New VAT Rules for Online Marketplaces and Imports of Goods into the UK

The United Kingdom’s HMRC has issued new guidance on the VAT treatment of cross-border sales of goods and online marketplaces beginning 1 January 2021, following the end of the transition period.

Cross-Border Sales under £135

New rules will apply when a business sells goods for £135 or less to a UK customer and the goods are located outside the UK at the time of the sale. For business to consumer supplies, the seller must collect supply (output) VAT. This means that overseas vendors will be required to register for VAT and will also be required to issue VAT invoices on such supplies. No import VAT will be owed on the sale, but customs declarations will still be required. Please note that for sales from the EU, the HMRC has indicated that it plans to continue to require submission of Intrastat declarations.

The £135 threshold is determined per consignment, and not on individual goods within a consignment. A consignment’s value is based on the VAT exclusive price of the goods in the consignment and does not include separately stated freight charges. The threshold is intended to align with the threshold for customs duty liability.

The £135 threshold rules also apply to business to business supplies. In the case of a supply to a UK business, however, the UK business is liable for the output VAT under the reverse charge mechanism. Import VAT will still be avoided by both parties. For the reverse charge to apply the purchasing business must provide the seller with a UK VAT registration number.

Online Marketplaces

Online marketplaces will also have additional VAT obligations come January 1. For sales of goods, under the £135 threshold,  from outside the UK to UK customers, the online marketplace will be required to collect supply (output) VAT in place of the seller, regardless of whether the seller is registered or established in the UK. This means that marketplace sellers are relieved of many of the new obligations described above. Please note that for business to business supplies the reverse charge measure still applies so long as the purchaser provides the marketplace with its VAT registration number.

Online marketplaces will also be liable to collect VAT on a second class of supplies: specifically, the sale of goods, which are located in the UK at the time of sale but which are owned by a seller based outside the UK, through an online marketplace to UK customers.

Other Changes

In addition to the above changes, HMRC has also announced that:

–  Importers will be able to utilize postponed VAT accounting for imports over the threshold, to account for import VAT on their VAT returns instead of paying import VAT to Customs at the time of import.

– Low Value Consignment Relief, which exempted imports of £15 or less from import VAT, has been eliminated.

With less than six months until the new rules come into effect it’s important for businesses to continue to prepare for a post-Transition world.