VAT changes
VAT changes - what OnBuy sellers need to know from January 2021
It's been a year of plenty of changes, and for OnBuy and our sellers, there's every reason to feel confident going into 2021. However, there are changes to selling cross-border that need to be kept in mind as we all move forward.
There's no need to feel apprehensive, however. OnBuy is still growing internationally, we're still welcoming sellers from around the globe and we're still committed to giving you the fairest and most transparent way to connect to millions of buyers. What's also important is that we give you the facts and expertise you need to keep growing with us.
Understanding OnBuy's perspective on VAT
OnBuy is a company headquartered in the United Kingdom, and as such our valued online sellers may need to do business a little differently at the end of the official transition period of the UK leaving the EU VAT regime on 31st December 2020.
However, understanding both our responsibilities and those of our sellers, in terms of VAT when selling across borders, takes on new importance from 1st January 2021. There's no need to feel daunted though - we've got all you need to know right here.
Our role in VAT is different to the way many other marketplaces operate. Because we don't handle stock or handle any funds changing hands for orders, OnBuy's perspective is that the new rules for VAT after 31st December 2020 are vital for our sellers to know and correctly implement under their own initiative - thereby future-proofing their business model.
Adding to the challenge is that negotiations surrounding these changes have been ongoing for some time, and sometimes shift in unforeseen ways. Nonetheless, rest assured that OnBuy is supporting its seller base in adapting to the new rules for VAT, and we've partnered with leading financial experts to help you out too.
Understanding what VAT is
VAT, or Value Added Tax, is an indirect tax on goods and services sold in the UK. Almost all businesses who are selling to UK customers must be VAT registered with HMRC. If operating within the UK, then the turnover threshold before requiring to become VAT registered is currently £85,000 for a rolling 12-month period.
UK VAT today for EU and worldwide sellers
1. VAT on EU sellers to UK consumers
While the UK is in the EU VAT regime until 31st December 2020, eCommerce businesses trading within the EU have been able to sell goods to UK consumers under the distance selling threshold rules. This means they only need to register for UK VAT, and are charged UK VAT when they sell more than £70,000 per annum. This distance sales threshold ends on 31st December 2020.
2. VAT on worldwide sellers to UK consumers
If a seller from China or the US sells to a UK consumer, then it's VAT exempt if not exceeding £15. This is termed 'Low Values Consignment Relief' (LVCR). For prices above that, either the seller or the UK consumer has to pay import VAT to UK customs. This regime changes from 31st December 2020.
Currently, as professional eCommerce online businesses, each seller on OnBuy is responsible for applying for VAT in the relevant countries where their customers are located - both in the United Kingdom, and in EU countries on the continent.
Ordinarily, marketplaces play a role in this conversation too - yet OnBuy understands that our position as a platform that doesn't handle stock or transfer funds between customers and sellers makes our role somewhat different. That makes it vital that sellers are taking the right actions going forward.
When in doubt, it's always a good idea to seek out the advice of a tax, accounting or finance professional to check you're fulfilling your obligations correctly.
Why VAT is changing
When the UK leaves the EU VAT regime at the end of the Brexit transition period after 31st December, the rules on LVCR and distance selling thresholds are being withdrawn. It’s very important you understand what’s replacing them, whether you are a UK or overseas seller, be that an EU country or beyond.
1. VAT imposed all imports to UK consumers
The UK government wishes to remove the disadvantage to UK businesses of the LVCR VAT £15 VAT-free imports. The EU will also be bringing in similar legislation from 1st July 2021, and many other countries have already implemented changes, as a result of the vast increase in online sales across borders in recent years.
What that means for sellers, especially as OnBuy grows into over 140 countries worldwide, is that competition from overseas won’t necessarily have as many advantages over UK-based businesses as may have otherwise challenged them in the past.
2. Ending the distance selling thresholds for EU sellers
Secondly, EU sellers will no longer be able to sell to UK consumers with their EU VAT number if their sales are below £70,000. They will either have to pay UK import VAT (and any duties because the UK is also leaving the EU Customs Union), or force their customer to pay the import VAT and duties.
New £135 consignment import VAT rules of UK and overseas sellers
The UK’s HMRC will be requiring UK and overseas sellers to charge sales VAT in the checkout if the goods being sold to UK consumers are coming from overseas. This replaces import VAT. The seller then has to report the VAT to HMRC.
If the consignment being sent to the UK consumer is above £135, then the current import VAT obligation applies. Either the seller or the UK consumer pays UK customs the VAT due.
OnBuy has strategic expert financial partners who can help and guide in this process.
- Contact Avalara for help on VAT
- Contact SimplyVAT for help on VAT
- Contact hellotax for help on VAT
Changes to EU VAT exemptions for small parcels
Originally, parcels entering the UK from the EU, or being sold from a country outside the EU to an EU country, would be exempt from VAT if they were valued under £15, or €22. As of 1st January 2020, this exemption clause is being removed altogether.
This will affect both OnBuy sellers offering goods from the UK into the EU, as well as EU-based sellers offering products to our millions of UK customers, so it’s smart to keep this in mind to remain accurate in calculating VAT.
Post Brexit Custom declarations and tariffs
The UK government is warning for businesses to prepare for customs declarations and possible tariff calculations on imports from the EU. These come at the end of the Brexit transition period on 1st January 2021, when the UK leaves the EU Customs Union.
Find governmental advice on that change here:
https://www.gov.uk/prepare-to-export-from-great-britain-from-january-2021
For further advice
You can contact Avalara, SimplyVAT or hellotax for help on VAT. You can check out Avalara’s guide to Brexit as well. If you have any questions for us, or we can help with anything, please submit a support ticket.