the way customs duty is implemented and paid. For example, this change would mean the sale of an item valued at £14 would now cost the importer £16.80, with a new VAT charge of £2.80 (at 20pc VAT). Although the eventual VAT liability will be the same, the implications for businesses selling into the UK is to register for VAT and make use of the postponed VAT accounting measures that HMRC is introducing. 

The government has also now announced a new £135 VAT-at-point-of-sale regime (similar to the EU’s E150 scheme). This means that for consignments not exceeding £135 in value (excluding VAT), the point at which the VAT is collected will move from the point of importation to the point of sale, resulting in UK supply VAT, rather than import VAT, becoming due on these sales.

So overseas sellers will be required to register and account for the VAT to HMRC unless they use an online marketplace such as Amazon or eBay, in which case the marketplace itself will be responsible for collecting and accounting for the VAT. 
The EU itself will also be withdrawing the relief from July 1, 2021. Between January and July next year, UK suppliers will be able to take advantage of the relief on sales to the EU, as suppliers from a non-EU country. 

Businessman doing finances and calculate about cost to real estate investment .Finances concept

The admin burden of VAT calculations is going to increase dramatically for importers of low-cost goods - Credit: Getty Images/iStockphoto

After July 2021, UK suppliers will be required, for sales valued below E150, to register to use the EU’s new VAT declaration the ‘import one-stop shop’ (IOSS). Registration for IOSS can be completed in any EU member state, and will cover the entire EU. 

For anyone other than a VAT specialist, this sounds extremely confusing – because it is. But with online selling resulting in a considerable increase in transactions between sellers in one country and consumers in another, it will be increasingly important to get it right. 

As ever, leaving the single market is introducing new complications into the procedures, not to mention increased costs, at least in terms of cashflow. 

Some sellers of low value goods are probably unaware of the impact this will have on their business; given the extra costs involved in accounting for VAT on low value items, it’s possible that some will decide not to sell into the UK market at all. 
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