This blog is intended to offer guidance on the changes that came into effect on 1 Jan 2021 in relation to low valued goods being imported into the UK form an online sale perspective. The rules are relevant to any online business and include online marketplaces (OM), with special mention made to specific matters relating to OM’s only.
What is an online marketplace?
An online market place is a business using a website or a mobile phone app to handle the sale of goods to customers, which meet the following conditions:
o It sets the terms and conditions on how goods are supplied to the customer
o It is involved in any way in authorising or facilitating customer payments
o It is involved in the ordering or delivery of the goods
Typical examples include Amazon and eBay.
By way of information, a business will not be regarded as an online market place, if it only provides one of the following services:
o Processing of customers payments for the supply of goods
o Listing or advertisement of goods
o Redirection of customers to other websites or mobile apps
What is an overseas online seller?
An overseas online seller (OOS) is any business that sales goods directly to the UK (B2B or B2C) via an online platform e.g. a website.
VAT changes from 1 January 2021
From 1 January 2021, consignments of goods with a value of £135 or less that are outside the UK and are sold through an OM or by an OOS (referred to as the ‘Seller’ here on in) must have UK VAT charged at the point of sale. In other words, this is when the customer purchases the goods online.
o The £135 limit applies to the total consignment, not individual items within it.
o The Seller needs a sales system that recognises when a customer is based in the UK and which charges UK VAT, but, only where those goods are sold for less than £135 and will form part of a consignment less than £135.
o By ‘consignment’ we mean per customer, not per shipment, so this should be easy enough to identify at the point of order/sale.
o For any items individually worth more than £135, UK VAT should not be charged to a UK customer, as the existing import VAT rules will apply.
o For any sales of goods that are outside the UK and EU that are sold to Northern Ireland, import VAT will be charged instead.
Who pays the VAT?
Where goods are sold through such a Seller, it is the online business itself which is liable for the VAT.
Any overseas business trading as an OM will also be liable for the VAT on goods of any value that are already located in the UK at the point of sale. This does not apply to OOS’s.
Goods that are outside the UK at the point of sale
The Seller must work out the consignment value of the goods by deciding their intrinsic value. This is the price the goods were sold for, not including:
o Transport and insurance costs, unless they are included in the total price and are not shown separately on the invoice
o Any other identifiable taxes and charges
o Unless sent individually, the Seller must add the individual values of all items in a consignment together, to get the total of value of the consignment.
o If the Seller makes changes to the value of the consignment that result in its value exceeding £135, they may be liable for import VAT on the difference and be required to adjust for the VAT already accounted for at the point of sale.
o Note, low value consignment relief, which is an import VAT exemption for goods valued at £15 or less, has been removed.
Consignments valued at £135 or less
The Seller must charge and account for VAT at the point of sale, unless the consignment is a B2B transaction and the customer has given their UK VAT registration number.
To charge and account for VAT, the Seller will need to:
o Charge the right amount of VAT for the specific goods being sold
o Register for VAT and file UK VAT returns
o Keep records of the goods sold and apply the correct VAT treatment to the goods
The Seller will be liable for any under-declared VAT if they cannot show that reasonable steps have been taken to ensure the correct amount of VAT was charged.
Additionally, the Seller will need to operate a sales system and accounting records that allow for UK VAT to be charged and for quarterly VAT returns to be prepared, with VAT paid to HMRC by the 7th of the second month following the VAT quarter date e.g. for a 31 March VAT return, VAT must be paid by 7th May.
B2B sales to UK VAT registered customers
If the customer gives the Seller their UK VAT number, VAT will not need to be charged. The Seller could add a note to the invoice by stating “Reverse Charge: Customer to Account for VAT” and issue this to the customer at the point of sale. The business customer will be responsible for accounting for any VAT under the reverse charge mechanism, if based in GB, or under Postponed Accounting if based in NI.
Consignments valued at more than £135
Pre-Brexit VAT and Customs rules will apply (see VAT notice 702).
For Sellers therefore, nothing has changed in this regard, so they should carry on as they were. The Seller does have two options however:
• Do nothing, and the customer pays the import duty when they collect the goods from the Post Office, or;
• Opt to instruct the courier to arrange and pay for the import duty, who in turn will charge the Seller. Note however, the Seller couldn’t reclaim the import VAT amount, as the charge belongs to their customer (who also couldn’t reclaim the VAT if they are a private consumer). There is no difference to the customer, as either way they will pay the VAT.
Goods that are in the UK at the point of sale
This part of the guidance relates to OM’s only.
The overseas seller will remain liable for any import VAT and Customs Duty when the goods are first imported into the UK.
When the goods are sold to the customer, the overseas seller will be considered to have made a zero-rated supply of the goods to the online marketplace. The overseas supplier does not have to issue invoices to the online marketplace for supplies that are considered to be zero-rated.
UK VAT will be charged at the point of sale by the OM.
The online marketplace will be liable to account for the VAT on the sales made through its marketplace, unless the goods are for a business customer who gives them their UK VAT registration number.
Goods in the UK at the point of sale going to Northern Ireland
The OM will not be liable for VAT on the sale of goods that are in Northern Ireland at the point of sale and sold to customers in Northern Ireland. The seller will be liable for VAT.
Goods sold to UK VAT-registered businesses
The OM should pass on all the details of the sale (which should include the VAT registration number of the business) to the seller on the marketplace. The seller will be liable to account for the VAT on the sale.
If the goods are in Northern Ireland at the point of sale being sold to customers in Northern Ireland, then the online marketplace does not need to pass on the details of the sale.