The UK finally left the EU at the end of 2020 after years of talks, negotiations and debate. It has been a period of confusion for business and even now, after the UK has officially left, many companies face confusion over what they should and shouldn’t be doing in a post-Brexit world.
Government data from June 2020 indicated that over half of British businesses hadn't made any preparations for leaving the EU.
Sales to and from the UK are now subject to new rules, and particularly for ecommerce merchants, Brexit means more bureaucracy and tax - and additional challenges.
This article is intended as a resource to help clear up some of that confusion. We’re not positioning ourselves as compliance experts, but aim to answer some of the frequently asked questions and point you to some useful resources that can answer others.
When Did the Brexit Changes Come Into Effect?
The Brexit and border changes came into effect on January 1st 2021. At that point, the EU Ecommerce Directive ceased to apply (which had allowed merchants to operate anywhere, only needing to comply with regs in their own country).
How Might Ecommerce be Impacted?
Areas that may be challenging at a practical level include delivery times, tariffs on goods that may cost you or your customers, and fluctuations in the value of the pound.
These factors could all have implications such as foreign competitors becoming more attractive in their own markets; on the other hand there could be opportunities for growing your UK customer base as they may be more inclined to buy locally to avoid duties and taxes.
It’s been predicted that one of the challenges for UK merchants will be persuading foreign customers to buy from them due to tariffs and the risk of longer delivery times.
What Are the Changes to Tax Regulations?
For goods shipped to the U.K. from outside the U.K., the following changes will take place:
- Businesses need to collect VAT on orders shipped to the UK below £135. But if your brand is using a platform like an online marketplace to supply imported goods with a value below £135 to U.K. customers, the VAT liability will be shifted to the platform.
- Brands need to file for and remit VAT to HM Revenue and Customs (HMRC) every quarter. Note: Orders above £135 will be subject to duties and import VAT.
For goods shipped from the U.K. to the EU between Jan 1., 2021 and June 30, 2021, the following changes will take place:
- Merchants are not required to collect VAT on orders shipped from the U.K. to the EU, provided that the EU customer will import
- Buyers are responsible for paying any applicable import VAT and duties on orders shipping from the U.K. to the EU
- Customs documents are required with all orders being shipped to the EU
The UK's HMRC has changed the import VAT on e-commerce rules for sellers and marketplaces from 1 January 2021. This includes making facilitating marketplaces liable for the VAT collections for its overseas sellers. This article from Avalara gives a good overview on the changes to VAT on ecommerce B2C imports in a post-Brexit world.
If you’re a UK business, you may need to VAT register in every country you sell to. If you’re in the EU or other countries and ship goods to the UK at a value of under £135, you need to register for VAT with HMRC.
The intra-EU distance selling rules no longer apply to goods shipped from the U.K. to the EU. (There is an exception to this rule: intra-EU rules are applicable to Northern Ireland shipments to the EU.)
Your accountant or tax professional should be able to help you navigate this.
Adjust Your Tax Settings in Shopify
Here’s how VAT affects your Shopify settings:
Registration-Based Tax Settings
If you use registration-based tax settings, your existing registrations will be updated automatically. (However bear in mind that new registrations won't be automatically added and you’ll need to check if you need registrations in other countries.)
Legacy tax settings
Your existing tax settings will not be updated. To update your settings, use registration-based tax settings (see above) or update your tax rates manually.
Your best resource for information will be local tax professionals. If you’re based in the UK, be sure to visit the UK government website for its Brexit Checker. It’s a great tool to use on a personal and business level: it asks you a series of questions about travel plans, the industry you operate in, and the import and export of goods. It only takes about five minutes to complete, and it gives you results in priority order, listing the actions you need to take in order to remain compliant in a post-Brexit world.
Should You Change Your Shipping Policy?
Taxes to ship products across borders may have now changed, and you have two options.
