New EU E-Commerce VAT Rules: 5 practical implications for UK retailers

The new EU e-commerce VAT rules were introduced from 1 July 2021 with the overriding objective of applying VAT at the local rate where the EU consumer is based. We have been working with UK businesses to understand the impact of these significant changes on their operations where they sell goods and services to EU consumers.

For some affected businesses, the new rules have simplified their VAT position and made their compliance obligations easier to manage but others face significant new complexities.

Below we have summarised five key practical implications that we have encountered for UK businesses as a result of the new rules:

1.The new rules appear to be impacting SMEs the most

In addition to UK’s exit from the EU, the new e-commerce VAT rules are adding to the complexities that UK businesses face when trading with the EU. SMEs that are reliant on sales to EU consumers now face additional compliance requirements and barriers to trading which impact on their competitiveness versus EU based retailers. Additionally, understanding of the new VAT rules appears to be lowest amongst SMEs.

2. Guidance on the requirements for intermediaries is inconsistent

For UK businesses without an EU establishment who are looking to make use of the Importer One Stop Shop (IOSS) scheme, it may be necessary to appoint an EU based intermediary. Different EU Member States have taken different approaches to requiring an intermediary. For example, France has confirmed that no intermediary is required for UK businesses seeking to register to use the IOSS, whereas the Belgian tax authorities have determined that a UK business registering for the IOSS there will need to appoint an intermediary (even though UK businesses with regular VAT registrations in Belgium are not required to appoint such representatives).

All of this adds up to a complex and inconsistent picture for UK businesses wishing to use the IOSS. As expected it can be difficult to identify experts willing to act as intermediaries in some countries.

3. Marketplaces are taking different approaches to the new rules

UK retailers selling on various different marketplace platforms are likely to encounter different approaches. As the new rules require marketplaces to account for VAT on sales made by retailers via their platforms in some instances, this has greatly increased the exposure of marketplaces to VAT.

Different marketplaces have adopted different strategies in response to this. For example, some marketplaces are declining to deal with non-EU suppliers or only facilitating transactions up to a specified value, some also require dual stocking on listed items. This can create a challenging position for UK retailers selling on marketplaces.

4. The EUR 150 IOSS consignment threshold creates many challenges for UK businesses

UK retailers are only able to use the IOSS for distance sales of goods to EU consumers that are imported in consignments not exceeding EUR 150. Many retailers will often make sales to EU customers that are both above and below this threshold meaning the simplified procedures are only potentially available for some of their sales. In situations where the IOSS can only be used for some supplies, the commercial and logistical difficulties this creates make use of the IOSS less attractive.

It is also clear that the concept of “intrinsic value” which is used for the purposes of determining whether a consignment qualifies as ‘low value’ has created difficulties for some UK retailers given that the rules in this area are not consistent with those for Customs Duty.

5. The reforms are encouraging some UK businesses to set up either subsidiaries or stock holdings in the EU

Generally speaking, it is easier to comply with the new VAT rules if an organisation is established in the EU or holds stock there. For those UK retailers who are reliant on selling to EU consumers, therefore, the new rules may be a driver for setting up an EU subsidiary or an EU-based stock holding in order to make compliance with the rules easier. For example, this is particularly likely to be attractive for retailers with high levels of returns or who routinely make sales to consumers that are both under and above the EUR 150 consignment threshold (see above),. Equally, we are seeing some pressure from specific marketplaces to encourage retailers to either establish an entity in the EU or fulfil sales from EU based stocks.