VAT changes from 1 July 2021
From 1 July 2021 new VAT e-commerce rules will come into effect. These rules were originally planned to begin from 1 January 2021 but due to COVID they were postponed for 6 months.
The new rules aim to simplify VAT for e-commerce businesses selling to consumers across the EU’s borders. The changes can be used by businesses based in and outside of the EU, including the UK.
The changes will allow businesses to charge and account for VAT on certain types of online sales made to consumers (non-business customers, also known as B2C sales) where the consumer is based in an EU member states. This will allow a business to register in just one EU member state, saving registrations in multiple member states.
Any business that has been using the Mini One-Stop-Shop (MOSS) for certain kinds of digital services supplied will already be aware of the benefits of this kind of simplification.
At the moment supplies of goods from the UK to consumers in the EU are zero rated for VAT and then subject to tax in the destination country by way of import tax. Consumers in EU member states may not be aware that import VAT will be applied when the goods reach their country and they then receive an unexpected bill.
Please note these changes are for business to consumer online sales only, business to business sales will continue to use the same treatments applied from 1 January 2021.
Distance sales to consumers below EUR 150
From 1 July 2021 an Import One-Stop-Shop (IOSS) is to be introduced covering sales of goods made to consumers with a consignment value less then EUR 150. The scheme is available for EU and outside EU suppliers and is designed to simplify declarations and payments of import VAT.
All commercial goods imported into the EU from outside the EU will be subject to import VAT irrespective of their value as the current exemption for goods of a value up to EUR 22 will be removed. IOSS will make the process easier as the EU buyer will be charged VAT at the time of purchase which will remove any surprise importation VAT when goods are delivered.
The supplier will need to register for IOSS in one EU Member State only (the language used in the member state of registration should be given consideration, Ireland is a popular choice but you will need to appoint an agent/tax rep in Ireland for IOSS registrations, they will be given an IOSS unique identifier that must appear on orders (so the goods can be identified and fast tracked through customs) and VAT should be charged by the supplier at the rate of VAT which is used in the country of the customer. The supplier can then file one monthly IOSS return which will include all the sales made to customers in all EU Member States.
There are exceptions to using IOSS, for example the scheme cannot be used for excise goods.
You don’t have to sign up for IOSS to sell goods to consumers, if you don’t the goods will continue to be zero rated from the UK, if they meet the zero rating conditions, and VAT will be applied upon import.
Please note if you sells goods via an online marketplace it may be the marketplace and not you who is liable for the VAT due, see below.
From 1 July 2021 online marketplaces can be held responsible to account for VAT on certain supplies of goods facilitated through their online marketplace. This means that any goods from an underlying supplier to an end customer, through an online marketplace or platform, will be artificially split into two supplies, being:
- Supply from the supplier to the marketplace and
- A supply from the marketplace to the end customer
Per HMRC an online marketplace is a business using a website or mobile phone app (such as a marketplace, platform or portal) to handle the sale of goods to customers which meets all of the following conditions:
- in any way sets the terms and conditions on how goods are supplied to the customer
- is involved in any way in authorising or facilitating customers’ payments
- is involved in the ordering or delivery of the goods
A business will not be classed as an online marketplace if it only provides one of the following services:
- processing of payments for the supply of the goods to the customer
- listing or advertisement of goods
- redirection or transferring of customers to other websites or mobile phone apps where goods are offered for sale, without any further involvement in any sale that might take place on that website or app
An online marketplace or platform will be deemed to be making the supplies when they facilitate the following transactions:
- the importation of goods from outside the EU in consignments of an intrinsic value not exceeding €150 regardless of where the underlying supplier is established and/or
- intra-EU distance sales of goods and domestic supplies of goods, regardless of the value of the goods, but where the underlying supplier is established outside of the EU.
For further information on online marketplace sales please see HMRC guidance on https://www.gov.uk/guidance/vat-and-overseas-goods-sold-to-customers-in-the-uk-using-online-marketplaces#goods-sold-before-1-january-2021
Distance sales to consumers over EUR 150
A new optional online portal will be available to UK businesses to account for VAT on supplies of certain services and goods made to consumers across the EU, called the One-Stop-Shop (OSS).
MOSS is a current simplification measure to allow B2C supplies of electronic services to consumers in EU member states being able to register and report these sales in one member state rather than having to register in every member state where they had a consumer. The current MOSS and non-Union MOSS schemes will be extended and incorporated into the OSS.
OSS will work similarly to how MOSS currently works. The VAT rate of the destination country will be charged at the point of sale and then reported and paid via a quarterly return.
There are two versions of OSS:
- The Union OSS can be used by businesses that are established in the EU to report intra-community distance sales (made from one EU country to a consumer in a different EU country) and non-domestic sales of services to EU consumers. The Union OSS can only be used by businesses established outside the EU for reporting distance sales of goods that are dispatched from EU countries (such as from an EU warehouse)
- The non-Union OSS can be used by business that are established outside the EU to report VAT on sales of certain services to EU consumers. The services include:
- Accommodation services carried out by non-established taxable persons;
- Admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events – such as fairs and exhibitions;
- Transport services;
- Services of valuation and work on movable tangible property;
- Ancillary transport activities – such as loading, unloading, handling or similar activities;
- Services connected to immovable property;
- Hiring of means of transport;
- Supply of restaurant and catering services for consumption on transportation services e.g. onboard ships, aircraft or trains.
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