New EU VAT e-commerce rules explained for online sellers
On 1 July 2021, the European Union implemented changes to the VAT obligations for businesses selling directly to customers (B2C). Find out what this means for your business.
On 1 July 2021, the European Union implemented changes to the VAT obligations for businesses selling directly to customers (B2C). This is part of the EU VAT e-commerce package.
There are two major reforms: the end of Low Value Consignment Relief (LCVR) and introduction of the Import One-Stop-Shop (IOSS), and the launch of the One-Stop-Shop (OSS).
The IOSS is relevant for businesses based in England, Scotland, or Wales that sell goods or services to the EU, as well as businesses based in Northern Ireland that sell services to the EU. The OSS is relevant for businesses based in Northern Ireland that sell goods to the EU.
1. The end of low value consignment relief and introduction of the IOSS
Previously, EU and non-EU based sellers selling goods online to customers in the EU valued at less than €22 were exempt from import VAT. This was known as Low Value Consignment Relief (LVCR). From 1 July 2021, all goods will be subject to the import VAT of that EU country.
To facilitate this change, the IOSS will be introduced, allowing businesses registered with the IOSS to collect the import VAT of B2C orders at point of sale. Businesses can register in any EU Member State,and once registered you will then report and pay the collected VAT for each EU country every month via the IOSS. IOSS can only be used for consignments of €150 or less.
IOSS simplifies VAT for consumers as they will see accurate costs at checkout. So, rather than applying VAT upon import, with IOSS it will already have been calculated and applied, meaning there’s no surprise fees for your customer. It also helps to streamline the movement of goods through customs.
If your business is established outside of the EU, IOSS requires you to appoint an intermediary to act on your behalf. It was confirmed that this applies to the UK on 10 June 2021.
What if I can’t afford to appoint an intermediary?
Some marketplaces will collect import VAT automatically on any applicable orders, as they have signed up to IOSS under the new deemed supplier rules. If this is the case, you’ll need to include your marketplace’s IOSS number in your electronic shipping data fields for B2C imports into the EU where your consignment value is €150 or less. Check with your marketplace for more information on this.
If you do not wish to register for the IOSS, or if you do not sell via an online platform registered with it, VAT will be collected on importation of the goods into the EU, as is currently the case for high-value goods. This would normally be collected by the relevant courier or postal operator, with the customer only receiving the goods once the VAT is paid.
The courier or postal operator is likely to charge you a clearance fee for this service, and you may wish to make it clear to your customers that they are responsible for any import VAT, taxes or fees as a result of these new rules.
2. The launch of the One-Stop-Shop (OSS)
In parallel to the launch of the IOSS, the EU has also launched a One-Stop-Shop (OSS) for intra-EU distance sales of goods and B2C supply of services.
In accordance with the Northern Ireland Protocol, which means that Northern Ireland maintains alignment on some EU VAT rules for goods, the OSS can also be used by Northern Irish businesses for movement of goods from Northern Ireland to the EU.
Northern Irish businesses with annual EU sales of goods over a new EU-wide threshold of 10,000 euros can register for the OSS instead of registering for VAT in each EU Member State where their buyers are located. The OSS is optional but allows Northern Irish businesses to declare and pay VAT for EU goods sales quarterly via one portal.
Northern Irish businesses can register for the OSS in any EU Member State in which they’re registered for VAT. Alternatively, a Northern Irish business should be able to register for VAT in the UK (if not already registered), obtain an XI EORI number (if not already obtained), and use a UK version of the OSS operated by HMRC. Currently, however, the UK OSS is not operational.
What does this mean for me?
1. Decide if you need to register for the IOSS, or the OSS if a business based in Northern Ireland selling goods to EU customers. Registration is optional, but you must use the scheme for all your sales to EU consumers if you register. If you register after 1 July 2021, this will apply from the next quarter.
2. If you sell through your own website, variable VAT rates will need to be applied depending on where you’re selling to in the EU. Many online platforms have this functionality built in.
3. Selling through a marketplace like Amazon or Etsy? Check with your marketplace to see how the new deemed seller rules will affect you.
Where can I go for more advice?
• The European Commission has published guidance on the IOSS and OSS, available here.
• HMRC has published guidance on the OSS for businesses based in Northern Ireland, available here.
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