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Changes to the sale of overseas goods and sales via online marketplaces from January 2021

As the transitional period comes to an end there will be significant changes to UK/EU trade from 1 January 2021.  The Border Operating Model which was released in the summer and updated early in October is summarised here.

The Border Operating Model (which applies to Great Britain only as the Northern Ireland discussions continue) has outlined a major change to the sale of overseas goods and sales through marketplaces.  This is to ensure that non-UK businesses are treated in the same way as UK businesses but it will also improve the effectiveness of VAT collection and improve the customer experience.  The EU is introducing similar changes from July 2021 and more detail can be found here.

There are two main changes:

  • The treatment of the importation of goods not exceeding £135; and
  • The sale of goods through online marketplaces.

The treatment of the importation of goods not exceeding £135

For imports of goods from outside the UK in consignments not exceeding £135 in value, VAT will switch from being collected at the point of importation to the point of sale instead.  This means that ‘import’ VAT will no longer be due, and ‘supply’ VAT will be payable instead.  The Low Value Consignment Relief will be abolished.

Goods sent from overseas and sold directly to UK consumers without marketplace involvement will be deemed to have been sold in the UK.  The overseas seller will be required to register and account for the VAT to HMRC. 

For goods sold on an online marketplace (where that marketplace is involved in facilitating the sale), the sale will be deemed to have taken place in the UK and the marketplace will be responsible for collecting and accounting for the VAT.  An ‘online marketplace’ means any electronic interface such as a marketplace, platform, portal or similar that facilitates the sale of goods to customers by:

  • Setting, either directly or indirectly, any of the terms and conditions under which the supply of goods is made
  • Involved, either directly or indirectly, in authorising the charge to the customer in respect of the payment made
  • Involved, either directly or indirectly, in the ordering or delivery of the goods.

A marketplace is not seen to be facilitating the sale if it provides only one of the following:

  • The processing of payments in relation to the supply of goods
  • The listing or advertising of goods
  • The redirecting or transferring of customers to other electronic interfaces where goods are offered for sale, without any further intervention in the supply.

In both instances, the value of the goods for VAT purposes will be based on the price at which they are sold to the consumer rather than any valuation calculated at the point of importation.  The £135 threshold applies to the value of the consignment, not to each individual item within the consignment.  The sales price will exclude:

  • Transport and insurance costs unless they are included in the price and not separately indicated on the invoice
  • Any other taxes and charges identifiable by the customs authorities from any relevant documents.

Business to business sales not exceeding £135 in value will also be subject to the new rules. However, where the business customer is VAT registered in the UK and provides a valid VAT registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge.

The changes will not apply to consignments of goods containing excise or restricted goods or to non-commercial transactions between private individuals. The new rules will also not apply to consignments from Jersey and Guernsey that are covered by the Import VAT Accounting Scheme.

From an administrative perspective:

  • Customs declarations will still be required
  • The person liable to account for the VAT will be required to provide the customer with a VAT invoice at the point of sale
  • Where the sale is direct from the seller to the consumer without the involvement of an online marketplace, there will be a requirement for the seller to ensure that a copy of the tax invoice accompanies the goods in transit. This can either be in digital or paper format and could be inside the consignment or be uploaded electronically by a parcel carrier or freight operator. 

The sale of goods located in the UK through online marketplaces

Where goods of any value:

  • Are owned by a seller who is based outside the UK
  • Are located in the UK at the point of sale
  • Are sold by the seller to a customer in the UK through an online marketplace
  • Are not supplied to a VAT registered business

then these will be subject to the following VAT treatment:

  • The goods will have already been imported into GB and existing VAT and duty obligations will apply at importation
  • UK VAT will be due at the time the sale of goods takes place but the online marketplace will be deemed to be the supplier and liable to account for the VAT on sales
  • At the point the goods are sold to the customer, the overseas seller will be deemed to make a zero-rated supply of the goods to the online marketplace.  This enables the overseas seller to register for VAT in the UK and reclaim any import VAT it has incurred in the course of importing the goods.

Online marketplace liability will not apply to business to business sales where the goods are in the UK at the point of sale. The business recipient will need to provide a valid UK VAT registration number to show that the supply is a business to business sale. If this is not provided the sale should be treated as a business to consumer transaction. Where a valid VAT registration number is provided, the supply will be from the overseas seller, rather than the online marketplace, to the business recipient and will follow existing VAT rules.

These changes put a lot of pressure on the online marketplaces to determine who is responsible for the VAT.  For each transaction the marketplace will need to know:

  • the location of the goods at the time of the transaction
  • if goods are outside the UK, whether the consignment is less than £135
  • if the goods are within the UK, whether the seller is a UK or non-UK seller
  • whether the customer is VAT registered (and if so, notify the seller)
  • the nature of the goods being sold (to determine the VAT rate and whether it is a restricted item).

If you would like to discuss any of the information in this article, please contact our VAT partner Alison Birch below.

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