Brexit – The Reality
Now that over a month has passed since the UK finally left the European Union, we thought it would be worth considering the VAT impact Brexit has had for both UK and EU businesses and consumers.
Exports between UK and EU Businesses
Its worth noting that many of the issues are to do with shipping and logistics rather than VAT and duty. From 1 January 2021 any movements of goods being imported into the UK require customs clearance. While the UK has introduced postponed VAT accounting which delays the time when import VAT needs to be paid, there is additional work and time involved in dealing with customs clearance procedures. Many of the courier and shipping companies do not seem to have been fully prepared for this.
B2C – Online Shoppers
We have all read stories in the media about UK businesses being unable to sell to EU customers. Or UK customers ordering clothes and other items online from EU based sellers for say £200, and then being hit with a VAT and duty bill for another £90. So, what is actually happening?
Since 1 January 2021, when an EU based seller sells goods to UK consumers costing more than £135, UK import VAT becomes due when the goods enter the UK. In addition, customs duty may also be due. If an EU based seller doesn’t take any action, it is presumed that the UK customer has imported the goods. It follows that the UK customer receives a bill for the UK import VAT, duty, and any other associated costs. While £90 seems high for a VAT and duty, some shipping businesses are adding customs checks and administration fees.
In contrast, UK customers who purchase goods from European sellers who have prepared for Brexit find that they do not get hit with extra charges. This is usually because the EU seller has arranged with the shipper that they (the seller) will fund the import VAT and duty. Obviously, this is likely to make the product more expensive as the seller will need to factor in the VAT/duty costs, but it does mean they avoid an angry customer! In addition, if the EU seller has not explained clearly to the shipper or courier that the seller will pay import VAT on behalf of the customer, the shipper or courier may anyway issue the bill to the end customer.
Exactly the same applies to UK sellers selling to EU consumers. Unless the UK seller has arranged to pay the EU consumer’s import VAT and duty EU consumers may find themselves receiving unwanted VAT and duty bills. Without doubt sellers should make it clear whether they will fund the VAT/duty or not in order to avoid unhappy customers.
As a result of extra clearance checks at borders many UK sellers are finding that they are simply unable to find a shipper or courier to deliver the goods. Hopefully this is one issue which hopefully will sort itself out once shippers and couriers become more familiar with procedures.
What About Customs Duties?
For those observant readers, our 6th January blog post suggested that no trade tariffs or customs duties will be due on the movement of goods between the UK and EU. So why are consumers receiving bills for customs duty on goods purchased by UK consumers from EU sellers and EU consumers from UK sellers?
The reason is that customs duty rules are based on the origin of goods. Let’s imagine that a French supplier sells clothing to a UK consumer for £200. The French supplier may have imported the clothing into France from China and paid import VAT and customs duties. While the French seller can recover import VAT, it cannot recover the customs duty which can easily be as much as 10%. When the seller ships the goods to a UK customer, when the goods arrive in the UK, the shipper needs to make a customs declaration. Since the goods originated from China, UK customs duty is also due. The result is two lots of customs duty are paid on the same item – firstly EU duty when the goods are imported into France and secondly UK duty when they arrive in the UK.
In contrast if the clothing was manufactured in the EU, then no customs duty would be charged when the goods are imported into the UK. The same would apply to goods purchased by EU consumers from UK sellers.
The VAT rules for B2C sale of goods from the EU to UK or vice versa are complex. If you are impacted by these issues, please get in contact to see if we can help you to mitigate the VAT and duty cost.