On 1 July 2021, the European Union changed VAT obligations for businesses selling directly to customers (B2C). Find out what this means for your business.

What is VAT?  

Value-added tax (VAT) is added to eligible goods and services sold in the UK. Businesses that turnover more than £85,000 a year are likely to be required to register for VAT, charge it to their customers, where necessary, and file a VAT return every three months.

How much is VAT?  

The standard rate of VAT in the UK is currently 20%. Some goods and services have a reduced rate of 5%, some are zero-rated (0% VAT), and some are exempt from, or outside the scope of, VAT.  

When registered, the rate of VAT you will need to charge and account for to HMRC will depend on the type of goods and services you sell.

Who pays VAT?

You can only charge VAT if you are registered. Once you are required to be registered, you will carve out the relevant VAT from the total price paid by the consumer, and you will then deliver this to HMRC via your VAT return.  

Do I have to register for VAT?

As your business grows, you may reach the point where you need to register for VAT with HMRC once you exceed the threshold. We can help you with this. You will get a VAT number and will need to make VAT returns. Some businesses benefit financially from being VAT registered (mainly those that make mostly zero-rated sales or sell services to overseas customers), so if you wish to, you can VAT register voluntarily in advance of exceeding one of the compulsory registration thresholds.

You cannot register for VAT if you are not in business or only sell VAT-exempt goods and services. 

What has changed?

On 1 July 2021, the European Union changed VAT obligations for businesses selling directly to customers (B2C). It is part of the EU VAT e-commerce package.

There were two major reforms: the end of Low-Value Consignment Relief (LCVR), and introduction of the Import One-Stop-Shop (IOSS), and the launch of the One-Stop-Shop (OSS).

The IOSS is relevant for businesses based in England, Scotland, or Wales that sell goods or services to the EU and companies in Northern Ireland that sell services to the EU. The OSS is relevant for businesses based in Northern Ireland that sell goods to the EU.

1. The end of low-value consignment relief and introduction of the IOSS

Previously, EU and non-EU based sellers selling goods online to customers in the EU valued at less than €22 were exempt from import VAT. It was known as Low-Value Consignment Relief (LVCR). Now, all goods will be subject to the import VAT of that EU country.

To facilitate this change, the IOSS was introduced, allowing businesses registered with the IOSS to collect the import VAT of B2C orders at the point of sale. Businesses can register in any EU Member State, and once registered; you will then report and pay the collected VAT for each EU country every month via the IOSS. IOSS can only be used for consignments of €150 or less.

IOSS simplifies VAT for consumers as they will see accurate costs at checkout. So, rather than applying VAT upon import, with IOSS, it will already have been calculated and used, meaning there are no surprise fees for your customer. It also helps to streamline the movement of goods through customs.

If your business is outside of the EU, IOSS requires you to appoint an intermediary. This rule applies to the UK on 10 June 2021.

What if I cannot afford to appoint an intermediary?

Some marketplaces will automatically collect import VAT on any applicable orders, as they have signed up to IOSS under the newly deemed supplier rules. If this is the case, you will need to include your marketplace’s IOSS number in your electronic shipping data fields for B2C imports into the EU, where your consignment value is €150 or less. Check with your marketplace for more information on this.

If you do not wish to register for the IOSS, or if you do not sell via an online platform registered with it, VAT will be collected on importation of the goods into the EU, as is currently the case for high-value goods. It would usually be collected by the relevant courier or postal operator, with the customer only receiving the goods once the VAT is paid.

The courier or postal operator is likely to charge you a clearance fee for this service, and you may wish to make it clear to your customers that they are responsible for any import VAT, taxes or expenses because of these new rules.

2. The launch of the One-Stop-Shop (OSS)

In parallel to the launch of the IOSS, the EU has also launched a One-Stop-Shop (OSS) for intra-EU distance sales of goods and B2C supply of services.

By the Northern Ireland Protocol, which means that Northern Ireland maintains alignment on some EU VAT rules for goods, the OSS can also be used by Northern Irish businesses to move goods from Northern Ireland to the EU.

Northern Irish businesses with annual EU sales of goods over a new EU-wide threshold of 10,000 euros can register for the OSS instead of registering for VAT in each EU Member State where their buyers are located. The OSS is optional but allows Northern Irish businesses to declare and pay VAT for EU goods sales quarterly via one portal.

Northern Irish businesses can register for the OSS in any EU Member State in which they are registered for VAT. Alternatively, a Northern Irish company should be able to register for VAT in the UK (if not already registered), obtain an XI EORI number (if not already obtained), and use a UK version of the OSS operated by HMRC. 

What does this mean for you?

Decide if you need to register for the IOSS or the OSS if a business based in Northern Ireland selling goods to EU customers. Registration is optional, but you must use the scheme to sell to EU consumers if you register. 

If you sell through your website, variable VAT rates will need to be applied depending on where you are selling to in the EU. Many online platforms have this functionality built in.

We can provide you with advice on accommodating these changes. Contact us today to book a consultation.