VAT: Preparing for Brexit as an Ecommerce Business

Share This Post

Share on facebook
Share on linkedin
Share on twitter
Share on email

An Ecommerce business refers to “the buying and selling of goods or services using the Internet, and the transfer of money and data to execute these transactions” (Shopify). According to Business With, the UK is the world’s third-largest Internet retail market and Europe’s largest. 

The UK left the EU on 1st January 2021, after 4 years of uncertainty, and this is what we know as Brexit. The UK government also implemented modifications to the Value-Added Tax (VAT) for products being delivered into the UK, coinciding with Brexit. 

What is Value-Added Tax (VAT)?

Value-Added Tax is a consumption tax levied on a product at each point in its production chain where value is added. VAT is usually calculated as a percentage of the total cost of the product paid by the customer. 

What are the VAT changes in the UK?

From 1st January 2021, VAT is now charged at the point-of-sale (during checkout) instead of at the point of importation for items imported into the UK in consignments of less than £135 in value. A consignment is a set of items supplied to a person, in this case, your customer. 

If the seller has a UK VAT number, they can pay the import VAT (and duties) on clearance and refund it. Alternatively, the vendor may request that the buyer pay customs. The VAT can only be reclaimed by the owner of the goods at the time of import.

Receiving your VAT registration could take 30 days (or longer) to receive after application.

To sell your products in the UK, you need to do the following steps:

  1. VAT will be charged on any low-value orders sent to the UK (for orders less than £135, all firms must collect 20% VAT at the point of sale) – VAT will still be paid at the time of import with duty for orders over £135
  2. You’ll need a VAT number in the UK (including B2B and B2C) – you can register for this with HMRC 
  3. VAT must be remitted to the UK merchants on a quarterly basis (you will file a VAT return detailing the amount you earned over the course of the 3-month accounting period)

Checklist to prepare for VAT in the UK:

  • Apply for VAT number (on HMRC website – https://www.gov.uk/vat-registration/how-to-register )
  • Look at your tax setting again – see if any adjustments have been made on how to calculate and collect taxes for your UK clients 
  • Make sure your shipping invoices are up-to-date (you also should update your invoices to incorporate your VAT number so that you avoid customs complications and deliver your items on time)
  • Obtain an EORI number (Economic Registration and Identification Number) – you will need this code to identify your company in customs paperwork if you don’t have one already 
  • Make sure the ISO Country Code is up to date (Northern Ireland Only) – this only applies if you’re selling into Northern Ireland from somewhere else in the UK 

If none of the above is done and you continue to ship products to UK customers, the customer receiving the shipment will be responsible for paying the UK charges that should have been covered by the merchant in addition to the VAT charges they are already charged as a customer.