UK taxes and Brexit

The Brexit Transition Period ended on December 31, 2020. As a result, effective January 1, 2021, new laws apply to sales between the UK and the EU. This change might make it necessary to review and update your tax processes if you're one of the following:

  • A UK merchant - you're a merchant whose business is located in the United Kingdom.
  • An EU merchant - you're a merchant whose business is located in a European Union member country other than the United Kingdom.
  • A non-EU merchant - you're a merchant whose business is located in a country outside of the UK and the EU.

If you're a UK merchant and you sell to customers in EU member countries, or if you're an EU merchant and you sell to customers in the UK, then there are changes that have implications for several aspects of your business.

VAT

There are new UK VAT laws that came into force on January 1, 2021. These new laws affect both EU and non-EU merchants who sell to UK customers.

EU merchants benefit from simplified procedures that remove the need to register for VAT when they sell to customers in other member countries, unless their sales to customers in that member state exceed a certain threshold. Below this threshold, merchants are only required to register for a VAT number in their own regions, or not at all.

After the transition period, UK merchants who sell to EU customers and EU merchants who sell to UK customers can't use these simplified procedures. Merchants who sell between the UK and EU countries might require VAT registrations in additional countries.

Changes and requirements for UK, EU, and non-EU sellers
Merchant location Changes and requirements
United Kingdom The sale of goods from UK merchants to EU customers have become exports (the sending of goods from a country or customs union to outside that country or customs union) rather than dispatches (the sending of goods from one EU member state to another EU member state).

UK merchants might be required to register for VAT, and to account for import VAT in the EU.

VAT registrations might be required across multiple EU member countries depending on a number of factors, including (but not limited to) your supply chain, the location of your customers, and where the goods are delivered.
European Union The sale of goods from EU merchants to UK customers have become imports (the receipt of goods into a country or customs union from outside country or customs union) rather than acquisitions (the receipt of goods from one EU member state to another EU member state).

The UK VAT laws that came into force on January 1, 2021 result in new VAT requirements for sales equal to or less than 135 GBP.
  • Under the new laws, the sale of goods equal to or less than 135 GBP require you to register for VAT in the UK. In this case, VAT is collected at the point of sale and remitted by the merchant. If you use registration-based taxes and have a UK VAT registration, then VAT will be applied to your sales to customers in the UK.
  • For the sale of goods over 135 GBP, you might not be required to collect VAT at the point of sale. In this case, VAT and duties are remitted by the importer. If you use registration-based taxes and have a UK VAT registration, then VAT will not be applied to your sales to customers in the UK. If you choose to, you can charge your customer VAT and duties at the time of sale, and then provide these funds to the shipper or importer using a shipping label. Alternatively, you can send the orders without charging VAT and duties, and your customer pays VAT and duties at the time of delivery. Learn more about handling VAT and duties.
Outside of the UK and the EU The new UK VAT laws that came into force on January 1, 2021 apply to the sale of goods from non-EU merchants to UK customers. Non-EU merchants who sell to UK customers might be required to register for VAT in the UK.

The UK VAT laws that came into force on January 1, 2021 result in new VAT requirements for sales equal to or less than 135 GBP.
  • If the sale of goods is equal to or less than 135 GBP, then you must register for VAT in the UK. In this case, VAT is collected at the point of sale and remitted by the merchant. If you use registration-based taxes and have a UK VAT registration, then VAT will be applied to your sales to customers in the UK.
  • If the sale of goods is over 135 GBP, then you might not be required to collect VAT at the point of sale. In this case, VAT and duties are remitted by the importer. If you use registration-based taxes and have a UK VAT registration, then VAT will not be applied to your sales to customers in the UK. If you choose to, you can charge your customer for VAT and duties at the time of sale, and then provide these funds to the shipper or importer using a shipping label. Alternately, you can send the orders without charging VAT and duties, and your customer will pay extra funds at the time of delivery. Learn more about handling VAT and duties.

VAT calculation in Northern Ireland

Under Brexit, Northern Ireland (NI) has adopted a dual status and is considered part of both the EU and the UK tax regimes.

If you use registration-based tax settings, then VAT is calculated based on the order's origin and its destination. UK VAT applies to orders from within the UK to customers in Northern Ireland. EU VAT applies to orders from within the EU to customers in NI.

VAT application for the UK, the UK, and NI
Order origin Order destination VAT applied at checkout
United Kingdom United Kingdom If you have a UK VAT registration, then UK VAT is charged.
Northern Ireland If you have a UK VAT registration, then UK VAT is charged.
European Union VAT is not charged.
Northern Ireland United Kingdom If you have a UK VAT registration, then UK VAT is charged.
Northern Ireland If you have a UK VAT registration, then UK VAT is charged.
European Union If you have a UK VAT registration, then UK VAT is charged.
European Union United Kingdom VAT charges depend upon on the cost of the order and whether you have a UK VAT registration.

  • If you don't have a UK VAT registration, then VAT is not charged.
  • If you have a UK VAT registration and the order is over 135 GBP, then VAT is not charged.
  • If you have a UK VAT registration and the order is equal to or less than 135 GBP, then UK VAT is charged.
Northern Ireland
    VAT charges depend upon on the cost of the order and your VAT registrations.

  • If you have an EU VAT registration, then EU VAT is charged.
  • If you have registrations for both the EU and the UK, then the UK registration takes precedence and UK VAT is charged.
European Union If you have an EU VAT registration, then EU VAT is charged.

Starting July 1, individual country thresholds no longer apply. Instead, a single threshold will apply for the entire EU.

