Selling goods to the EU after 31/12/2020

VAT and UK businesses selling goods to the EU after 31/12/2020

With effect from 1/1/2021 sales of goods from the UK to the EU will no longer be EC Sales or Distance Sales but will instead be zero-rated exports for the purposes of UK VAT, whether the customer in the EU is a business or an individual.

This is not all good news as:

• export declarations will need to be made to UK Customs for goods leaving the country and so the seller will need to obtain a UK EORI number: here; and
• goods entering the EU will be imports and so EU import declarations will also need to be made, with the imported goods subject to EU import VAT and (possibly) Customs Duty; and
• the UK seller may have a requirement to register for VAT in the EU.

These rules are more likely to impact UK businesses selling high volume, small item goods to consumers in the EU than those businesses selling larger items to businesses in the EU.

Possible EU VAT registration issue

Provided the EU customer is considered as the importer of the goods to the EU, either because they are declared as importer on the EU Customs import declarations or under the terms of the sale, then the UK seller’s VAT responsibility ends at export from the UK.

However, if the seller is also importer to the EU then the seller will be required to register for VAT in the EU country in which the goods enter the EU and the sale to the customer will then be subject to the VAT rules of that EU country.

Of course, this would lead to the seller having a requirement to register for VAT in all 27 remaining EU member states, if their goods enter those EU member states directly.

A potential 27 EU registration is unlikely to be desirable so to avoid this, the UK seller could move stock to a single EU country and fulfil all EU sales from that stock.

Alternatively, the seller could ensure that all goods being sold to EU customers are imported through one EU country before onward transit to the EU customers.

Using France as an example for both of the above, the seller would have to register for VAT in France and sales to French customer would be subject to French VAT. However, sales to customers in other EU countries will then be subject to the EU rules we are used to; zero-rated intra-EC supplies of goods from France when sold to customers that are registers for VAT in another EU member state or distance sales from France if sold to non-VAT registered customers in other EU member states.

This would also mean that the seller would be able to recover the French import VAT they would incur on the goods entering France from the UK, using their French VAT return.

EU changes from 1/7/2021

Although potentially significant for some businesses, any requirement to be registered for VAT in the EU is a temporary issue.

This is because, with effect from 1/7/2021, the EU are scrapping their distance selling rules altogether and so sales made by EU suppliers to non-VAT registered customers in other EU member states will be subject to VAT in the customer’s country, not the country of the supplier, as was the initial rule for distance sales.

However, to save EU sellers having to register in multiple EU member states, the EU will introduce an online ‘One Stop Shop’ (OSS) return on which EU sellers will declare all their EU sales and the VAT they have charged those EU non-VAT registered customers.

While this may seem irrelevant for UK seller of goods into the EU, the good news is that the EU will also extend this facility to oversellers sellers selling goods to EU customer where those goods enter the EU form outside.

They will call this ‘Import One-Stop Shop’ (IOSS) and it will effectively mean that overseas sellers that have had to register for VAT in multiple EU countries can cancel all but one of those VAT registrations; they must retain 1 in order to be able to access the IOSS system.

The EU’s current guidance on these changes also suggests that overseas sellers will be able to reclaim import VAT they have incurred using the IOSS return.

In addition to the above, the EU rule changes also makes online marketplaces (OMPs), such as Amazon, responsible for accounting for VAT that is chargeable on sales made through them to customers around the EC.

Therefore, if a UK business sells goods to EU customer using an OMP then, from 1/7/2021, then the OMP and not the client, will be responsible to account for sales to customers in each country in the EU.