Understanding new VAT e-commerce rules for post Brexit trade

New VAT e-commerce rules will apply with effect from the 1st of July 2021. The start of these rules was originally set to coincide with Brexit, but due to difficulties created by the coronavirus pandemic, they were postponed for 6 months.

In the interim period, this has caused difficulties for UK businesses selling to consumers in EU Member States, as they have been in a state of limbo waiting for the new rules to come in.

The aims of these changes are twofold. Firstly, it will simplify VAT obligations for businesses carrying out cross-border sales of goods and certain services when supplied to final consumers. Secondly, it ensures these supplies are ‘VATted’ in the member state where supply takes place, thus bringing everything in line with the principle of taxation in the member state of destination.

Origins of the EU VAT rules: MOSS

These VAT changes actually started back in 2015 when the EU Commission introduced the Mini One Stop Shop (MOSS). The MOSS covers the supply of telecommunications, broadcasting and electronic services (known as TBE services) to consumers in EU member states. This resulted in suppliers only having to complete one return to cover off all their EU VAT liabilities, instead of registering in every Member State where they had a consumer.

Since then, we have also seen the introduction of two thresholds to simplify VAT obligations for suppliers of TBE services in 2019. These are as follows:

1. An annual turnover threshold of €10,000 for intra EU cross-border supplies of TBE services, so that anything up to this threshold remains subject to VAT in the supplier’s country;
2. A threshold of €100,000 up to which the TBE service supplier only has to keep one piece of evidence instead of 2, to identify the member state of the customer.

Starting from 1 July 2021 – Two new VAT standards for EU sales

Now the ‘piece de resistance’ in terms of new VAT standards – the OSS and IOSS. But what are they and what is the difference between them?

What is the IOSS for e-commerce VAT?

IOSS stands for the Import One-Stop Shop (IOSS). This is an electronic portal that businesses can use from 1 July 2021, to comply with VAT e-commerce obligations on distance sales of imported goods.

With effect from 1 July, all commercial goods imported into the EU from outside the EU will be subject to import VAT irrespective of their value. This abolishes the current exemption for goods of a value up to EUR 22. The IOSS has been created to facilitate and simplify the declaration and payment of import VAT for sellers that are making distance sales of imported goods to their buyers in the EU with a value not exceeding EUR 150. The IOSS also makes the process easier for the EU buyer, who is only charged at the time of the purchase and therefore does not face any surprise importation fees when goods are delivered.

The IOSS portal is open now for registration purposes and if your business does not have an establishment in the UK, you may need to appoint an EU-established intermediary to fulfil your VAT obligations under IOSS.

As you would expect, there are some exceptions to using the IOSS, e.g. excise goods. An important exception is if you sell your wares via an online marketplace or platform, because it is then the marketplace that becomes liable for the VAT due and not you. The seller will be given an IOSS code that should then appear on all their consignments. This will mean their parcels should travel straight through Customs to their EU consumer without any delay for establishing who is liable for the import taxes. If the seller is not registered for IOSS for their sales of goods to EU consumers of a value not exceeding EUR 150, then the buyer will get the bill!

Since IOSS only applies for goods not exceeding 150 EUR, what should you do if you sell items to consumers in the EU that exceed this limit? This is where the OSS (One Stop Shop) comes in and there are two types; non Union OSS and Union OSS.

What is OSS for EU and UK VAT sales?

Union OSS can be used by UK businesses to account for EU VAT on their sales of goods to EU consumers

Non Union OSS can be used by UK businesses to account for EU VAT on certain services to EU consumers. These will include:

• Accommodation services carried out by non-established taxable persons;
• Admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events – such as fairs and exhibitions;
• Transport services;
• Services of valuation and work on movable tangible property;
• Ancillary transport activities – such as loading, unloading, handling or similar activities;
• Services connected to immovable property;
• Hiring of means of transport;
• Supply of restaurant and catering services for consumption on transportation services e.g. onboard ships, aircraft or trains.

As you can appreciate, these are all major changes and will be pretty complex to navigate. However, bear in mind that these changes will only affect sales made to EU consumers and NOT EU businesses.

Key actions to take in advance of VAT changes

Here is a summary of key actions to take in view of changes coming on 1 July 2021:

• UK businesses selling goods via their own website to EU consumers with a value not exceeding EUR 150 should register for IOSS;
• UK businesses selling goods to EU consumers via their own website with a value exceeding EUR 150 should register for Union OSS;
• UK businesses selling services to EU consumers should register for Non Union OSS.

If you need help implementing these changes, please contact us via partners@rjp.co.uk.