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The business headlines may be focusing on the end of the furlough scheme and other timely issues, but there are a number of other tax measures that are have just come into force which businesses should be aware of if they are exporting goods to the EU. Joy Shaw, tax manager explains some of the new regulations:
EU VAT rules – what has changed?
The way that VAT is charged is changing for businesses that sell products online to private consumers within the European Union. The current EU VAT rules state that cross-border sales of goods are subject to VAT in the EU Member State (MS) where the goods were dispatched. The new rules mean that as of 1 July this is flipped, and VAT must be charged at the time of sale, at the rate of VAT in their customer’s country, for consignments not exceeding €150.
The EU have introduced a new optional online VAT return system called the ‘Import One Stop Shop’ (IOSS) to facilitate the payment of EU VAT.
The new rules will impact all businesses that sell products online to private consumers (B2C rather than B2B) in the EU, known as distance sales. They will also affect suppliers of certain designated services and electronic interfaces. Interestingly, when a B2B site goes through an electronic interface, it is treated for VAT purposes as a B2C sale to make the electronic interface responsible for accounting for VAT.
Distance selling – the new EU rules
Distance selling thresholds mean that once B2C sales reach a financial threshold in the EU Member State (MS) of sale, a business is required to VAT register in that MS and ensure that they pay VAT there. There is more information about the rules around distance selling here.
The former EU distance selling thresholds were set at €35,000 or €100,000 depending on the country are now replaced by a single threshold of €10,000, which will apply to the combined total of TBE services and distance sales made by an EU business to B2C customers throughout the EU.
But the UK isn’t part of the EU!
Since the UK is no longer an EU Member State (MS), the €10,000 annual turnover threshold for small business does not apply, so an EU VAT registration will be required for any distance sales from the UK to the EU. The UK business will need to nominate any single EU MS to register, submit returns, and make payments. Additionally, as the UK is classed as a ‘non-union One Stop Shop’, and depending on the chosen Member State’s domestic regulations, a business may be required to appoint a fiscal representative to report to the local tax office in the Member State, or in case of audits there.
What happens if my business sells to people in more than one EU country?
To avoid a business having to register for VAT in every EU Member State (MS) into which it supplies goods, online sellers will be able to use the One Stop Shop (OSS) electronic portal. This will enable the seller to account for, and pay, VAT in all EU MS on a single electronic quarterly return in one EU MS.
I’m a small online business selling to EU customers – does this apply to me?
Even if your UK business has a turnover below the VAT registration threshold (which is currently £85,000 pa) so that you don’t need register for VAT in the UK, you will still be subject to One Stop Shop rules and you will need to register in an EU Member State – or else face a fine.
I sell to several countries in the EU – do I have to register in each one?
To avoid the endless red tape of businesses having to register in each EU member state where they have customers, they should use the online One Stop Shop (OSS) quarterly VAT reporting and payment system. A business which opts to register for OSS will be able to do so in any EU member state or in the UK, provided that it is VAT registered in the EU member state or is trading with the EU under the Northern Ireland Protocol.
My sales are mostly through online marketplaces – how will that work?
If you sell to the EU through an online marketplaces such as EBay, Etsy or Amazon Marketplace, the EU has new rules for sales of goods, similar to those recently introduced in the UK. When goods are sold through an online marketplace to EU consumers, it is the online marketplace rather than you (the seller) that will be deemed, for VAT purposes, to have supplied them to the customer. It is therefore the online marketplace that is now required to collect and pay the VAT on these sales.
What do I need to do now?
VAT reporting of online sales of goods and services into the EU is a complex area of tax legislation. There are further issues which may be applicable to you – so your first action should be to talk to your tax adviser. However there are a number of practical actions which you can put in place which will make your EU VAT reporting more efficient:
Firstly ensure that you differentiate the sales that you make from your own website and those through online marketplaces such as Amazon Marketplace and Ebay.
Secondly, follow this up with any adjustments to your invoicing, contracts and IT systems.
Thirdly, it is worth contacting the online marketplaces where you sell your products in case they are now held to be your supplier for VAT purposes.
Joy Shaw commented: “It is important that businesses and advisers are aware of the impact on EU transactions that came in at the beginning of July. These changes have been introduced as it is an area where a significant amount of tax is lost – creating an unfairness for businesses that correctly pay their tax. They also aim to provide simplification for suppliers and consumers. Even if businesses only make a few sales and have relied on the €10,000 threshold they need to understand the IOSS as the new option to pay EU VAT”.
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