As of January 2021, the UK is no longer part of the EU single market and the European Customs Union. Alas, what does the final Brexit entail for the e-commerce market and for the cross-border traffic of goods? What new trade regulations will non-UK companies need to comply with if they want to continue serving the market?
Benefitting from record growth despite Brexit
Following the United Kingdom’s official withdrawal from the EU trade area, non-UK companies active in cross-border commerce are facing new hurdles in the movement of goods. With Brexit completed, a number of things have changed with regard to taxes, customs and compliance. Especially in the first weeks following the exit, customs processes did not run as smoothly as usual. The media reported incorrectly completed forms, missing data and stricter customs and border controls, which led to congestion and delays.
Despite the extra effort and, possibly, legal uncertainty, cross-border e-commerce with the U.K. remains attractive for scaling the business. Local online commerce is booming, with no end in sight. According to the Office for National Statistics (ONS), e-commerce totals increased by 46.1 percent in 2020, the “Corona year”, compared to the previous year – the highest annual growth since 2008.
To capitalize on this record increase, non-UK businesses need up-to-date knowledge of the post-Brexit trade pact and its implications for cross-border e-commerce business. According to Prime Minister Boris Johnson, the UK is to be an “open, generous” and internationally minded country in the future, committed to free trade. But what does that mean in practice?
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New import VAT and marketplace responsibilities
With the end of the Brexit transition period, HMRC, the UK tax authority, has revised existing VAT rules for e-commerce. This results in the following new requirements:
- The VAT exemption for imported products with a negligible value of goods of up to 15 British pounds (GBP) sold to UK consumers will no longer apply. From now on, all imports will be subject to import VAT.
- For cross-border shipments with a value of goods up to GBP 135 to consumers in England, Scotland and Wales, VAT will be collected directly at the checkout and remitted by the retailer. The UK is thus shifting import VAT from the border to the point of sale.
- The situation is different for products sold through an online marketplace. In this case, the marketplace is responsible for collecting and remitting the tax. If the value of the goods exceeds 135 GBP, the VAT is always settled with the customer.
Cross-border e-commerce: Customs regulations change after Brexit
Customs formalities for the movement of goods are also affected by far-reaching changes. Since Brexit, the United Kingdom has basically been classified as a third country (at this point, Northern Ireland is an exception from a European perspective). Thus, as of January 1st, 2021, non-UK companies are required to make customs declarations for exports to the UK. They must register with the relevant customs authority if they want to transport goods between the UK and the EU or other international countries. Shipments may only cross the border if customs procedures have been correctly applied.
Companies should therefore make absolutely sure that they submit applications and complete registrations and declarations in good time.
In order to be able to clear goods, for example, they must submit a customs invoice showing the UK sales tax. This in turn is based on local VAT registration and quarterly reporting to the local tax authority.
Customs fees vary depending on product origin
Whether customs duties are due as part of the new customs procedures depends on the country from which companies are shipping products. If goods are imported into the UK that originate in the EU or the UK, no customs fees are incurred. The reason for this is the Brexit free trade agreement, which prevents customs duties and import quotas for these goods. The situation is different for products originating outside the EU and the UK – for those products customs duties do apply. Here, the British government has compiled an overview of customs duties to be paid depending on the type of product on the Internet here.
Companies will be granted a transitional period to complete the formalities: The new customs rules for importing goods into the UK are to be introduced in three stages by July 2021. While import declarations are already due for some groups of goods, the documents for other products may be submitted later as part of the transition phase.
Brexit: Adapting logistics and supply chains to new requirements
Anyone who (continues to) do business with Great Britain and wants to profit from the booming e-commerce business should intensively deal with the new requirements for cross-border trade. Companies from the EU or other international countries not only have to find out about changed regulations regarding customs clearance and VAT in a legally secure manner in order to evaluate their own starting position. In order to avoid delays, bottlenecks and unnecessary costs, existing supply chains must also be put to test and, if necessary, need to be adapted. For example, it may be target-oriented to set up bonded warehouses for goods that are to be shipped to the UK. In addition, it may prove profitable to upgrade one’s own IT systems, as customs declarations generally have to be submitted electronically.
Experienced logistics partners such as Hermes International provide support in clarifying individual questions and tasks resulting from Brexit. In order to organize the movement of goods, including customs clearance, in the best possible way, a logistics strategy is jointly developed that enables the potential of the local e-commerce market to be leveraged under the new conditions.
More information on the import sales tax now in effect, as well as marketplace responsibilities, is available on the U.K. government’s website: https://www.gov.uk/