Any change to trade regulations anywhere in the world always brings with itself some sort of a mess. A good example of that is the massive disruption in trade that happened with Brexit. Although everyone knew it was happening on January 1st 2021, most people and businesses were not ready for this.
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This disruption is best illustrated by the huge number of people who experienced issues with both shipping and taxes once the UK had officially left the European Union. Looking at the movement of goods between the EU and UK, you can see countless stories of people who discovered that they needed to pay extra for their parcels once the goods were delivered. Or you can read about cases where companies were not ready for new customs checks and regulations. This unpreparedness resulted in delays and confusion for everyone involved.
All of this will happen on a much larger scale once the new EU regulations go into effect in July 2021.
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The problem is that most online stores outside the UK did not have the capability to collect VAT while people from the UK were shopping.
And people were very surprised by the extra VAT payment they had to pay after Brexit when their goods had been delivered to the UK. This resulted in people being unhappy or just refusing to accept the ordered goods. Some retailers even say that it’s cheaper to destroy the goods in the UK than to ship them back to their warehouses.
This sort of mess can easily be avoided by integrating a platform like Eurora into your marketplace. Not only is our Duty and Tax calculator capable of collecting VATs based on VAT rates in most countries, but our API will also assign HS numbers, fill in the electronic declaration, and make sure the goods get to the buyer as smoothly and quickly as possible.
Who is a Marketplace?
The definition of a marketplace (that is responsible for collecting VAT) is very broad.
For the purpose of selling goods into the UK, it is important to understand, who is considered a marketplace. The short answer is, that any online shop is considered a ‘deemed supplier’ for VAT purposes if the marketplace is involved in any way:
- in facilitating customers’ payments;
- on ordering of the goods;
- in the delivery of the goods.
It should be noted that registration for VAT and collecting VAT is mandatory for all UK sales, regardless of the origin of the goods or the location of the marketplace. The online marketplace will be liable to calculate and collect the VAT on the sales made through its marketplace to the UK customers.
If the Marketplace has not registered for VAT, HMRC may:
- appoint a VAT representative established in the UK;
- ask for financial security.
In case a Marketplace fails to register within 60 days from the moment the operator first knew or should have known about the registration requirement, a penalty will be charged for up to 200% of unpaid VAT tax (including the unpaid VAT). Additionally, a 12-month ‘surcharge period’ may be applied in case of default. HMRC aims to ensure that VAT on all goods sold in the UK is paid. Regardless of the location of the sale.
How to comply with the UK regulations?
Complying with the new regulations is vital if you want to keep selling goods to the UK.
Under the new regulations, online marketplaces are required to:
- register for VAT and accurately account for and collect the import VAT on all sales to the UK;
- provide the customer with a VAT invoice at the point of sale;
- keep electronic records of their sales for 6 years and to provide records electronically to HM Revenue & Customs (HMRC) on request.
Furthermore, with the removal of the low-value consignment relief threshold of £15, all items that enter the UK require a formal electronic declaration. These declarations must include the correct HS-6 code and the shipment date.
All of that means that if you are an online store that sends goods to the UK, you must make sure you collect VAT from your customer. And pay it to the HMRC.
Recording and paying VAT in the UK after Brexit.
The VAT accounting period in the UK is 3 months. The deadline for submitting the VAT return and paying HMRC are one month and seven days after the period ends.
For example, the deadline to submit your VAT return for the first quarter of sales in the UK is the 7th of May. You will be able to see the deadlines on your HMRC account as soon as you register for your VAT account.
It is also important to note that marketplaces are required to keep electronic records of their sales for 6 years and to provide records electronically to HMRC on request.
The questions marketplaces and logistics companies face with Brexit are small compared to the gigantic shift in cross-border trade that is the EU One Stop Shop that goes into effect in July 2021. Hopefully, marketplaces will learn from Brexit and are ready for when the regulations change for the entire European Union. The easiest way for that is to try Eurora. As our systems can handle all the upcoming regulatory challenges.