On December 31, 2020, the United Kingdom finalized its plan to depart from the European Union after months of negotiations to define the future relationship between the UK and the EU. From tariffs to free trade deals, many changes will happen with Britain’s economic and social policies after the country’s departure from the EU. These changes will include the UK VAT or Value-Added Tax charged by the British government on overseas imports, both from EU and non-EU countries. This article will explain how these changes could affect businesses residing in both EU and non-EU countries such as the US and Australia when doing business with UK customers.
The Purpose Behind the Changes in UK VAT for Overseas Goods
The British government will introduce a new model for VAT treatment for overseas goods from other countries after the transition period for Brexit has ended. Aside from Brexit, there are two main reasons for changing the UK VAT model for imported goods in the United Kingdom.
The first reason was to ensure that VAT collection for overseas goods will be more efficient and effective and solve the problem of overseas sellers failing to pay the right amount of VAT for imported goods that were already within British borders when they were sold. The second reason was to guarantee that goods imported from both EU and non-EU countries will be given the same treatment. UK businesses will not suffer from competition arising from VAT-free imports from other countries.
Outline of the Changes to UK VAT on 1 January 2021
Beginning January 1, 2021, all imported goods from both EU and non-EU countries, including Australia and the US, with the value of £135 or below and sold to a customer residing in the United Kingdom, will be subject to VAT treatment. However, if the sale was mediated with the help of an online marketplace or OMP, the OMP will be responsible for the accounting, collection, and payment of VAT.
The £135 limit will be applied to the total value of the consignment imported from another country, not to the separate value of individual items included in that consignment. But if the value of the consignment exceeded the £135 limit due to changes made by the seller, the imported goods will be subject to import VAT as well as Customs Duty, and the seller will have to adjust the VAT that was already taken into account at the point of sale. The seller is also required to add the individual values of the items included in a consignment to get the consignment’s total value unless the items were sent individually.
Aside from these changes, the low value consignment relief (LVAC) for imported goods valued at £15 or less will no longer be applied for both Great Britain (England, Scotland, and Wales) as well as Northern Ireland. This applies to goods imported from both EU and non-EU countries. Nonetheless, imported goods still eligible for VAT relief (zero-rated or reduced rate) would continue to benefit from this relief. Nevertheless, the changes in both the LVAC and the UK supply tax for imported goods that do not exceed the £135 limit will not apply for imported goods purchased before December 31, 2020, even if the goods will be delivered on or after January 1, 2020. In this case, the import VAT will apply to these consignments, and the LVAC will apply for goods valued at £15 or below.
Regarding the responsibilities of the OMP with the new rules for UK VAT for imported goods beginning January 1, 2020, online marketplaces are defined as a website, marketplace, or portal on the Internet which facilitates the sale of goods to customers in the United Kingdom by someone other than the operator, usually the seller. OMPs would need to register for UK VAT so that the supply VAT would be accounted for the goods that they sell. Sellers also need to register for UK VAT if they sell imported goods to UK customers without the help of an OMP, although if they have already registered, they would no longer need to do so.
We understand that these changes in UK VAT for imported goods from both EU and non-EU countries will impact businesses from countries such as Australia and the United States who do business with UK customers. With that being said, we at Infinity22 are more than glad to offer our accounting services to sellers in Australia and the US, offering goods to British customers. We provide eCommerce Bookkeeping and Accounting services to eCommerce entrepreneurs, and we can help you with accounting the UK VAT if you are a seller importing goods to the UK.