UK Issues New Value Added Tax (VAT)

With a new year comes new challenges--and apparently lots of new commerce laws! As the United Kingdom officially withdraws from the European Union, or EU, laws that affect more than just the United Kingdom are being put into effect. If you are an e-commerce store that plans to ship or sell to anyone in the United Kingdom, then you are now required to register your sales differently. Previously, all sales and sales processes were in conjunction with the European Union. Now retailers must follow an entirely separate system to sell goods in the United Kingdom. Under the World Trade Order terms, four significant changes are occurring for business owners outside of the UK who are shipping to the UK. Here is what you need to know:

VAT or Value Added Tax is a type of registration and way of paying taxes. If you are a US online retailer, you are now required to register for a VAT number and create an online account from HM Revenue and Customers, or HMRC, to deliver your goods into the UK. Once you have been given your VAT number, you are then required to collect all VAT fees from buyers at the time of product purchase. Previously, VAT fees were taken when the item was released from customs. Now it is the responsibility of the retailers to take VAT fees at the time of purchase. It is the sole responsibility of the seller. (Keep in mind that VAT is not always applicable.) 

• Most Goods and Services valued at less than 135 pounds have a 20% VAT Rate.

Goods and services shipped to the UK with a value between 0.01 pound and 135 pounds (between $1 and approximately $180 USD depending on pound to USD conversion). US online retailers selling products to UK buyers are required to collect 20% at the time of the sale. Every three months, those online retailers will be responsible for paying all VAT collected to the HMRC. 

• VAT is required for all goods and services about 135 pounds 

If you sell items with a value of more than 135 pounds ($180 USD,) you are subject to the current VAT procedure, meaning that VAT is payable as the parcels are being imported to the UK. VAT is not collected at the time of the sale. These packages are often cleared through customs via a parcel consolidator, and they apply to duties. The parcel consolidator pays the VAT fee directly to the HMRC. Then the parcel consolidator bills the seller at the time the package is released. The time frame that the payment is due is based on the parcel consolidator. The VAT fee falls on the shoulder of the seller but the seller can bill the customer the VAT as well depending on their business practices.

As mentioned above, VAT is required to be paid to HMRC quarterly. Online retailers will find the information about when their quarterly VAT payments are due in their online accounts. In general, the deadline to receive the compensation is on calendar month plus seven days after the end of the accounting quarter. If your VAT return payment is late, then you are liable for late fees. 

To submit an account for your VAT Return, sellers can access commercial account software platforms that the HMRC has partnered with or hire a specialist. 

Your quarterly VAT Return should include key data points for your UK sales, such as:

• Total sales and purchases for your account are delivered to the UK only. 
• The amount of VAT you owe from your UK Sales (20%) 
• The amount of VAT you can reclaim (i.e., order return, product defects). Refer to your commercial account software, specialist, and or VAT account. 
• The amount of VAT refund due from HRMC

1. 3. More Information Required for Customs Documents 

No matter the package value, all packages will be subject to customs clearance and inspections, which could delay delivery to your customer. The UK has specific custom form requirements that sellers must fill out before shipping to the UK. Forms are filled out per parcel, not per item. A customs invoice is required that shows UK VAT along with the product's price for the package to be released from customs. 

1. 4. No more Low-Value Consignment Relief

Including new VAT laws, the UK removes Low-Value Consignment Relief or LVCR- a rule that allows goods and products from outside the EU that have a value less than 15 pounds (around $20 USD) to be tax-exempt. This year, 2021, those products will now be subject to the 20% VAT tax.  

In an effort to keep competition fair for UK sellers, VAT has been enacted to help keep competition equal between the US and UK Retailers. Failure to comply with the new US Customer procedures by January 1st, 2021, could result in:

• Parcels being refused to enter the country by UK customs
• Parcels being returned to sender 
• Parcels and products being destroyed 
• Parcels incurring major delays and being held on by UK customs authorities 
• Parcels generating additional shipping/customs fees and/or penalties 

For more information, and to register for an account, please visit https://www.gov.uk/log-in-register-hmrc-online-services. Follow the steps to complete the registration.