British SME’s Face Extra £180m In Brexit Red Tape

New EU VAT Rules For British SME’s

New EU VAT rules that will come into effect on 1 July 2021 will see many small businesses across the UK having to fork out in order to stay compliant. These rules were originally imposed in an effort to curb VAT fraud, mostly aimed at overseas e-commerce retailers, predominantly from China. However, since the UK will also now be classified as NON-EU, businesses in Britain will need to comply. Tentative figures, first reported by the Financial Times in this article, estimate that roughly 26 000 ecommerce businesses in the UK will be affected.

Tax consultancy Avalara has also estimated that these small UK e-commerce businesses will need to pay around £6,900 per annum to remain compliant. This is certainly a massive blow to any small to medium-sized business. Especially considering the current economic climate wherein many businesses have only now started recovering from Covid19.

A Blow To The Sector

allowed for their EU VAT obligations to be submitted via their annual UK VAT returns. Hereafter having HMRC distribute any EU payments that were due. This has changed and along with the new rules, you can choose to do this one of 3 ways. The first option is to register for VAT in the country where they have sold most of their goods. This registration could cost you an estimated €8,000 (£6,900). Secondly, you could subcontract VAT to selling platforms such as Amazon or eBay. Lastly you could ask the postal service to handle the VAT.

Depending on how many sales you make yearly and where these sales are made, your business could be better off registering for VAT in the bloc as online platforms charge you 30% of gross prices for their VAT services.

How Does This Affect Trading with The Bloc?

Essentially, the affected businesses will need to be registered for VAT for the first time from 1 July 2021. The changes taking place on 1 July 2021 will affect trading with the bloc in a few different ways. Firstly, the existing “Distancing Selling Thresholds” simplification will be withdrawn and replaced by the single EU VAT return called the One-Stop-Shop (OSS). Secondly, sellers shipping goods from their home country to customers across the EU may opt to use OSS to report all their pan-EU sales. This is an extension of the 2015 Mini One-Stop-Shop (‘MOSS’), which successfully trialed a single EU return for B2C sales of digital, telecoms and broadcast services (streaming media, e-books, apps etc.).

Furthermore, the €22 VAT exemption on small parcels being imported into the EU for delivery to consumers will be withdrawn. This tax exemption has been widely abused by sellers who either mistakenly or deliberately under declare the value of import goods to avoid VAT.

British SME’s Compliance With the New Regulation

In addition to the above, VAT will have to be charged at the point of sale for consignments not exceeding €150. This VAT may be declared and paid via a new submission, the ‘Import One Stop Shop’ (IOSS). This is meant to create a more efficient manner of customs clearance. One last important thing to note is that the July 2021 reforms will oblige marketplaces that facilitate cross-border sales to consumers via third parties to become the ‘deemed supplier’ in certain cases. This is also referred to as the full liability regime. Furthermore, this marketplace VAT liability does extend to product liability.

How Our Small Business Accountants are Helping British SME's

All in all, it might be in your business's best interest to have a professional accounting firm look at whether your small e-commerce business will need to register for this VAT. Spartan Accounting Group is a leading small business accountant in London. Let us help your business with all of your VAT, tax accounting, and bookkeeping services. Get in touch today to book your free 30 minutes business consultation and find out how we can help you.

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