October 2020. The UK government has announced changes to the way it will collect VAT (Value Added Tax) on purchases made overseas with goods arriving into the UK. Under the current system if you buy something from overseas and have it shipped into the UK, you have to pay VAT at the border, unless the seller collects it for you and pays it on your behalf – which usually doesn’t happen when you purchase from small or independent shops.
These guidelines were created after publication of the policy paper: The border operating model in July 2020, which is a guide to how the UK border with the European Union will work after the transition period to exit the EU (Brexit).
Of course there are thresholds, which you can read about here, VAT thresholds for overseas shopping. Once you have bought goods worth over £39 for a gift or £15 (as at 17/11/2020) for other items, VAT is charged on all imports.
VAT is chargable on overseas shopping on the total price which includes, the cost of the product, the shipping cost and the cost of the import duty. VAT is not the same as import duty.
What are the VAT changes for 2021?
In October 2021 the UK government announced that changes to the current system would take place. This is what is proposed:
- If you purchase something online from overseas with a value of £135 or less, the point of VAT collection will move from the point of importation to the point of sale. In other words VAT will have to be collected by the shop you are shopping with and not by the customs officials at the border.
- Low Value Consignment Relief, which removes VAT on any goods worth less than £15 will be abolished. This will mean that all purchases will be subject to VAT.
- Online marketplaces, for instance Amazon and eBay, will be responsible for collecting the VAT on behalf of their sellers.
- Shops that sell direct, and for purchases made outside of the online marketplaces, will have to register with HMRC and collect the VAT to pay to HMRC.
- 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 its valid VAT registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge.
The regulations go on to discuss the difference between a seller who is selling goods that are based in the UK and one who has their goods based overseas. But the main difference between the old regulations and the proposed new ones is that an overseas shop that sells goods into the UK will have to register with HMRC and collect any VAT due on their behalf.
The changes will take affect on 1st January 2021.
What are the ramifications of this change?
It is likely that this will have a profound affect on small shops and business who sell goods from overseas into the UK. This will burden them with extra red-tape and cost which will likely mean that they will not wish to sell to customers in Great Britain and the UK.
William Shatner – he of Star Trek fame – who also runs a small shop, Shatnerstore.com, selling William Shatner related memoribillia and other items was one of the first to point this out and claim that he would find it difficult to keep selling to the UK.
UK folks; looks like your government is wanting to force vendors outside of your country to collect VAT on orders being shipped to the UK staring 1 Jan. I had my staff investigate costs & it’s over £1000/yr just to file these forms via a service. That’s too much for a small store
— William Shatner (@WilliamShatner) October 15, 2020
I’m not registering my company to collect VAT. Why should I have to register with a foreign government, get a UK based agent company all for the privilege of selling there? It’s estimated to cost overall $5-10k to implement this so everyone’s costs will rise b/c of the UK govt.🙄 https://t.co/dQgmaatXtL
— William Shatner (@WilliamShatner) November 13, 2020
Forms would need to be filed regularly and VAT collected, Shatner estimated that it would cost about £1000 a year which was not worth the extra burden. It is a requirement that records of the transactions and kept for 6 years.
How can I keep selling to the UK?
If you are running an overseas shop offering international shipping to the UK and aren’t keen on the extra bureaucracy, one way to avoid it might be to sell through an online marketplace such as Amazon or eBay. They are required to collect the VAT, and Amazon does so. I am unable to find out, at the moment, if they will charge extra costs for the pleasure of doing so, but I think that you can be assured that any extra selling costs incurred will be passed on.
Do any other countries do this?
Both Australia (1st July 2017) and New Zealand (1st December 2019) made a similar change, sellers selling into these countries are required to collect GST. This caused John Lewis, the UK department store, to stop selling to NZ, although they do still deliver to Australia.
What is the current UK VAT rate?
As of November 2020 the VAT rate is 20%.