You can either calculate them to fairly price products for your consumers. Or, you can have your customer pay them. The second option may sound easier, but it could have implications for customer loyalty in the long term.
However you go about it, you’ll need to update your shipping policy. This should clarify which party is responsible for paying any tariffs or import VAT, and makes sure your customers are aware of taxes they might be liable for.
Delivered Duty Paid (DDP) Shipping
Delivery duty paid (DDP) is a type of delivery where the seller takes responsibility for all risk and fees of shipping goods until they reach their destination. Mainly used for international shipping, DDP is a common shipping method developed by the International Chamber of Commerce which helps to standardise shipping options throughout the world.
Delivered at Place (DAP) Shipping
The seller is responsible for arranging the carriage and delivering the goods, ready for unloading from the arriving means of transport.
The risk transfers from seller to buyer when the goods are available for unloading; so unloading is at the buyer’s risk.
The buyer is responsible for import clearance and any applicable local taxes or import duties.
Does Your Returns and Exchanges Policy Need to be Updated?
Changes to tax also apply to returns and exchanges.
It’s a good idea to clarify whether any collected import taxes and customs duties are refundable. These fees are paid to customs agencies via shipping carriers - while it’s possible to claim a refund, it is not always straightforward.
You’ll also need to clearly communicate to shoppers your returns and exchange policies - and highlight if any changes are being made.
EORI-number for shipping to the UK
As of 1st January 2021 you have needed an EORI number to move products between the UK and the EU. (An EORI number is an identification number you need to do business across borders.) Customs use this number to exchange information quickly.
You can easily apply for an EORI number from the authorities. It is important that you need a number starting with GB in order to send to the UK from 1 January. For shipments to Northern Ireland you will need a separate number.
Ensure You Complete Custom Forms Correctly
Here’s an overview of some custom forms that may be useful (information from sendcloud.com)
Customs declaration CN22
A CN22 is needed when sending goods weighing up to 2kg and up to 425 Euro in value, and shipping with a postal carrier like Correos, PostNL, bpost or Poste Italiane. It should be attached to the outside of the package.
Customs declaration CN23
A CN23 is needed when sending goods weighing over 2kg and/or more than 425 Euros in value, shipping with a postal carrier like Correos, PostNL, bpost or Poste Italiane. The CN23 declaration is larger than the CN22 declaration and must be attached to the outside of the package in a clear envelope. You need to include a second copy inside the package as well.
Despatch Note CP71
This is a mandatory document that accompanies the CN23 declaration.
A Commercial Invoice needs to be attached to any commercial shipment being sent abroad. The commercial invoice is mandatory and includes information about the contents of the package and any agreed terms, such as who pays the customs charges. Normally you need to attach three copies of the Commercial Invoice; one for the country you are exporting from, one for the country you are sending to, and one for the recipient. Attach two copies to the outside of the package in a ‘packing list envelope’. Also enclose one Commercial Invoice inside the package for your customer.
Certificate of Origin
The Certificate of Origin shows in which country a product was made. This is required when importing goods from a number of countries outside the EU. A CO can be requested from the Chamber of Commerce website.
What Else Should You Do to Stay Up to Date On Your Shopify Store?
- Make sure you’re fully aware of where your suppliers are based and any implications to your business - Brexit might impact them as well as you, so it’s a good idea to make sure there is no disruption in your arrangement.
- Keep an eye on the evolution of Brexit and the rules of trade - while we’re now past the December 31st 2020 deadline, this is a new period of uncertainty and the rules are still in a state of flux.
- As mentioned, keep your policies up to date and make sure they always reflect your current business practice and the evolving rules.
- Make sure your pricing remains current and viable for you based on changes to shipping, VAT etc. Make sure you don’t end up losing money as a result of the changes.
It’s a complicated time but there are lots of resources available to help you and your business through it. And when it comes to your Shopify store, whether it’s design, development or marketing you need, get in touch and we’ll be able to help.