  • For customers in your home country, your local VAT rate is charged.
  • For customers in EU countries outside your own, the rate is determined by whether you exceed the registration threshold.
    • If your combined sales to all other EU member countries are less than 10,000 EUR in total, then you charge the VAT rate for your own region.
    • If your combined sales to all other EU member countries are equal to or greater than 10,000 EUR in total, then you charge the VAT rate in your customer's location for all sales to other countries or regions.

A new One-Stop Shop scheme (OSS) is available starting July 1, 2021. The OSS scheme allows merchants to collect and remit VAT for sales in all EU member countries, rather than registering for each member state individually.

Merchants with locations in Northern Ireland use the OSS, not the Import One-Stop Shop (IOSS) scheme.

Updating your tax settings

The updates that you need to make depend on how you currently manage your taxes.

Registration-based tax settings

If you use registration-based tax settings, then your existing registrations will be updated automatically. New registrations won't be automatically added, and you won't be warned if you need registrations in other countries. If you're not sure where you're obliged to register, then contact a local tax professional.

Legacy tax settings

If you haven't yet migrated to registration-based tax settings, then your existing tax settings will not be updated. To update your tax settings, either update to registration-based tax settings, or update your tax rates manually. Updating to registration-based tax calculations is a permanent change and can't be undone.

Tax services

If you use Avalara to manage your tax, then your tax settings will be updated there. New registrations won't be automatically added. If you're not sure where you're obliged to register, then contact a local tax professional. If you have questions about the details, then contact Avalara's support team.

FAQ

Where can I get more information about Brexit?

The best way to get information about how Brexit affects your business is by contacting a local tax professional. If you're based in the UK, then GOV.UK has a series of notices and a transition guide that you can refer to.

What's a fiscal representative? Do I need one?

Fiscal representatives are local companies or persons that represent you when dealing with the local tax authorities. They're responsible for the management of your tax reporting and, in some cases, VAT debts.

Some EU member countries require you to have a local representative if your business is not based in an EU member state and you sell to customers there. After January 1, 2021 UK merchants might be required to appoint a fiscal representative when selling to EU customers. Not all EU member countries require a fiscal representative, and requirements might be lower for ecommerce sellers.

If you're not sure whether you need to appoint a fiscal representative in an EU member state, then contact their tax authority or a local tax professional.

Do I need a new EORI number?

It depends. An Economic Operator Registration and Identification Number (EORI) is an ID code that's used to track and register customs authorizations, approvals, and decisions. Previously, one EORI number could be used for tax authorities in both the UK and other EU member countries. After January 1, 2021, separate UK and EU EORI numbers will be required.

If you import goods into the EU and you don't have an EORI number, or if you have an EORI number starting with GB that was issued by the UK, then you will need to apply for an EU EORI. If you need an EORI number for an EU member state, then contact their tax authority.

If you import goods into the UK and you don't have an EORI number, or if you have an EORI number issued by another EU member state, then you will need to register for a UK EORI. You can register for a UK EORI number with HM Revenue and Customs.

If you're not sure whether you need a new EORI number, then contact a local tax professional.

I sell digital products, does this affect me?

It depends. The VAT Mini One Stop Shop (MOSS) scheme has two variants. The union scheme is available for businesses established in the EU or with at least one branch in an EU member state. The non-union scheme is available for businesses that are not established in the EU, and do not have any branches in EU member countries.

If you currently use the MOSS scheme to sell digital products, then contact your tax authority or a local tax professional to determine how to register for a VAT number.

How do I charge VAT in the UK if the order is over 135 GBP?

If you need to charge taxes for all orders placed from the UK, including those above 135 GBP, then do one of the following:

You can't use a tax override to charge UK VAT for orders over 135 GBP.

Do I need to change my terms and conditions?

Probably. After January 1, 2021, import VAT and tariffs might be chargeable on your products when you import or export goods between the UK and EU member countries. The two most popular international commercial terms, or incoterms, are:

  • Delivered Duty Paid (DDP). This term indicates that the seller is assuming responsibility for any import costs, such as VAT and duties, that might be payable when goods cross borders. This option keeps your customer from paying unexpected fees or taxes on receipt of the goods, but DDP requires you to manage the import process, and might create VAT registration obligations.
  • Delivered At Place (DAP). Also called delivered duty unpaid (DDU). This term indicates that the seller only takes responsibility for shipping the product, and requires the customer to pay any import costs, such as VAT, duties, and clearing fees. This option might keep you from having to manage the import process, but DAP creates unexpected costs for your customer and can result in delayed or returned shipments.

You're responsible for deciding which incoterms you use, but for most EU member countries, you're obligated to ensure that your customer is aware of all charges and taxes they might be liable for.

What's an HS code? How do I add one?

A Harmonized System (HS) code is a way to identify products being shipped internationally, so that taxes and tariffs can be accurately applied to shipments. The World Customs Organization offers resources to learn more about the system, and you can search to find your product's HS code here.

When you know your product's HS code, you can add it in your Shopify admin.

What do I need to know about EU VAT changes?

If you sell to customers in the EU, then you might be responsible for charging VAT. Currently, if you're located outside of the EU and you sell to customers within the EU, then you aren't required to collect VAT on orders under 22 EUR. If you're not sure whether you should be charging VAT to your customers in the EU, then contact the tax authority of your customer's country or region, or a local tax professional.

After July 1, 2021, orders equal to or less than 150 EUR have VAT applied to them, and orders greater than 150 EUR have import VAT and duties applied. If you don't charge VAT and duties during the checkout process, then your customer pays them to the shipping carrier upon delivery.

To help you manage the complexity of registering for a VAT number, reporting your sales, and remitting VAT, the EU has introduced the Import One-Stop Shop scheme (IOSS). If you're not sure whether you should apply to the IOSS, then contact a local tax professional.

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