You may have read about Brexit whether you stay without or outside the United Kingdom. That is because Brexit is already having a major impact on eCommerce/digital businesses throughout the world. The United Kingdom’s official exit from the European Union (EU) on January 1, 2021, is a major concern for every business as it will affect VAT. But, how exactly will Brexit affect VAT, or what are the effects of Brexit? In this article, we highlight the economic effects of Brexit on eCommerce.
As of January 1, 2021, trade between the UK and EU nations will be handled as import and export and as such, will be dominated by tariffs, custom, and VAT charges. Analysts foresee that this will create real difficulties for businesses in the UK and if urgent action is not taken, cash flow may be disrupted. Any UK-EU based eCommerce business that wants to thrive this year will have to prepare for various forms of uncertainties. This guide is not to be you scared but to make you aware and help you prepare.
What Is Brexit
Brexit simply means British Exit or withdrawal from the European Union. In March 2017, the UK government announced the country’s withdrawal from the EU. After months of negotiations, the UK has finally agreed on a deal to withdraw from the European Union on the 31st of January 2020. However, there was a transition period that ended on the 31st of December 2020. As of 1st of January 2021, new rules on VAT systems among others are implemented.
What Is VAT
Value-added tax (VAT) is a type of tax that is levied on the price of goods and services at every point of production or distribution cycle, beginning from raw materials to the final consumer. In January 2015, the VAT MOSS service was introduced to remit the VAT to the relevant tax authority and to declare VAT due on sales to EU-based customers. However, as the transitional period already expired on December 31, 2020, UK’s VAT MOSS will no longer be available for digital businesses. Therefore, businesses must note that the existing VAT MOSS threshold of €10,000 would no more apply since the UK is no longer an EU member state.
Brexit Impact On Uk Trade And Vat
Brexit will greatly negatively impact your business if:
· your company moves goods through the UK
· your sells goods or supplies services from or to the UK
· your business uses UK goods and materials to trade under preferential schemes with European Union partner countries
VAT rules relating to imports and exports to and from the EU will change following the end of the transition period. During the transition period, prior to Brexit, the UK was part of the EU VAT regime. As such, any UK business didn’t have to register for VAT in each EU country. However, things will change come January 1st, 2021 - UK businesses will treat EU countries like foreigners and vice versa. Here’s a typical post-Brexit illustration.
When a consumer from any EU country buys online from a store in the UK, the consumer may have to pay outstanding VAT and customs duty. Before, there was nothing as such – no customs and VAT because the entire EU nations were as one. This will change the shape of online businesses a lot like an increased administrative burden will affect cross-border shopping which may lead to a potential loss of competitiveness.
Although VAT will now be payable upon import, the good news is that the UK government has made a smart decision by introducing the postponed VAT payment system to avoid cash flow issues. As such, businesses importing goods into the UK can get their goods without the need for immediate VAT payment. However, only large businesses with high-profiled guarantors will enjoy this. What’s now the hope for small eCommerce businesses in the UK after Brexit?
Strategies On How To Respond To Brexit Impact On Uk Trade
For now, there are four major strategies to tackle these VAT issues – using a cloud-based accounting tool, taking several actions, EORI number, using suppliers outside the EU or UK.
1. Using a cloud-based accounting tool
Using a cloud-based accounting tool is an easy way to handle VAT issues related to Brexit and eCommerce. This powerful tool will help to automate the entire VAT process, including charging the correct VAT rate, collecting payment, and issuing the proper invoice. It handles all tax compliance for you and ensures that all of your records are safely stored in the cloud, even if your computer crashes. You can invest more time in building your business and taking care of your customers instead of fretting over tax craziness.
Here are some features of the best cloud-based software:
· On the checkout page, the software will calculate the exact amount of tax to charge each customer.
· Automatically verify the customers’ VAT numbers.
· Generate invoices in different languages and currencies.
· Automatically send VAT invoices.
· Keeps you updated by notifying you whenever there is a change in any tax policies or tax rates.
· Collect and store the customer data that you need, including location evidence.
· Ensure your business never overpay on VAT returns.
2. Take several actions
The information circulating all over the internet shows that EU-UK trade for eCommerce will change significantly from July 1, 2021. As such, businesses are expected to take several actions including:
· Get counsel from your logistics providers or customs agents
· Learn about the impact of Brexit on European Union and its implications on eCommerce
· Apply for VAT registrations and GB/EU EORI numbers and vat where applicable
· Let your customers and suppliers know about the changes
· You may need to apply for a license to import goods into the UK
· Get acquainted with customs requirements on every good
· Use the correct commodity code for the classification of goods
· If you import regularly, use duty deferment account to pay VAT, duties, and excise duty monthly, rather than paying them after every import
· Remember EU VAT refunds begin from March 31, 2021
3. EORI number
As of January 1, 2021, UK businesses will now need one or more of three different types of Economic Operators Registration and Identification (EORI) number as a means of identifying businesses or operators who import or export for:
· Business in Great Britain
· Businesses moving goods to or from Northern Ireland
· Businesses making declarations or getting customs decisions in EU countries
Bonus Tips: Dropshipping Business On SaleYee.com
No doubt, Brexit will affect online sales and this is a big blow for not only suppliers in the UK, but for suppliers worldwide. As a retailer, you need to start weighing other options outside the UK or the EU. There are tons of reliable and trustworthy suppliers in China, Australia, or the US that you can partner with. However, you will find quality products with high-profit margins from suppliers in China, such that will cushion the effect of VAT changes. For example, the SaleYee platform is China’s reliable dropshipping wholesale supplier. SaleYee dropshipping platform offers big discounts on products in various categories including fashion, furniture, toys, lighting, make-ups, jewelry, etc. They make dropshipping easier for every online merchant by providing:
· 30,000+ profitable SKUs from various categories
· Fast 24-48 hours delivery thanks to over 700,000+ sq.m. local warehouses around the globe
· Free delivery on most orders
· Excellent 24/7 customer support
· Big discounts and seasonal sales
· Membership is free – no hidden fees, no listing fee, no inventory needed to get started
· Up to a 3-month after-sales period
Buying at a cheaper rate from trusted suppliers is a great way to escape Brexit shipping and VAT changes. Fortunately, the SaleYee platform provides the atmosphere to reduce the impact of Brexit eCommerce.
Conclusion
It is better late than never. Folding your arms or caring less about Brexit impact on VAT will cost your business greatly. Small, medium and large businesses should endeavor to get the licenses required to carry on with imports and export. If you have not started preparing for Brexit effect on exports, then you had better get started now.
