There’s a problem coming at the end of the month that no one seems quite prepared for. If you cast your mind back to Brexit and December 2020 we saw multiple carriers pause EU shipments as they didn’t want parcels stuck in transit that were undeliverable. This could be happening again as we approach the 1st of July.
The background is that IOSS comes in with marketplaces collecting VAT on sales to the EU as of the 1st of July. You’ll be liable for collecting VAT on sales to the EU on sales on marketplace valued over $150. That all seems quite straight forward enough but what happens to sales taking place a few days earlier?
If you make a sale during the last few days of June, VAT won’t have been collected on your customers purchases. This will be fine if shipments arrive into the EU before midnight on the 30th of June – the situation will be exactly as it is now. However for any trucks arriving with parcels in the early hours of the 1st of July, the EU will expect VAT to have been collected.
There doesn’t appear to be any easy solution to this problem. Marketplaces can’t collect VAT before the 1st of July as IOSS won’t have come into effect. You may not even know if a sale to the EU will see the goods arrive into the EU before the 1st of July for sales late in June.
You might think that this isn’t a particularly big issue as in the worst case the consumer will just be hit with VAT demand on the doorstep along with an admin charge, but in reality what could happen is trucks held up at the ports as they don’t have the correct paperwork (or rather electronic pre-advice) for their load.
We’ve asked around the industry and spoken to a couple of carriers and some logistics experts and no one seems to know the correct course of action. There have been some hopeful mumblings of leniency on the part of the EU and a hope that goods will just be allowed through the ports and on to their final destination, but this is the EU and it’s not like we’ve not had plenty of notice that VAT regimes are about to change.
The logical step for carriers will be to avoid having parcels in their networks that don’t have the correct electronic pre-advice which would have to be returned to senders if they are undeliverable. This in all likelihood taking the decision to pause EU shipments for a few days.
The headache will then be on merchants and retailers to ship goods for which marketplaces haven’t collected VAT under IOSS and that’s going to involve a ton of paperwork to then get the goods shipped. Frankly, if you sell on marketplace IOSS and no VAT collection for merchants on sales under $150 makes things very simple and easy but that’s only after the 1st of July.
We would recommend speaking to your carriers and asking what will happen to parcels shipped after the 25th of June. Prior to then they should arrive in the EU before the 1st of July, but for sales on Monday the 28th to Wednesday the 30th that might not be the case.
From the 1st of July when marketplaces start to collect VAT all you need do is pass the marketplace IOSS to your carrier (check in advance how they expect to do this) and shipping will be trouble free. However, even if your carrier doesn’t pause EU shipments for a few days at the end of this month you may wish to temporarily pause sales yourself to avoid creating a headache for which no one appears to have a solution in place.