With less than three weeks until the new EU VAT laws for ecommerce businesses trading into Europe come into effect on 1 July, Alison Horner, Partner and Head of Indirect Tax at MHA MacIntyre Hudson, believes many UK businesses aren’t prepared for the changes ahead and face costly VAT compliance registrations if they fail to register by 1 July.
“Having faced a multitude of challenges this year, from Covid-19 restrictions, post-Brexit administrative burdens and international supply chain issues, the new EU VAT ecommerce regulations coming into force on 1 July are yet another hurdle UK businesses must overcome.
“UK businesses selling to consumers in the EU are required to register for VAT for goods sold, unless the consumer acts as the importer. The backlash from UK consumers complaining about delays and extra costs when the UK bought in similar rules on 1 January this year, is not one that UK sellers will want to repeat with their EU customers. However, many UK businesses are underprepared for the changes, which were introduced to crack down on rampant fraud of goods being undervalued and companies avoiding paying Import VAT and Duty into the EU.
“This insufficient readiness is either due to a lack of awareness or because they are waiting until the very last minute to register. Unless they do this by 1 July, businesses selling into the EU risk having to make multiple VAT registrations. This will mean that they will face a plethora of compliance issues – such as having to appoint fiscal representatives, submitting VAT returns in multiple countries and abiding by local rules for each country in relation to invoicing – resulting in additional time, resources and costs. Not the best timing considering many companies have only just begun to recover from an unprecedented 18 months of turmoil.
“Lost revenue through VAT has long been a problem for the continent, with the EU fining the UK £2 billion in 2017 for failing to tackle undervaluation of imports. With cross-border ecommerce continuing to accelerate and set to break the $1 trillion mark in 2022 and the EU wanting to capture this revenue, the overarching principle of the new VAT rules is to collect VAT on goods and services by reference to the place where the customer belongs, forcing UK sellers to declare VAT at the point of sale.
“To mitigate the daunting prospect for UK businesses to register for VAT in all European member states where their customers are based, the EU has introduced two new schemes – the Import One Stop Shop (IOSS) and the One Stop Shop (OSS) – that will result in businesses completing one return for all EU sales, in addition to the existing Mini One Stop Shop (MOSS) which deals with digital services. UK Businesses that hold their stock outside the EU can use the IOSS for any sales of goods up to a value of €150, appointing an intermediary in the EU as part of the process and submitting monthly returns to the EU to cover all sales within the block.
On the other hand, British companies that hold their products in the EU or import into the EU for onward fulfillment to consumers, can use the OSS and register for VAT and the OSS in one country in the EU to simplify their VAT compliance obligations. There is no requirement to appoint an intermediary or issue VAT invoices to consumers using this method and OSS returns are submitted quarterly for all B2C sales of goods in the EU.
“While the new VAT schemes are welcome, many UK businesses have just overcome the headache of adjusting to post-Brexit trading into the EU, and are simply not prepared for these latest changes. With many set to be caught off-guard, we urge those yet to register to make it a priority before 1 July.”