The UK government has published a series of papers that deal with what will happen in the event of a so-called Hard Brexit or ‘no-deal Brexit.’ That’s what will happen if no agreement is made between the UK and the EU and Britain ceases to be a European member state on 30th March 2019.
One paper addresses VAT on parcels from EU in the event of a Hard Brexit. The impact of these changes will predominantly be felt by online shoppers buying goods from an EU country or by merchants selling to the UK who are located within the EU. Such merchants will have responsibilities to HMRC (the UK tax authority) if they want to continue selling to British customers.
VAT on incoming parcels
The vital section of relevance on the possible future arrangements can be found here and is called VAT on goods entering the UK as parcels sent by overseas businesses.
The government set out in the Customs Bill White Paper (published October 2017) that Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK from the EU. This note confirms that if the UK leaves the EU without an agreement then LVCR will no longer apply to any parcels arriving in the UK, this aligns the UK with the global direction of travel on LVCR. This means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing).
– UK Government
This measure means that all ecommerce consignments arriving from any country in the world (including those outside of the EU) will need to pay VAT. There will be no relief on low value goods below £135 and goods worth above that will continue to be taxed in the present way. But how will it be administered?
Administering VAT on EU parcel imports
Overseas businesses will charge VAT at the point of purchase and will be expected to register with an online system and account for VAT payable. This digital dashboard will offer online registration, accounting and payments services for overseas businesses.
Firms will be provided with a Unique Identifier which will accompany the parcels they send in to the UK. They will then declare the VAT due online. The idea is to ensure the process of paying VAT on parcels does not become burdensome for UK consumers and businesses. To give overseas businesses sufficient time to familiarise themselves with their new obligations, the online service will apparently be available for businesses to register with in early 2019.
In terms of ecommerce imports, these arrangements, which are only relevant to a ‘no-deal brexit’ scenario, represent some significant challenges to international trade and additional responsibilities for merchants and retailers shipping goods to the UK. Every single parcel coming to the UK will attract VAT (unless zero rated).
It’s difficult to know how this arrangement will impact international trade for UK shoppers. Having to pay VAT on imports will impact pricing and some sellers will likely opt out and consider it a disincentive to sell into the UK. The upside of that could be a boost for British online retailers. We’ll find out soon enough.