Everything You Need to Know About VAT Treatment of Overseas Products From 2021

The UK government has come up with a new VAT system for overseas goods. These changes will ensure that the UK treats both EU and non-EU countries equally and UK businesses do not face any disadvantages to competing with VAT-free imports. Additionally, the new system will also improve the efficiency of VAT on imported products. It addresses overseas sellers’ failure to pay their share of VAT on the goods that have already reached the point of sale in the UK.

What does that mean to sellers outside Great Britain? The answer is adjusting to the new changes from 1st January 2021 in the UK. For the EU, the law comes into action from 1st July 2021. This is also when “One Stop Shop” launches for sale of goods via B2C within the EU.

How should overseas sellers cope with this change?

Suppose you are selling a product to the UK from Australia. The cost of your product is below £135. If you are selling through an Online Market Place, your OMP must act as the buyer and seller of the products. This is only to calculate the VAT on your product accurately. UK VAT will apply if you make the sale to a UK customer. On the other hand, you need to make a zero-rated supply to your OMP. This is beneficial for the seller because it doesn’t affect the underlying legal position.

Every product you sell as an overseas seller will count as a trade between the UK and EU because of Brexit. If suppliers do not make a sale using an OMP, then they may not need to pay import VAT. Instead, you will have to register your business for VAT and then charge the local VAT amount according to the slabs set for different product categories.

The rules, however, won’t affect goods destined for customers outside the UK or EU. That means this tweak in VAT treatment isn’t for UK sellers selling something to UK buyers or in the EU. In fact, it doesn’t even apply for EU sellers selling their products to EU buyers.

One-stop shop

The EU will introduce a new accounting system for VAT on B2C goods from 1st July, 2021. They are calling this new approach, “One Stop Shop.” It will allow overseas businesses to register for VAT within a single EU jurisdiction. You need to submit a single VAT return for all the goods sold via B2C from the EU. Accounting experts say that it will simplify the process by which they had to calculate VAT for EU sales.

But what if you have a small-scale business and your products aren’t that expensive? There are two things that you need to consider if you sell low-value items in the UK or EU:

• The rule changes regarding Online Market Place. Check whether you fall in this category or not. If you don’t sell through an OMP, you should consider yourself in the second category, where you need to register for VAT to sell your goods in the UK.

• Go through the rules and regulations mentioned for One Stop Shop. Does it conflict with the new VAT laws for B2C sales to EU customers? If yes, then how do you resolve the conflict?

It is confusing to follow the new rules, especially if you do not understand accounting terms well. You need someone to explain the process to you in layman’s terms. Infinity22 can do that for you. We specialize in advising clients on e-commerce accounting by explaining how they can file their taxes, what tax rules they should abide by, how they can create a healthy financial structure for their businesses, and so on. You can rely on our business planning strategies because that’s what sets us apart from our competitors.

If you need any help regarding the UK’s VAT registration process or want someone to explain the new changes in simple words, do not hesitate to get in touch with us. We can assure you that our accounting experts and business analysts will prove useful in increasing your business’s cash flows and profits significantly. Call us at +61452 184 421 or submit your contact form today for a quick chat.