Small businesses urged to act fast as new EU VAT rules set to cost £180m
An estimated 26,000 ecommerce sellers will face £180m in additional red tape costs, as the EU introduces new VAT rules on sales coming from outside the bloc.
Having come into play on 1 July, the new rules are set to affect British companies following the UK’s departure from the EU.
The new EU ‘One-Stop Shop’ (OSS) rules will remove VAT exemptions from SMEs and shipments that do not exceed €22 (£19). This means that around 26,000 UK e-commerce sellers may want to register for VAT in an EU member state for the first time.
The separate but related Import One Stop Shop (IOSS) system will allow UK businesses that make sales of goods with a consignment value below €150 to consumers in the EU to register and account for VAT in a single EU member state.
The majority of these companies will have to fork out at least €8,000 a year each, which is roughly £180m in total.
Tamara Habberley, senior consultant at The VAT People, a specialist consultancy that provides advice and training to businesses relating to their VAT and customs obligations, said: “My key advice is to plan ahead. Many businesses were caught out by the VAT changes when the UK left the EU but many of these changes can be coped with, provided the business understands the impact on them.”
If the new VAT rules apply to your business, you’ll have three options when trading into the EU:
- Register for VAT in a member state of the EU (for the purposes of charging VAT at the rate applicable in the EU member state where the goods are shipped to)
- Subcontract VAT compliance to selling platforms such as Amazon or eBay
- Ask your postal service to handle VAT (with that VAT generally being paid by the customer prior to taking delivery of the goods)
With platforms typically charging sellers about 30% of gross prices for their VAT services, The VAT People recommends that businesses doing more than 150 transactions a year should register themselves in an EU member state. Amazon and other platform operators will be obliged to declare the VAT that is due on the transaction when it facilitates a supply of goods under €150 in value.
“This all sounds quite daunting, especially as it comes hot on the tail of the pandemic and Brexit. However, provided businesses either ensure that they understand all the changes before deciding to sign up to the OSS or IOSS, or take expert advice, it will be possible to continue to sell to EC consumers and thus maintain a valuable customer base”, Tamara adds.
Each EU member state has an online OSS portal, where businesses can currently register to use it for transactions made on or after 1 July 2021. This single registration will be valid for all eligible supplies made by online sellers (including electronic interfaces). However, for the purposes of registering for EU VAT under the IOSS, at the moment a UK business will need to appoint a local EU intermediary to enable it to sign up to the scheme.