As of the 1st July 2021, changes were made to VAT regulations concerning the VAT and duty treatment goods sold and shipped to customers in the EU (European Union). The changes will largely targeted towards B2C (Business To Customer) imports as well as some B2B (Business To Business) imports in relation to tour operators margin scheme and flat rate schemes. This means that the majority of changes will likely affect both businesses as well as online shoppers.
Before 1st July 2021, all goods supplied to customers in the EU were accounted for by the country in which the goods were dispatched from. In other words, the VAT on all UK goods sold in the EU was declared and paid for by the UK businesses supplying said goods.
Under ‘Distance Selling’ rules once a specific sale exceeds the value granted by an EU Member, a local VAT registration number was required, forcing UK suppliers to charge and account for VAT in the respective countries they are selling to. This applies to all goods and electronically provided services sold to the EU from the UK. These rules were stopped when Britain officially exited the EU on the 1st January 2021. From 1st July 2021, the historic Distance Selling regulations were replaced by a capped value of €10,000 for all EU members states. This threshold will apply to the total cross-border sales by the business across the EU and not on a country-by-country basis.
Under the new amendments to the regulations entitled the EU VAT E-Commerce Package, all goods sold by UK businesses to EU registered businesses that are valued above €150 will be subject to a new VAT accounting procedure applies. We break down how the new process works and what businesses need to do comply with the new changes.
What Are The Changes To VAT Regulations and Who Do They Affect?
As of the 1st July 2021, the process of a product or services being sold by a UK business to an EU member state will be different than before. The changes will affect businesses:
- selling or supplying goods from Northern Ireland to non-VAT registered customers in the EU
- making supplies of goods from the EU to non-VAT registered customers in Northern Ireland
- sending low value goods to Northern Ireland (or the EU) from outside the EU and Northern Ireland (including from Great Britain (England, Wales and Scotland))
- non-EU businesses with goods located in Northern Ireland at the point of sale
It also affects online marketplaces that facilitate the sale of goods:
- located in Northern Ireland (or the EU) by non-EU businesses to non-VAT registered customers in EU and Northern Ireland consumers
- from Great Britain to consumers in Northern Ireland and the EU
The intra-EU part of the e-commerce package applies to both goods and certain electronically supplied services throughout the EU. However, as the Northern Ireland Protocol only applies to goods, the UK’s implementation of the EU’s e-commerce package will only apply to supplies of goods in respect of Northern Ireland. This means that supplies of services to or from Northern Ireland do not count towards the distance selling threshold.
Goods are classified as low value when there are in consignments involving an intrinsic value not exceeding £135 (€150). When goods are imported into the EU, the changes apply to consignments which do not exceed an intrinsic value of £135 (€150). This means that businesses falling in scope of the new rules, in respect of EU and Northern Ireland imports, will not be required to register for VAT in each of the EU member states of their customers.
What Is The New Accounting Process For The EU VAT E-Commerce Package?
The Import One Stop Shop (IOSS) platform is a monthly VAT reporting and payment system which was designed to ease the burden on businesses having to register in each member state, where they have customers. A business not established in the EU or Northern Ireland wishing to register for IOSS will be able to do so in any EU member state or in the UK.
Businesses in Great Britain that make sales of goods in consignments not exceeding £135 to customers in the EU will have the option to register for IOSS. VAT registered Great Britain businesses also registered for IOSS that make sales of goods in consignments not exceeding £135 to customers in Northern Ireland will be able to pay any VAT due via their IOSS return and will be able to tell HMRC their IOSS registration number prior to the goods moving to Northern Ireland.
Great Britain businesses that are not VAT registered in the UK as they are below the UK VAT registration threshold but are registered for IOSS will also be able to tell HMRC their IOSS registration number prior to the goods moving to Northern Ireland but will not be required to charge VAT on supplies to customers in Northern Ireland. Great Britain businesses not registered for IOSS should continue to use the existing VAT treatment for supplies of goods to Northern Ireland.
The IOSS platform is intended to simplify the declaration and the payment of VAT on B2C supplies that has a value that is less than €150. Registering for the IOSS platform is not obligatory and suppliers can continue to declare and pay VAT on EU imports according to current arrangements if this is preferred. Most goods that are valued at less than €150 will continue to be exempt from customs duties.
Using a single IOSS registration in one EU Member State, the IOSS platform can be used to record and account for VAT on sales throughout the EU.
For all business-to-consumer (B2C) services taking place in EU Member States where the supplier is not established in that country, then the revised OSS platform must be used.
For businesses required to register for VAT in more than one EU member state, the revised OSS procedures can now be used to record and account for VAT on sales of goods to individuals within the EU and supplies of goods made through electronic interfaces in certain conditions. OSS declarations or returns must be submitted quarterly.
How To Comply With The Changes To VAT Regulations?
In order to comply with the new EU VAT regulation changes, all information can be found at the dedicated government portal page. In order to apply for OSS or IOSS registration, you will need to go through the specific EU nation’s application procedure for each member state where distance sale of goods are made.
We hope this has outlined to you the new changes to VAT regulations and what the EU VAT E-Commerce Package is. If you require any further information on any changes to regulations due to Brexit, or anything accounting related for the matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.
