How Does Brexit Impact Your Ecommerce Business?

The cascading unrest surrounding Brexit since 2016 has been a constant source of difficulty and concern for eCommerce businesses, brands, and retailers in both the UK and EU. If you are a part of the UK or EU population, you might require extra aid in understanding the alterations from the Brexit trade pact that happened on January 1st, 2021. We desire to present you an overview of the Brexit deal to assist you in learning about the newest Brexit information, the outcomes of Brexit, and the recent Brexit regulations. What are they exactly? What do they mean? How are they going to affect my business? When can I stop pulling my hair out?

Covid didn’t make it easy, but now that Brexit has arrived, it’s making matters even more difficult for businesses. Covid fatigue is real, and so is Brexit fatigue. Many feel unprepared for the changes. A recent study has revealed that the majority (76%) of small businesses are feeling lacking in support and uncertain. It is essential to be aware of these recent modifications in order to be ready for issues such as Brexit VAT adjustments, EORI identifications, and customs planning. This encompasses businesses that are based in the UK that are involved with retail, online shopping, and delivery. Selazar offers its services to assist companies in grasping and adjusting to new developments, and if you would like to arrange a conversation, we are always accessible.

WHAT IS BREXIT?

So, what exactly is Brexit again? The UK officially leaving the EU, which is a union of 27 nations in Europe created in 1950 to promote social and economic growth, is referred to as Brexit. The EU had its own expenses associated with entering, tariffs, and deals in place. Now that the UK has departed the EU, different rules related to the sale and shipping of goods between the two are now applicable. This could be expressed as: This entails new rules, amenities, duty on imports, and forms to be filled out for customs. Prior to the UK being a part of the EU customs and VAT systems, there have been alterations and new customs requirements have been instituted. Merchants and buyers located in the UK, EU, and other countries must adhere to the new expenses and regulations resulting from Brexit. Make sure that your business is keeping track of developments in the Brexit situation as the process unfolds. The personnel at Selazar strive to guarantee that our customers comprehend the adjustments and outcomes of Brexit in order to guarantee a smooth procedure for their organization.

What Is the Value-Add Tax?

A value-added tax is a type of levy imposed on goods and services at each step of the production and distribution process, where value has been added.

For example, let’s say you sell a table. A levy is imposed on the wooden resource when it is purchased by the factory. When the factory sells the completed table to a distributor, it is subject to taxation once again. When the intermediary merchant sells the product to the final consumer, it is taxed once more.

Value-Added Tax is generally expressed as a fraction of the total amount the purchaser pays for the item. If you purchase wood at a cost of $10 and the value-added tax is 10%, the total price you will pay will be $11. The wood dealer would keep the $10 and send $1 to the authorities. If you took the wood to construct a table worth $100, you would need to invoice the customer for the table in the amount of 110 dollars in order to pay the ten-dollar Value-Added Tax to the government.

The US does not possess a Value Added Tax system, however, a large number of states, which include several in the European Union, have them in operation and with various rates of taxation. Since 2011, the rate of Value Added Tax (VAT) for most products in the United Kingdom has been 20%, excluding certain items.

What Changes Are Occurring with the UK VAT?

As the Brexit transition period nears its completion, a great many online retail vendors are hurrying to make sure that they can still supply customers located in the United Kingdom.

When goods brought into the UK in shipments with a worth not exceeding £135 are bought, VAT is added at the time of purchase instead of when the items are initially imported. For this policy, we can consider a collection of products delivered to a person who, in this way would be your customer.

Additionally, the Low-Value Consignment Relief went away. This regulation had previously exempted items priced at £15 or lower.

The person selling the item may cover the levy of the import VAT (as well as any duties) when they are ready to be moved and, if they have a UK VAT number, may also ask for a reimbursement. The seller may choose for the customer to pay for their purchase upon its arrival at the customs office. The only person who is eligible to receive a refund of the Value-Added Tax (VAT) is the individual who possessed the merchandise when it was brought into the country.

To comply with these changes and sell your goods in the UK:

You will need a UK VAT Number.

Any Business-to-Business (B2B) or Business-to-Customer (B2C) business that offers merchandise for sale in the United Kingdom must be enrolled in the Value Added Tax (VAT) system with Her Majesty’s Revenue and Customs (HMRC). For B2B businesses, this responsibility does not apply if the British customer provides their VAT identifier.

VAT will be collected on ALL low-value orders shipped to the UK.

Every company should include a 20% value-added tax (VAT) at the time of purchase for orders totaling less than £135. The value of the goods is £135, not including the costs for transportation, insurance, or taxes for imports, if those expenses are listed out separately.

For purchases of more than £135 (or a combination of items with a total worth in excess of £135), Value Added Tax is still required to be paid during the import process along with import duty.

Merchants must remit VAT to the UK.

Merchants who have registered with the HMRC for a Value Added Tax number must turn in all the VAT money that they have gathered each quarter. You will present a VAT tax return showing the amount of revenue you accumulated during this quarter.

WHAT ARE SOME OF THE MOST SIGNIFICANT BREXIT CHANGES FOR SELLERS?

Until this year, it had been uncomplicated to conduct sales and mailing over the internet. When your customers from the European Union placed an order, their items were quickly and easily fulfilled by a warehouse located in the United Kingdom and transported across the border without any difficulties or extra expenses. When UK customers purchasing things online had their orders placed, the procedure was likewise simple from the EU to the UK.

