VAT changes in the EU and UK

On 1^st January the UK changed some VAT rules in relation to goods sold under £135 and the EU followed suit by changing rules on 1^st July 2021 for goods sold with the value of less than €150.

VAT remains a misunderstood and complex area of taxation, one that, if not calculated and paid correctly, can lead to enquiries and fines from HMRC, or can also lead to an overpayment of tax by a business.

It is important to ensure that a business is up to date with any new rules and is filing their VAT returns both correctly and accurately.

The rule changes below relate to any goods that are sold to the UK and the EU that fall below the total value of £135/€150.

Sales of items to UK customers

From 1 January 2021, the UK introduced changes to the VAT treatment of goods arriving into Great Britain from outside the UK.

The point at which the VAT is now collected is the point of sale, as opposed to the point of importation as it was prior to 1 January 2021. The new rules state that any business that sells goods directly to UK non-business customers, where the goods are outside the UK at the point of sale and imported to the UK in shipments not exceeding £135 in value, will have to register for and account for UK VAT on those sales.

The value of the shipment is based on the overall value of the consignment/bundle to be shipped, and not the individual items.
Records must be kept of the goods sold, and it is necessary to make sure that accurate information is gathered so the correct VAT treatment is applied, and VAT returns can be prepared.

For all shipments where the value exceeds £135, the new rules will not apply and the existing rules are unchanged, so it will usually be the case that the customer will be liable for the import VAT which they will be required to pay before they receive the goods.

Sales to customers in the EU

These rules are very similar to the rules introduced by the UK on 1 January 2021. In the EU the new treatment applies to bundles/supplies with a value of below €150.

The rules have introduced a new Import One Stop Shop (IOSS), which is a new opt-in online monthly VAT reporting and payment system, which allows for all qualifying VAT around the EU to be dealt with within a single IOSS VAT registration, at one time, as a simple alternative to making multiple registrations in the different EU member states.

The rules for sales into the EU do not appear to be compulsory, as opposed to the new UK rules that are. Therefore, if a business chooses not to adopt this approach, then the business’ current EU position on these sales does not need to change and customers would be required to pay the import VAT arising on their goods.

Shorts would be happy to assist in the reviewing of transactions and can provide advice on how to treat both current and future transactions to comply with the new rules, and assist with the IOSS registration for your business.