When the Brexit transition period ends on 31 December 2020, different value-added tax (VAT) rules will apply to Northern Ireland (NI) as opposed to England, Scotland and Wales.
There will be a distinction in terminology between the UK,which will encompass NI, England, Scotland and Wales, and Great Britain, which will comprise only England, Scotland and Wales. The EU guidance also uses the term ‘the UK in respect of NI’, ie, excluding England, Scotland and Wales. Particular care will therefore be required to ensure that the correct rules are applied to the correct territory.
For an initial period of four years, The Republic of Ireland (IE) and NI will be parties to a protocol. In accordance with this protocol, NI will be treated as a member of the EU and the current EU VAT and customs rules will continue to apply.
GB, however, will no longer be a member of the EU and will cease to be bound by, or able to take advantage of, its current status as an EU member state.
The EC issued an updated Notice to Stakeholders on 16 April, setting out how the new regime will work in terms of cross-border supplies of goods and, in particular, the arrangements for supplies of goods between NI and IE and between NI and GB. This will have a significant impact on the VAT treatment of distance sales.
Distance selling refers to sales made to non-taxable persons.
These will be sales from a business to consumers (B2C), for example, retail customers or sales to businesses that are not required to be VAT registered.
From 1 July 2021, Article 14 of the VAT directive will extend this definition so that the distance sales rules will apply to supplies of goods transported by or on behalf of the supplier, “including where the supplier intervenes indirectly in the transport of the goods”.
This change is intended to prevent sellers circumventing the distance selling rules by utilising third-party distribution companies to transport goods to the end customer.
Under the current rules, distance sales by a UK business, including in NI, to a customer in another member state are treated as a domestic sale in the country in which the customer is established. The UK supplier is therefore treated as making the supply in the customer’s member state.
Subject to the VAT registration threshold in the customer’s country, this may create a liability for the UK company to register for VAT in that member state, or in any or all states where the threshold is exceeded. Thus, a supplier may be required to register in all 27 member states in respect of its distance sales. This may be arranged by a fiscal representative or agent.
Suppliers of goods on a distance selling basis from another member state to a UK customer may, therefore, require the supplier to register and account for VAT in the UK. Where the supplies to customers do not exceed the VAT registration threshold in a particular member state, the supplier is required to charge VAT at the rate in force in the member state in which the supplier is established.
For example, a sale by a supplier in France to a non-VAT registered customer in the UK will carry French VAT unless the supplier’s sales to the UK exceed the distance selling threshold (currently £70,000 per calendar year), in which case the French supplier will be required to register and account for UK VAT, charging UK VAT to the customer, as appropriate.
From 1 July 2021, an optional scheme is to be introduced covering the distance selling of goods with an intrinsic consignment value less than EUR 150. This scheme will be available to both EU and third-country suppliers, including in NI and GB, selling goods direct to end customers in the EU.
Under this scheme, the seller of the goods will be required to appoint an intermediary in a single member state, unless the seller is established in a country with which the EU has concluded an agreement on mutual assistance and from which it carries out the distance sales of goods.
The supplier will charge and collect VAT at the point of sale and the intermediary will declare and pay that VAT to the appropriate member state via a ‘one-stop-shop’ (OSS).
If a non-EU supplier chooses not to use the OSS, any import VAT due on the importation of goods (with a value below EUR150) will be collected from customers by the customs declarant (eg, the courier, postal operator or customs agent), who will, in turn, pay over the VAT to the tax authority by a monthly payment.
Where non-EU suppliers make direct sales to end consumers and the intrinsic consignment value exceeds EUR 150, the supplier will be required to treat these sales as exports or imports, as they do at present.
The current low value consignment relief, which allows goods to be imported from third countries where the value is below EUR 22, will cease with effect from 1 July 2021.
Goods subject to excise duties will not be eligible for the OSS and will be subject to the normal rules for third-country imports, as at present, and a full customs declaration will be required.
After the transition period, goods to the value of less than EUR 150, with the exception of alcoholic and tobacco products, perfumes and toilet waters, will not be liable to customs duty where they are imported from a non-EU territory for delivery direct to an end consumer in the EU.
However, the movement of goods, including distance sales to consumers, will become subject to customs supervision and controls.
According to EU law, goods brought into the customs territory of the EU are subject to customs supervision and may be subject to customs controls. Goods must be presented to customs. This applies equally to goods acquired online and subsequently delivered via parcel delivery from the UK as of the end of the transition period, whether those goods are sent by post or by express couriers.
The customs declarations and documentation required may be different depending on the value of the consignment and the means of delivery; ie, whether delivery is being made by post or by courier).
The current mini-one-stop-shop scheme (MOSS) and non-Union MOSS schemes for services will be extended and incorporated into the OSS.
Businesses operating electronic interfaces, such as marketplaces or platforms will, in certain situations, be deemed for VAT purposes to be the supplier of goods sold to customers in the EU by companies using the marketplace or platform.
Where this applies, marketplace operators will be required to collect and pay the VAT due on these sales. The responsibility for product VAT liability will, however, rest with the seller.
Under the new arrangements, for businesses with regular, low-value sales across a number of EU member states, reporting such sales under a single VAT registration through the OSS system may be less onerous.
However, businesses with higher-value transactions, businesses storing fulfilment or similar stocks in other member states and businesses using marketplaces, will need to review their VAT reporting obligations and supply chains to ensure compliance and maximise any opportunities for streamlining VAT reporting.
For support in adapting your business to the new distance selling rules, contact Karen Robb.