UK Customs & VAT Changes After Brexit

Brexit will be complete January 1, 2021. After years of negotiations, planning, and a lengthy transition period, the U.K. is finally leaving the EU Customs Union and VAT regime. What does this mean for U.S. merchants selling into the U.K.?

The impact of Brexit will be felt primarily by businesses based in the EU and U.K. However, the new U.K. ecommerce package does affect businesses based in the United States, especially retailers and marketplaces that sell directly to U.K. customers.

Low-Value Consignment Relief ending

The first change is the elimination of Low-Value Consignment Relief (LVCR). While commercial imports of goods valued at or below £15 are exempt from import VAT through December 31, 2020, all imports are subject to import VAT on and after January 1, 2021.

There are three VAT rates in the U.K.:

  • 20% standard rate (most goods and services)
  • 5% reduced rate (some goods and services, such as car seats for children)
  • 0% zero rate (some goods and services, such as most food staples and children’s clothes)

Businesses that sell goods or services subject to any of the above rates, even the zero rate, must register for VAT. Businesses that sell exempt goods or services, such as postage stamps or financial transactions, may not need to register.

UK VAT registration needed to sell goods from outside the country

Also effective January 1, 2021, most U.S. businesses accustomed to paying import VAT at the U.K. border — or leaving it to their U.K. customers to settle — will instead have to charge and collect U.K. sales VAT at checkout. This applies to any consignment sent from the U.S. valued at or below £135 (about $180). Sellers must report and pay the collected VAT through a regular U.K. VAT return. It can take a few weeks to obtain U.K. VAT registrations, and unregistered sellers risk having their shipments stopped by the U.K. border control authorities.

Currently import VAT is collected upon clearance by customs or the delivery agent. After the start of the year, U.S. sellers won’t be able to get goods into the U.K. without registering.

Goods valued above £135 will continue to be subject to the current VAT procedures. Thus, sellers with a U.K. VAT number can pay the import VAT and duties upon clearance at customs, then reclaim them, or they can require customers to pay the VAT at customs or to the delivery agent.

Marketplaces take on their sellers’ VAT obligations as ‘deemed supplier’

For marketplace transactions, the marketplace facilitator will become the deemed supplier if the shipments do not exceed £135. Thus, the marketplace itself, not individual marketplace sellers, must register for VAT and charge VAT at checkout. Marketplace sellers will need to register only if they make direct sales as well as marketplace sales in the U.K.

Staying informed

Perhaps the best way for U.S. businesses to brace for the changes ahead is to keep up to date on all the news, and start registration as early as possible to avoid any obstacles once these changes are implemented.

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