NOW, SOME OF THE MOST SIGNIFICANT BREXIT CONSEQUENCES AND CHANGES FOR SELLERS BASED IN THE UK AND EU THAT COULD SLOW THIS PROCESS INCLUDE:

1) Completed customs documents, CN-22 and CN-23, must be sent with merchandise when sending from the UK to countries in Europe. For items costing less than £270, complete the CN22 form. For goods with a cost higher than £270, CN23 customs paperwork must be completed. The UK government has recommended it would be advantageous to employ the services of a customs broker, freight forwarder, or related organization to assist with customs connected to importing and exporting.

You will now need to acquire an EORI (Economic Operator Registration and Identification Number) number from HMRC in order to transport goods between Britain and the European Union, due to the UK no longer being part of the EU. It is essential to have both customs documents and paperwork regarding UK Value Added Tax.

Be certain to include an EORI number on your customs documents if mandatory, or risk added delays and further expenses. Be sure to handle this major duty in advance to avoid further complications in your supply system. Selazar simplifies the process because our platform takes care of all the documents required for customs, and it sends them electronically to suitable courier services.

The Export Joint Unit (ECJU) has put in place new regulations for the export of controlled items after December 31st, 2020, which necessitate obtaining a Special UK Export License. Products that may necessitate a license or certification from the United Kingdom for export need to be acquired. A few of these products are Chemical substances, merchandise, taxed items, animals, and groceries.

Northern Ireland occupies a unique role within the European Union Customs Union. It is specified in the Northern Ireland Protocol that UK authorities will uphold the customs rules of the European Union for items going into Northern Ireland. The objective of the agreement was to prevent the establishment of a firm border between the two territories on the island of Ireland. This implies that there must be novel ways for merchants, computerized administrative tasks, declaration needs, and security data for products entering Northern Ireland from the remainder of the UK. You will require an EORI number for transporting goods from Great Britain to Northern Ireland. At present, it appears that an EORI number from Northern Ireland to Ireland will not be necessary.

Trading between Northern Ireland and the UK (England, Wales, Scotland) is still handled as if it were internal UK business. UK VAT is also still applied. Products and services that are exchanged between Ireland and Northern Ireland will remain the same and will be viewed as going across the boundaries of EU member nations.

VAT MOSS BREXIT CHANGES

Offering to buyers in the United Kingdom and EU countries involves delivering items such as software, e-courses, digital books, media that can be downloaded, video and music streaming, and registration and subscription sites.

For UK sellers that have UK eCommerce websites and sell to the EU, apply now in any EU member state for a MOSS registration number under the Non-Union MOSS scheme. You will be able to use this to report quarterly sales to EU27 states.
For EU sellers that have EU eCommerce websites, selling to the UK, you should apply now for a UK VAT number to report any sales to UK customers on a quarterly basis. There is no threshold for this. All UK sales must be immediately reported to the UK’S HMRC.
For US sellers with US eCommerce websites, if you are registered in the UK for your pan-EU electronic services, you can no longer be able to use that for EU or UK transaction reporting. You will need a new EU MOSS registration. You will also need a new UK VAT registration for the UK.

What Do I Need to Do as a Merchant?

After figuring out if these adjustments to Value Added Tax concern you, there are several actions you must take. And you need to do them very quickly. It is essential to remember that these guidelines might not correspond to your unique circumstances, and we highly suggest you talk to a tax specialist when analyzing your individual requirements.

Here’s your UK VAT prep checklist:

You can go to the HMRC website to sign up for a business account digitally. By signing up for a Value Added Tax (VAT) number, you will be able to establish an online VAT account (sometimes referred to as a ‘Government Gateway account’). The HMRC states that it should take thirty workdays to get your registration credential, however, it may take longer.

Re-evaluate your tax settings

Examine your tax configurations to determine if any alterations must be made in the way you figure out and collect taxes for your British customers. We recommend consulting with a local tax professional.

Update your shipping invoices

Be sure to add your VAT number to your invoices so you can prevent any problems with customs and make sure your goods get to the buyers in a timely manner.

Apply for an Economic Registration and Identification (EORI) number

If you haven’t yet acquired an EORI number, you will need this to recognize your business in customs paperwork.

Update the ISO Country Code (for Northern Ireland Only)

This only applies if you are exporting goods to Northern Ireland from outside of Great Britain. Northern Ireland’s dual status will help safeguard the Ireland/Northern Ireland Protocol, and it will be subject to the VAT laws of both the UK and the European Union. Apart from the measures mentioned above, you must also change the ISO country code to “XI.”

If the steps mentioned above are not completed and shipments are still being sent to UK customers, the person getting the items will have to pay the taxes that would have been taken on by the seller in addition to the taxes they are already charged as a consumer. Take into account that VAT is applicable in every step in which value is included.

This could lead to customers asking the vendor to pay back a portion of the taxes they have been charged due to being subject to VAT twice. And it’s generally a poor customer experience. In the event that the customer decides not to pay the necessary VAT, the product will be returned to the merchant with return shipping costs plus any extra charges attached to the shipment.

Conclusion

Brexit may have been in the works for a while, but the urgency to implement the necessary adjustments to adhere to these modifications is quickly diminishing. It may take up to a month and a half of working days to get your VAT registration, no matter when you apply. Adherence to the regulations was required beginning January 1, 2021.

The best time to get ready for VAT modifications was prior to now, however, the next smartest thing to do is to start getting ready at this moment. It is our desire that this article has shed some light on the VAT alterations and that it has improved your knowledge of what needs to be done.