Facebooktwitterlinkedininstagram

Written by David Stokes, VAT Director, Sovos 

At the beginning of the year, the Brexit agreement was finally reached and the UK and EU both knew where their respective lines in the sand were drawn. Over the last few years, Brexit fatigue in the media has been a very real phenomenon but coming at the end of a year of pandemic-related stories there was a flurry once more surrounding the UK finally having clarity. 

Without dwelling on the political arguments for and against Brexit, the UK’s move is certainly unpopular with large swathes of domestic and European media, as well as political leaders. And at the beginning of the year there were numerous stories on fishing, imports and exports, lorry parks and a host of realisations that many had come to regarding the nature of the new relationship. 

The grinding of gears

But one story in particular caught the eye of those in the business and finance worlds; stories concerning VAT rates and processes for goods coming into and out of the UK and the impact this was having on customers. 

This concerned a Dutch bike supplier who stated that they would stop shipping parts into the UK because of a ‘unique taxation regime’ implemented due to Brexit – with others quickly following suit. The story gathered attention with the company asking customers to get in touch with UK officials to decry the new charges and was picked up by several major outlets.

But in reality, the move by the UK was not spurred on by Brexit, was not unique and actually has its roots in the EU e-commerce package which is scheduled to be implemented by EU Member States on 1st July 2021. 

Separating fact and fiction

It is true that on January 1st 2021 a change to UK VAT law took place – but the fallacy is that it was to do with Brexit. This change came as a result of an EU-wide e-commerce shift to try and protect businesses from overseas sellers that could undercut them on price, via lawful means by applying the Low Value Consignment Relief (LVCR), or unscrupulously by under-declaring the value of goods to be under the LVCR threshold to avoid VAT. Brexit merely meant that the UK could implement these new rules according to its own requirements and timetable.

The change sees LVCR stopped as a system and instead the use of the e-commerce package following consultation throughout the EU. After years of complaints about unfair competition and a VAT gap in the billions, the shift will see VAT paid by the vendor when goods are imported into the EU when the goods are less than 150 Euros in value. 

With the impact of COVID-19 this year, several countries such as Germany and the Netherlands pushed to postpone the implementation of the scheme and a 6-month delay was agreed upon. But in the UK, despite leaving the European Union, there was a consensus that the scheme made sense and would impact VAT gaps, and so it continued to develop. The long and the short of the story is that the UK simply implemented this before the EU, which, combined with the Brexit deal dates, made it appear to be an individual decision by the country. 

When looking further afield, as well as the 27 Member States of the EU putting the e-commerce package in place by July 2021, currently the likes of Norway, Switzerland, Australia and New Zealand already have these rules in place too. 

The situation for businesses 

As with anything to do with increased or more stringent tax and associated import/export rigmarole, there is an inevitable pushback against these systems coming into play at the moment in the UK. Because the package protects UK businesses but is yet to be implemented with the EU, countries such as the Netherlands will currently be feeling as if they are playing with a loaded die. But once the package makes its way through the European Union, there will be a clear sense that the playing field is level once more with global sellers unable to undercut price as they once could. 

But all of this – from individual businesses blocking exports to the UK through to the misleading reporting on the topic – shows that there is a need for better communication and understanding of these rules. 

Technology is coming to the fore with increasingly digitised tax regimes, the use of systems such as the EU ‘one-stop-shop’ to minimise the documentation needed when selling across Europe and new schemes that will place the onus for tax collection on online marketplaces. Specialists operate in these areas, simplifying and automating tax and VAT processes, and crucially ensuring that businesses know what they need to pay, what details to give and the time frames for doing so. 

But this story is just one in a long line of issues that shows there is still much to be done to combat misinformation and indeed imply not knowing what is happening in import and export. For governments and organisations such as the EU to ensure that businesses are aware, compliant and supportive of new measures, there needs to be clear communication and education around what is happening and why. And that responsibility extends to those working in finance and its corresponding media too. Businesses may have already made ill-advised decisions based on the conflation of e-commerce rulings and Brexit; something which we can’t afford to see continue as the business world continues to bounce back from a year of the unknown. 

  

Facebooktwitterlinkedininstagram