The HM Revenue & Customs in the UK has developed a new VAT treatment system for overseas sellers. Here are some of the highlights of the rule changes applicable from 1st January 2021.
• The £15 Low Value Consignment Relief that existed even until last year won’t be applicable anymore. Overseas sellers must pay VAT on all consignments arriving in the UK. In fact, this law applies to Northern Ireland also. Any imported goods that previously came under the category of VAT relief, such as zero-rated or reduced rate goods, will continue to enjoy the same benefits as before.
• Overseas sellers selling products worth £135 or more in the UK, but the location of goods is outside the country at the time of sale must oblige to the UK VAT regulations.
• OMPs or Online Market Places facilitating the sale of goods from different countries will collect and pay VAT. However, there are no exceptions if your sale doesn’t include an OMP.
• According to the previous HM Revenue & Customs guidelines, the VAT rules did not apply to sales and imports to Northern Ireland. The new guidelines say that Northern Ireland will also follow the same VAT rule as the UK.
New VAT rules
There are three main categories according to which you can divide the new rules:
1. Direct sales by overseas sellers when products are still outside the UK when the sale took place.
2. Sales by overseas sellers made via OMP when products are within the UK.
3. Sales by overseas sellers made via OMP when products are still outside the UK when the sale took place.
The first category has three scenarios:
• Direct sale by overseas sellers to UK customers – In this situation, you should follow the UK VAT obligations and charge the UK customers the respective VAT amount. You should also apply for VAT registration if you sell anything in the UK.
• Direct sale by overseas sellers to UK business customers – You don’t need to charge VAT to your business customer if you have the business’s UK VAT registration number. Instead, issue a VAT invoice and account the business customer to pay VAT.
• Direct sale by overseas sellers to UK business customers more than £135 – This is similar to the situation above. You don’t need to charge VAT to your business customer if you have the business’s Great Britain or Northern Ireland’s EORI number. Also, don’t forget to check if the customer has a customs declaration. You can give the responsibility of paying VAT to the business customer and send a VAT invoice by reverse change.
The second category has the following conditions:
• Direct sale by overseas sellers via OMP – Every sale by an overseas seller via an OMP is considered as a zero-rated supply or B2B zero-rated sale to the OMP. It is not your responsibility to account for or charge VAT from your customers. The OMP will do it on your behalf. It will collect VAT from UK customers and also pay the same to the HMRC. Furthermore, they will send VAT invoices to customers and not you.
• Direct sale by overseas sellers to UK business customers via OMP – You are liable to account for the respective VAT amount and also issue VAT invoices if you receive the UK VAT number of your UK business customer. If you don’t get the UK VAT number, the HRMC will consider your sale as a B2C supply. In that case, you must pay the VAT amount and issue VAT invoices to customers.
Here are the things to remember for the third category:
• Sales less than £135 to UK customers via OMP – Your supply to the OMP comes under B2B sale. It means you don’t come under the UK VAT obligations. The OMP, on the other hand, has to collect and pay the VAT according to the products you sell.
• Sales less than £135 to UK business customers via OMP – This is similar to the above scenario. The OMP has to issue a VAT invoice to your business customer by reverse change.
If you don’t understand the complicated accounting terms, don’t hesitate to call Infinity22 at +61452 184 421. We are an eCommerce business advisory agency that is always ready to help clients with business strategies and accounting tips to improve their profits and cash flow.