From 1 January 2021, following the end of the UK Brexit transition period, the government has introduced a new model for the VAT treatment on goods arriving from outside of the UK.
What are the changes?
There are two key measures, which will change the way VAT is collected on sales of goods in the following circumstances:
- Goods sold to UK customers where the goods are located outside the UK at the point of purchase and the supply involves the later importation of the goods into the UK, including where an Online Market Place (‘OMP’) facilitates the sale.
- Goods sold to UK customers where the goods are in the UK at the point of sale, sold by an overseas seller and where an OMP facilitates the sale.
Furthermore, how and by whom the VAT is accounted for depends on the value of each consignment with different rules applying depending on if the consignment is greater or less than £135.
Please note these changes do not apply to supplies to and from Northern Ireland.
How will these changes work?
Goods sold to UK customers where the goods are located outside the UK at the point of sale, and the supply involves the later importation of the goods into the UK.
Consignment value < £135
From 1st January 2021, supplies to UK consumers where the consignment does not exceed £135 in value will not be subject to import VAT.
Instead VAT will be due and accounted for at the point of sale For VAT purposes, the supply will be treated as follows:
- If an OMP is not involved in facilitating the sale, there will be a supply direct from the seller to the consumer, which will be deemed to take place in the UK and so liable to UK VAT.
- If an OMP is involved in facilitating the sale, they will be considered, for VAT purposes, to be making the supply to the UK consumer, which will be deemed to take place in the UK with UK VAT chargeable accordingly.
It should be noted that an OMP is not responsible to account for the VAT on a B2B sales in these circumstances. In these cases, the UK business customer will be required to account for the VAT through the reverse charge.
In both instances, the value of the goods for VAT purposes will be based on the price at which they are sold to the consumer.
For goods located overseas at the point of sale, the new arrangements will apply irrespective of where the OMP or the business selling the goods is established.
This means that the following types of businesses will have to register for UK VAT (if not already registered) and account for VAT to HMRC:
- any business that operates an OMP that facilitates sales of goods to UK customers
- any business that sells goods directly (without OMP involvement) to UK customers where the goods are (a) outside the UK at the point of sale (b) imported to the UK in consignments not exceeding £135 in value
Consignments > £135
Consignments over £135 are subject to normal import VAT rules and an OMP is not responsible for collecting the VAT on this sale.
In terms of dealing and paying for the import VAT and any duty, there are a number of options:
- the customer is required to pay the import VAT and duty directly to the parcel carrier before the goods are released
- the customer pays for the import VAT and duty at point of sale and this is paid to the parcel carrier to submit to HMRC on importation (OMP’s may not facilitate this)
- the seller is responsible for paying for the import VAT and duties in the UK (using a parcel carrier or other service) – again, this cost could be included in the charges to the customer at the point of sale but an OMP may not facilitate this
- If the seller is already registered for VAT in the UK, it could account for the import VAT through its VAT return and pay any duties at import. This import VAT can could be recovered but UK VAT would need to be accounted for on the onward sale to the customer.
Goods sold to UK customers where the goods are in the UK at the point of sale, sold by an overseas seller and where an OMP facilitates the sale
This strand of the measure will apply to goods of any value where the:
- goods are owned by a seller who is based outside the UK
- goods are located in the UK at the point of sale
- seller sells the goods to a customer in the UK through an online marketplace
- supply is not to a VAT registered business
The following VAT treatment will apply.
The goods will already have been imported into the UK by the seller existing customs obligations will apply at importation. However, whilst duty will be payable at the point of importation, a UK VAT registered business can opt to account for the import VAT due using postponed VAT accounting (‘PVA’) through its UK VAT return.
UK VAT will be due at the time the sale of goods takes place as it is now, but the significant change here is that the OMP will be deemed to be the supplier and so liable to account for the VAT on sales facilitated through its marketplace. This means that for VAT purposes the seller, operating through an OMP, will no longer be making a supply to consumers in the UK.
At the point the goods are sold to the customer, the overseas seller will be deemed to make a zero-rated supply of the goods to the OMP. This is so that the overseas seller will be eligible to register for VAT in the UK and reclaim any import VAT it has incurred in the course of importing the goods, subject to the normal rules for VAT deduction. The overseas seller should show the value of its supplies in box 6 of its VAT return (value of sales) but will not be responsible for declaring VAT on those deemed sales made through the OMP.
OMP liability will not apply to business to business sales where the goods are in the UK at the point of sale. The business recipient will need to provide a valid UK VAT registration number to the OMP to show that the supply is business to business sale. If this is not provided the sale should be treated as a business to consumer transaction. Where a valid VAT registration number is provided the supply will be from the overseas seller, rather than the OMP, to the business recipient and will follow existing VAT rules. There will be no VAT reverse charge applied to this transaction.
The OMP must notify the overseas seller that they should account for VAT on a particular sale where a business customer provides a valid UK VAT registration number. The OMP should provide the overseas seller with the UK VAT registration number.
There is no obligation for the OMP to verify that the customer is in business actively. They should treat the sale as a business to consumer sale unless the business customer provides a VAT valid registration number.
For sales by non-UK sellers that are not facilitated by an OMP, where the goods are located in the UK at the point of sale, the existing rules remain unchanged, such as the seller remains liable to register and account for VAT on all such sales to UK customers.
There is no VAT registration threshold for businesses not established in the UK, so the seller is liable to register and account for VAT as soon as it starts making sales or holds stock for sale in the UK.
What should I do next?
OMPs must register for UK VAT in order to account for VAT on their deemed supplies, with effect from 1 January 2021.
For consignments less than £135, an overseas seller will also need to register if it sells goods directly (without using an OMP to facilitate your sales) to UK consumers and the goods are outside the UK at the point of sale.
There is no VAT registration threshold for businesses established outside the UK so you will be required to register for VAT on any value of sales where you become liable for VAT under these new measures. You should register for UK VAT if you haven’t already.
If you are already registered for UK VAT you do not need to register again. There is no separate form of registration for these measures – just the standard UK VAT registration for non-established taxable persons.
If you are a business established in the EU and making sales to UK consumers that were covered by the distance selling rules prior to 1 January 2021 then you may already be registered for UK VAT and can continue to use your VAT registration to account for VAT under these new arrangements for the VAT treatment of overseas goods.
Critchleys Clients: If you have specific questions, please contact your Critchleys Accountant directly.
For more information, read The Border Operating Model. First published on 13 July 2020.
First Published 27 January 2021
Last Updated 27 January 2021
27 January 2021
First published.