New VAT registration requirement for overseas businesses selling goods to GB customers

23 July 2020| CATEGORIES: Brexit| TAGS: Brexit, e-commerce, new VAT rules

HMRC has issued further guidance on the VAT rules that will apply to sales of goods by overseas businesses to GB customers after the Brexit transition period ends.

The government’s recently published Border Operating Model outlined how import VAT will work from 1 January 2021, see our earlier blog article for further information.   The latest guidance expands on the VAT rules that will apply to:

• imports of goods in consignments not exceeding £135
• goods (of any value) in the UK at point of sale sold by an overseas seller via an online marketplace (OMP).

An OMP refers to any electronic interface (website or mobile application) such as a marketplace, platform, portal or similar that facilitates the sale of goods to customers.

Imports in consignments not exceeding £135

For imports of goods from outside the UK in consignments not exceeding £135 in value (which aligns with the threshold for customs duty liability), the point at which VAT is collected will change from the point of importation to the point of sale. This means that UK supply VAT, rather than import VAT, will be due on these consignments.  In addition, low value consignment relief, under which imports valued at £15 or less are currently relieved of import VAT, will be abolished.

If an OMP is involved in facilitating the sale, then it will be responsible for collecting and accounting for the VAT due on the supply.  For goods sent from overseas and sold directly to UK consumers, without OMP involvement, the overseas seller will be required to register and account for the VAT to HMRC.

The new rules will also apply to business to business (B2B) sales not exceeding £135. However, if the business customer has provided the supplier with its UK VAT number the customer will be responsible for accounting for the VAT due on the supply via the reverse charge procedure.  If a VAT number is not provided by the business customer, then the supplier must charge UK VAT.

Particular points to note about the new rules are:

1. the value of the goods when considering whether the threshold has been exceeded is based on the VAT exclusive price at which they are sold to the customer (i.e. excludes additional costs such as transport, insurance, other taxes etc),
2. the £135 threshold applies to the total value of the consignment and not the individual value of the goods in the consignment,
3. the person liable to account for the VAT (i.e. overseas seller or OMP) will be required to provide the customer with a VAT invoice at the point of sale – normal rules on VAT invoice content and format will apply including the simplified invoice concession,
4. where the sale is from the overseas seller direct to the customer (i.e. no OMP involvement) the seller needs to ensure a copy of the invoice is included with the goods in transit (in digital or paper format).  This can be either inside the consignment or uploaded electronically by the carrier.
5. customs declarations will still be required for non-fiscal purposes.

These rules will not apply to non-commercial consignments, e.g. gifts, goods subject to excise duty or consignments from Jersey and Guernsey that are covered by the Import VAT Accounting Scheme.

Goods of any value located in the UK at the point of sale sold by an overseas seller via an OMP to consumers

New VAT rules will also apply to goods of any value where:

• the goods are owned by a seller who is based outside the UK,
• the goods are located in the UK at the point of sale,
• the seller sells the goods to a customer in the UK through an OMP,
• the supply is not to a VAT registered business.

In these circumstances the seller will have already imported the goods.

Under the new rules, from 1 January 2021 the sale to the customer will be deemed to have been made by the OMP.  The OMP will therefore be liable to account for the VAT at the point of sale.

For VAT purposes the overseas seller will no longer be making the supply to the consumer.

At the point of sale the overseas seller is deemed to make a zero-rated supply to the OMP. The overseas seller can therefore register for VAT and recover the UK import VAT it has incurred.

However, OMP liability will not apply to B2B sales where the business customer has provided its VAT registration number to the OMP.  When a VAT number is provided by the customer the sale will be made by the overseas seller and not the OMP. The reverse charge will not apply to the sale and the overseas seller will be responsible for charging VAT, if applicable.

OMPs should treat sales they facilitate as business to consumer transactions unless the business customer provides a valid UK VAT registration number.

For sales by overseas sellers that are not facilitated by an OMP, where the goods are located in the UK at the point of sale, the existing rules will remain in place. The overseas seller is therefore liable to register and account for VAT on all such sales to UK customers, from its first sale.

What information will OMPs require to comply with the new rules?

These new rules place additional VAT accounting and record keeping obligations on OMPs.

OMPs must ensure they obtain the following information in order to determine the correct VAT treatment of the sales they facilitate:

• the location of the goods at the time of the transaction, i.e. whether the goods are within the UK or not,
• if goods are outside the UK, whether the intrinsic value (excluding VAT) of the consignment is less than £135,
• if goods are within the UK, whether the seller is a business established in the UK or not,
• whether or not any business customers are registered for UK VAT – where the customer does not provide a valid UK VAT registration number for its business then the sale should be treated as made to a consumer,
• the precise nature of the goods to determine the applicable rate of VAT (i.e. standard, reduced or zero rate).

OMPs will not be held liable for any VAT underdeclared where they can demonstrate that they have taken all reasonable steps within their power to ensure that the correct VAT is charged.

Overseas businesses and OMPs should carefully study these new rules and ensure they are prepared for the significant additional UK VAT obligations that will be placed on them from 1 January 2021.

If you would like any assistance implementing the systems and process changes required by these rules, or need assistance with registering for UK VAT and the ongoing associated compliance obligations, please get in touch with us.