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UK VAT changes 2020

Jenny Meads

November 5, 2020

UK VAT changes 2020

UK VAT changes after Brexit, what does it mean for my business?

With the end of the Brexit transition period upon us, many merchants are scrambling to make sure they are prepared to continue selling goods into the UK without any issues. On January 1, 2021, the UK will be implementing a new VAT scheme, which will apply to any business that sells products into the UK. There is no sales threshold like in other countries with similar schemes. This means that every merchant that sells even a single item into the UK will be required to:

  • Register for a VAT number with Her Majesty's Revenue and Customs (HMRC)
  • Collect and remit VAT back to HMRC

If you are selling into the UK and not prepared for the changes, you will likely face penalties and fines, and still need to pay taxes owed to the UK, whether you collected them from customers or not.

Brexit Transition Period and End Date 

The Brexit transition is the period agreed to by the EU and UK where the UK is no longer a member of the EU but is still subject to the EU trade rules. The end of this period is the start of new agreements and the start of the UK controlling its own borders and trade laws. The Brexit transition period ends on December 31, 2020. To continue selling goods to the UK, you will need to have the items mentioned above squared away.

Impact of the New UK VAT Tax Scheme on Businesses 

Anyone selling low-value orders (£135 or lower) into the UK, including online marketplaces and B2B sales, will be responsible for collecting, accounting, and remitting the VAT. B2B sellers can get an exemption if the customer is VAT registered and supplies their VAT registration number to the seller.

The changes will not apply to gifts or consignments between private individuals. Existing rules will continue to apply for these transactions.

Preparation for Changes to UK VAT after Brexit 

If you are a business currently selling to the UK or would like to start, you need to be aware of the following changes:

Ending on Dec 31, 2020:

  1. VAT de minimis:
    • The British government announced the abolition of Low-Value Consignment Relief, which relieved import VAT on goods valued at £15 or less. This means there is no longer a VAT de minimis on orders being shipped to the UK, and VAT will be collected on every sale.

New requirements starting Jan 1, 2021:

  1. UK VAT number required:

    • All businesses selling goods to the UK will be required to register for a VAT number with Her Majesty’s Revenue and Customs (HMRC).
  2. VAT must be collected on ALL low-value orders being shipped to the UK:

    • With the new UK VAT scheme, all businesses must collect 20% VAT at the time of sale on all orders with a product total of £135 or lower.
    • For orders over £135, it’s business as usual. VAT will continue to be paid at the time of import with duty.
  3. Merchants must remit VAT to the UK:

    • All VAT collected by merchants must be remitted every quarter to the HMRC under their registered VAT number.

This seems overwhelming. Is there an easy way to accurately collect and remit VAT payments? 

The challenges of selling internationally continue to grow as more countries force ecommerce businesses to collect and remit taxes on international sales. You don’t need to hire a team to continue selling internationally, Zonos Landed Cost products can easily handle calculations and collection for you while you stay in control of your orders and packages. Zonos specializes in accurate landed cost and cross-border ecommerce with software to make international selling simple. Learn how Zonos cross border software makes dealing with UK VAT easy.

Let Zonos do the heavy lifting for you by keeping track of the latest changes and laws so you can stay compliant. Integrate Zonos software with your existing site and to know when your orders have exceeded country thresholds and automatically collect taxes.

Just starting out and not sure if you need to collect taxes in countries with non-resident tax schemes? Let Zonos keep track for you! We run reports on your orders and reach out to you if it’s time to register for remittance in any of the countries you are selling to as you grow.

Still sound like a lot to take on? Ask about our Landed Cost guarantee!

Any merchant currently using Zonos International Checkout or Landed Cost can sign up for our Landed Cost guarantee. Zonos stays on top of the non-resident country taxation for Landed Cost Guarantee customers by doing the following:

  • Registering tax numbers/IDs for you
  • Keeping track of thresholds for each country and collecting taxes at the appropriate time, so you won’t over or under collect
  • Remitting quarterly taxes for you to each government entity

Current countries with non-resident country tax schemes, include Australia, New Zealand, Norway, Indonesia, Switzerland, and the United Kingdom (UK). The EU will impose a new tax scheme coming in the summer of 2021.

We’re doing everything we can to make your UK VAT registration process as seamless as possible. We will provide more information in the coming weeks, so be on the lookout!

Frequently asked questions 

How do you register for a tax number for VAT in the UK?

Register online or by post using a VAT1 form.

What happens if I don’t register for VAT in the UK?

If you fail to register for a VAT number with HMRC and sell into the UK, you will accrue penalties. How much you own in VAT as well as how late you are in paying it will determine what those penalties are. If you are late to register, you will still have to pay VAT for all sales after Jan 1, 2021, and will likely be hit with a late registration penalty. It’s best not to wait to avoid fines.

Who does the post-Brexit UK VAT scheme apply to?

It applies to any B2C or B2B merchants selling goods into the UK on orders under £135.

However, on B2B orders where the business customer has their own VAT number and provides their own valid VAT number to the seller, the VAT will be accounted for by the customer using a reverse charge.

Do I charge VAT to UK customers after Brexit?

Many merchants and their customers are asking, will we pay VAT after Brexit? The short answer is yes; however, things have changed a bit since Brexit. There is no longer a VAT de minimis, so all UK residents' orders will be charged VAT. Merchants will be responsible for collecting and remitting the VAT on all lower value orders £135 and under to the HMRC after Jan 1, 2020.

If I sell through an online marketplace, am I responsible for registering for a VAT number and remitting VAT to HMRC?

No, if you sell through an online marketplace (OMP) where they are involved in facilitating the sale of the items you sell into the UK, the OMP will be responsible for collecting and accounting for the VAT. You are only responsible if you sell items directly to the UK consumer.

Do I still need to submit a customs declaration on order under £135?

Although VAT will not be collected on orders under £135, customs declarations are required for non-fiscal purposes.

What is included in the £135 UK VAT threshold?

The threshold includes any order where the selling price of the goods totaled is less than or equal to £135. This does not include shipping and insurance costs, VAT, or any other taxes or charges identifiable by the customs authorities from any relevant documents.

The £135 threshold applies to the value of the consignment (items total), not to each individual item. For example, an order with two items at £120 each would be above the threshold with a £240 item total. An order with two items at £20 each would be below the threshold with a £40 item total and be subject to the point of sale VAT collection.

How long will I need to keep records of UK sales and VAT collected and paid?

You will be required to keep electronic records of your sales for 6 years and be able to provide records to HMRC upon request.

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