VAT changes from 1 July 2021

The European Commission, in response to the challenges created by the Coronavirus pandemic, decided to postpone its new European VAT rules for sales to EU consumers until 1 July 2021.  On the run up to this date, we have outlined below the main changes we expect to see.

The main aim of these rules was to simplify VAT obligations for companies carrying out cross-border sales of goods and services (mainly online) to consumers. The new rules from 1 July 2021 will ensure that VAT is paid correctly to the Member State in which the supply takes place.

What problems did UK businesses face after Brexit when shipping goods to EU consumers?

Since the end of the transitional arrangements (from 1 January 2021), all goods exported from the UK to customers based in the EU are now treated as zero-rated exports, with import VAT liabilities arising in the country of destination.   This doesn’t cause too much of a problem for sales where the EU customer is VAT registered – they can simply claim back the VAT in their own country.  However, for consumers, there are issues.  EU consumers prior to 1 January 2021 paid UK VAT at 20% but since then are now potentially paying import VAT / duties in their own country at a higher rate than 20%.

Rather than passing on the import VAT burden to their customers, some UK businesses have been registering for VAT in the customers country and taking on the responsibility for paying the import VAT themselves, meaning they could potentially be registered for VAT in many different Member States.

From the 1 July 2021 we will see the introduction of the IOSS (Import One Stop Shop).  The IOSS will simplify the procedures for UK businesses shipping low value goods out of the UK by allowing the shipment of all goods under €150 to EU consumers to be declared on a single return, where sales VAT will be accounted for instead of import VAT.  This will make VAT accounting easier for many businesses.

What do I need to do to sign up for the IOSS?

A UK business will need to register for VAT in a single Member State, Ireland would seem to be the most popular choice.  This VAT registration will then allow the UK business to register for the IOSS with that tax authority and to submit / pay monthly IOSS returns.

I sell goods via an Online Market Place, does this apply to me?

Where a UK business trades via an Online Market Place (OMP) such as Amazon / eBay recent changes to VAT law now mean that the OMP, being the ‘deemed supplier’ is now responsible for collecting and paying the VAT for consignments, again up to the value of €150.  If a UK business only sells low value goods and only via an OMP then it would not need to register for the IOSS.

What about services being supplied to EU consumers?

Under current arrangements UK businesses supplying certain electronic services (including telephone, broadcasting and other electronic services) have the option to register for MOSS and submit a single quarterly return for all sales falling within this definition to consumers, where the place of supply is outside of the UK.

There are no changes to the place of supply rules.

However, from 1 July 2021, we will see MOSS extended to include all services from UK established businesses to consumers, where the place of supply is outside the UK.

Is it compulsory that I sign up for MOSS if supplying services to EU consumers?

In short, no.  A UK business still has the option to sign up for VAT in other Member States where their services are being supplied, this may be advantageous if there are considerable amounts of VAT to reclaim in these countries.

What do I need to do to sign up for MOSS?

A UK business will need to register for VAT in a single Member State, again Ireland would seem to be the most popular choice.  This VAT registration will then allow the UK business to register for the non-union OSS with that tax authority and to then submit and pay quarterly OSS returns.  The UK business will still need to charge the VAT rate applicable in the Member State where the services are being supplied, but all these can reported on single return.

If you have any questions regarding the new rules then please get in touch with your usual Dodd & Co contact.