VAT Changes Post-Brexit Could Pose Challenges for US E-commerce Sellers and Marketplaces

The Brexit transition period is quickly coming to a close and bringing with it major changes to how commerce will work within the country. Chief among those changes is a new e-commerce value added tax (VAT) registration obligation for any non-U.K. merchant selling goods to U.K. customers not exceeding 135 British pounds or $175. U.S. e-commerce retailers, including marketplace sellers, that want to keep selling to U.K. customers after Dec. 31, 2020, will be forced to make some hard choices on taxes and customs.

While the VAT changes will have long-lasting implications for non-U.K. sellers, failure to comply with the new requirements on Jan. 1, 2021, will have immediate repercussions for sellers. Without proper registration, e-commerce and marketplace businesses selling into the U.K. will have their goods blocked at the border, face tax penalties, and significantly impact their customer experience.

Changes to U.K. e-commerce VAT in 2021

The U.K. is making a number of changes to the e-commerce and marketplace VAT rules from Jan. 1, 2021, after it leaves the EU VAT regime and Customs Union.

For U.S. e-commerce sellers and marketplaces, changes will impact VAT requirements for goods located both outside and inside the U.K. at the time of transaction. Any goods consignments coming from outside of the U.K. and passing through customs that do not exceed $175 will be subject to the new VAT regime. Foreign sellers will have to collect the VAT at the time of checkout instead of having VAT collected when the shipment is delivered and sellers must have their goods VAT registered in the U.K. before they can make shipments into the country.

If sales are made through a marketplace, the marketplace facilitator becomes responsible for calculating and collecting the VAT at the time of checkout. The obligations for marketplace facilitators require that they collect several pieces of data, including:

• The ship-from country, where the seller’s goods were at the time of the sale.
• If an import, the intrinsic value of the goods consignment to determine if not exceeding $175.
• If the goods are within the U.K., whether the seller is foreign or not.
• If the U.K. customer is an individual or business—if the latter, then no VAT may be due for payment.
• Nature of the goods to determine the correct standard, reduced, or zero-rated VAT treatment. They will also need to assign a commodity code for a customs declaration.

Marketplace facilitators will also be held liable for underdeclared VAT on the transactions they manage for their third-party sellers. They must also retain electronic records that support all transactions for a minimum of six years—those that they were the facilitating deemed supplier and where the seller was responsible for the VAT.

Shipping disruptions amid new complexity

For U.S. and other foreign-based e-commerce sellers and marketplaces, failure to comply with the new VAT registration requirements by Jan. 1, 2021, could result in a complete stop on any shipments entering the U.K.. Further, many businesses will have to restructure their entire business processes to manage the new obligations put forth after the final stage of Brexit—increasing the financial burden and strain on tax teams. For example, where a U.S. e-commerce seller would make a sale into the U.K. before and have the carrier collect the VAT, they must now have the ability to accurately calculate and collect the VAT owed at the time of the transaction.

• While the deadline is rapidly approaching, there are steps that U.S. e-commerce sellers and marketplaces can take now to avoid disruptions to customer experience and compliance complexity:
  • Apply for a U.K. VAT registration and Economic Operators Registration and Identification (EORI) number now if your shipments do not exceed $175
  • Speak to your freight forwarder to ensure they are familiar with the U.K. changes and they have updated their information gathering processes
  • Determine the best solutions for commodity code identification of yours or your sellers’ products
  • Assess automation alternatives of the VAT calculation in the shopping basket

The early months of 2021 are poised to be filled with enhanced complexity for sellers around the globe. For U.S. and other international e-commerce sellers doing business cross-border into the U.K., taking time to understand the new VAT obligations and put the processes in place to address them will be key as we wrap up 2020. In order to be successful in selling into the U.K. post-2020, e-commerce businesses will need to address compliance first to create a foundation for growth and expansion in the country.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Richard Asquith is vice president of global indirect tax at Avalara.