Online sellers – what are the New VAT rules?
As businesses continue to get to grips with the implications of both the end of the EU transition period and the Protocol on Ireland / Northern Ireland (“the Protocol”), those selling goods to private consumers via online platforms have even further changes to consider with new UK rules on consignments below £135 and the introduction of the EU’s e-commerce package in July 2021.
This article seeks to provide further information on the rule changes as they stand at the time of writing.
At its heart, the Protocol provides that Northern Ireland (“NI”) will continue to align with the EU VAT rules for goods. In contrast, Great Britain (“GB”) is no longer aligned with the EU VAT rules for goods but instead is governed by UK rules and regulation. As a consequence, given the divergence in regulation, new rules on distance sales (effectively online sales to private individuals not registered for VAT) apply depending upon:
- where the goods are located at the point of sale; and
- the destination territory of the customer (with a distinction now made between NI and GB).
NI sellers to the EU
As NI will continue to be treated as an EU member state for VAT purposes, when goods are sold from a business in NI to a consumer in the EU (with the physical flow of the goods originating in NI), UK VAT should remain chargeable, unless the relevant distance selling thresholds have been breached (currently €35,000 or €100,000 depending upon the EU territory of destination), in which case, the NI supplier will be required to register for VAT in those applicable EU member states.
These rules will remain applicable until 1 July 2021. Following this, under the EU’s e-commerce package, the NI business may register to file a single return via the One Stop Shop (“OSS”) mechanism in order to account for EU output VAT due on sales to EU consumers. We currently understand that an NI business could register for OSS via HMRC.
That being said, where the NI supplier in these instances is also sending goods to EU Member States where the stock is held in GB at the point of sale, the VAT reporting mechanism may vary according to how the goods are imported into the EU, as explained below for GB sellers.
GB sellers to the EU
Where goods are sold from a business in GB to a consumer in the EU (with the physical flow of the goods originating in GB), this will now be treated as an export from GB requiring full customs paperwork. The VAT consequences of the import into the EU will then be dependent to some extent on the roles and responsibilities within the supply chain (known as Incoterms) but also on where ownership of the goods is disposed of.
For example, where it is the case that the supplier is the importer of record, the supplier would be required to account for EU import VAT (and any customs duties payable).
In addition, where the supplier acts as importer of record and retains ownership of the goods until the point of delivery to the customer, this would generally trigger a local EU VAT registration requirement as the supplier would be deemed to have made a domestic supply in that EU territory. The supplier would therefore be required to charge local VAT and report that via it’s EU VAT return.
However, post 1 July 2021 with the introduction of the EU’s e-commerce package, the GB business may register to file a single return as a “non-union” entity via the OSS in a single EU member state in order to account for EU output VAT due on sales to EU consumers (again, this is only for consignments valued at below €150).
Where it is the case that the customer is acting as the importer of record and has ownership of the goods at the point of import, then it is the customer who will be liable to pay any import VAT (and customs duties) that may be due as a result.
Non-UK sellers to the UK
In effect, these new rule changes effective from 1 January 2021 mean that any online sellers (via their own website) or online marketplaces making distance sales of goods into the UK are liable for UK VAT on all consignments up to £135. As above, the manner in which the VAT will be paid to HMRC shall be dependent upon where the goods are sold from and whether the goods are flowing into GB or NI.
Essentially, at a high level (with some exceptions for online marketplaces) the changes can be broken down into three categories:
- Taking sales made from outside the UK to GB customers first, the changes require the overseas seller to register for UK VAT to account for UK output VAT at the point of sale;
- In respect of sales made from the EU to NI customers, EU distance selling rules will continue to apply with the July 2021 changes relevant in these instances;
- With sales made from non-EU sources to NI, historic rules apply in that the VAT consequences would generally depend on whether the supplier or customer is acting as the importer. That being said, where the overseas seller is registered for UK VAT, an import change to note is that the UK VAT registered seller may avail of postponed Import VAT accounting to allow the import VAT to be paid and deducted (subject to normal VAT deduction rules) through the UK VAT return.
In respect of consignments with a value of £135 or more, as with three above, normal VAT and customs rules will apply on importation of the goods into Great Britain from outside the UK or into Northern Ireland from outside the UK and EU, with the added change in regards postponed import VAT.
Michael McNeill
Senior Manager – Belfast
Indirect Tax
T: 077 2506 8484
