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New EU VAT rules mean costly red tape for UK small firms

6 July 2021

An estimated 26,000 ecommerce sellers in the UK will face additional red tape costs from July as the EU introduces new VAT rules on sales from outside the bloc.

The new VAT rules came into play on 1 July and affect British businesses 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). It means that around 26,000 UK ecommerce 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.

Analysis by The VAT People suggests that the changes will cost at least €8,000 for the majority of companies affected.

Tamara Habberley, senior consultant at The VAT People, is advising small firms 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."

UK businesses will have three options if the new VAT rules apply to them 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.

"This all sounds quite daunting, especially as it comes hot on the tail of the pandemic and Brexit," said Habberley. "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 EU consumers and thus maintain a valuable customer base."

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. 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.

Written by Rachel Miller.

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