November 10, 2020
UK implements new e-commerce VAT rules effective 1 January 2021
The United Kingdom (UK) is implementing fundamental changes to the value-added tax (VAT) accounting and reporting requirements for online sellers, businesses with a direct-to-consumer channel, and online marketplaces. These changes will be implemented from 1 January 2021.
Similar VAT changes in the European Union (EU) become effective from 1 July 2021.
These changes coincide with the removal of the low-value consignment relief for goods and the end of the Brexit transition period. These rules will replace the current arrangements for sales of goods to consumers in the UK and from the UK into the EU (e.g., under the EU distance sales VAT regime).
These changes will have an impact on many businesses, including:
Businesses affected by these changes should be considering the associated systems, tax, commercial, contractual and pricing implications as soon as possible.
UK VAT changes from 1 January 2021
Abolition of low-value consignment relief for goods under £15
All goods imported into the UK will be subject to UK VAT (at the relevant rate 0%, 5% or 20%).
Goods imported into the UK in consignments valued at less than £135
UK VAT to be due at the point of sale instead of at importation on B2B and B2C sale of goods if the consignment is valued at less than £135. This value relates to the whole consignment, not the value of individual goods in the consignment.
If the customer is not VAT registered, the seller (or OMP facilitating the sale) must register for VAT in the UK and charge UK VAT. If the customer is VAT registered, its VAT registration number should be obtained by the seller/OMP and the customer should apply the reverse charge (i.e., account for VAT itself on behalf of the seller).
OMPs (regardless of where they are established) will be liable for UK VAT on the following supplies facilitated by them:
Brexit – UK businesses selling into EU
The EU distance selling threshold will not apply for sales by UK sellers; instead, these sales will become exports from the UK and imports into the UK by the customer. An Import One Stop Shop will be introduced in the EU from 1 July 2021 for consignments valued at less than €150.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United Kingdom), London
Ernst & Young LLP (United Kingdom), Leeds
PDF version of this Tax Alert