Changes to VAT treatment of overseas goods sold to customers from 1 January 2021
At the end of the transition period, 31 December 2020, the government will introduce a new model for the VAT treatment of goods arriving into Great Britain from outside of the UK.
The changes are being introduced to ensure that goods from EU and non-EU countries are treated in the same way and that UK businesses are not disadvantaged by competition from VAT free imports.
They will also improve the effectiveness of VAT collection on imported goods and address the problem of overseas sellers failing to pay the right amount of VAT on sales of goods that are already in the UK at the point of sale.
When will the rules take effect?
The rules will take effect in the UK from 1st January 2021 which coincides with the end of the transition period, and in the EU from 1st July 2021 which coincides with the launch of the new ‘One Stop Shop’ for the sale of business to consumer (B2C) goods intra-EU.
What are the implications?
For the sale of goods with a value of below £135 which are located outside the UK/EU at the time sale made via an Online Market Place (OMP), the OMP operator will be required to act as a buyer and seller of the goods for VAT purposes and account for the VAT on the sale – for example, UK VAT if the sale is to a UK customer. The overseas seller will be deemed to make a zero-rated supply to the OMP. The underlying legal position is not affected though.
These transactions will include trade between the EU and UK as a result of Brexit.
Where the sale is not via an OMP, the supplier will not pay import VAT but will be required to VAT register and charge the local rate of VAT.
The rules will not affect goods that are destined for a customer outside the UK/EU, i.e. UK seller to UK buyer or in the EU, EU seller to EU buyer.
Changes in the EU – ‘One Stop Shop’
On 1st July 2021, the EU is introducing a new system for accounting for VAT on the sale of goods B2C known as the ‘One Stop Shop’. This will allow for overseas businesses to VAT register in a single EU jurisdiction and submit a single VAT return for all EU B2C sales of goods. This will simplify the VAT accounting for those EU sales that fall within the new regime.
What to consider
Businesses that sell low value items to private individuals in the EU or the UK will need to consider whether they are affected by:
- the changes in rules regarding OMPs
- the ‘One Stop Shop’ which is being introduced for B2C sales to EU customers
The information was correct at time of publishing but may now be out of date.