From 1st July, all supplies of goods and services to EU consumers should be taxed where the consumer is located in the EU. The new rules introduce a single EU VAT registration - “One Stop Shop” (OSS) - where a business can complete a One Stop Shop return together with their normal VAT return.
Previously, a UK retailer on a platform like Amazon would have had to consider the VAT consequences of a sale to different countries within the EU (and UK) who all operate VAT. It could require that supplier to register for VAT in a number of EU countries – and with that comes administrative burden and dealing with tax systems in a foreign language.
How do the new EU VAT e-commerce rules work?
The European Commission’s aim for the new rules are three-fold:
- To reduce the costs of complying with cross border VAT rules.
- To put EU and non-EU businesses supplying EU customers on an equal footing.
- To increase VAT revenues for Member States.
The EU has issued comprehensive guidance on how the new rules will work and confirmed that all Member States will be ready to go live on 1st July. There are three different One Stop Shop schemes available:
1. Non-Union scheme
The existing Mini One Stop Shop Scheme for a limited range of B2C services is being replaced and any business that is not established in the EU but which charges EU VAT on services to consumers can now account and pay through the new One Stop Shop.
2. Union scheme
The existing Union Scheme for intra-EU supplies of digital services will be extended to cover all types of B2C services. This includes the sales of goods and certain domestic supplies to consumers that are facilitated by electronic interfaces.
3. Import scheme (IOSS)
Finally, any business carrying out distance sales to EU consumers of goods that are imported from outside of the EU in consignments, not exceeding €150, can register for the import scheme.
The new IOSS will require the supplier to charge and collect EU VAT at the point of sale with VAT settled via the IOSS. This will then allow goods to be VAT exempt at the point of import with the objective of fast customs clearance being available.
What do the new EU VAT rules mean for you?
Firstly, because of the launch of the One Stop Shop, many EU countries are now removing their distance selling thresholds. This was to remove the need for some overseas businesses to register for VAT in the different jurisdictions. However, in some instances, this will mean VAT is required where it once might not have been.
For example, Germany allowed overseas traders to make sales of €100,000 in their country before having to register for VAT. But now - because of the creation of the One Stop Shop - they have removed these distance selling thresholds and require that every sale (from as little as €1) has to follow the same protocol.
Small consignment relief rules have also been removed
Previously, when EU shipments were under €22, there were no requirements for UK businesses to register for VAT in the country of residence of the customer. This exemption no longer applies.
Meanwhile, it’s good news for those retailers selling into EU through online marketplaces. It is now the marketplaces’ responsibility to account for the VAT due on sales under €150. From 1st July, businesses who trade in this way may be able to end their EU VAT registrations, and the associated administration, as a result.
Businesses with EU warehouses
Many businesses hold stock of goods in an EU country from where they supply all other EU customers. Previously, there was a requirement for those businesses to register for VAT in each of those different countries where the customers were based. Now, registering in the location of the stock is sufficient together with the One Stop Shop registration.
Is your business ready for the EU VAT rules?
Under the changes, HMRC will introduce the required One Stop Shops to support VAT compliance but it acknowledges that the relevant portals are unlikely to be ready ahead of 1st July.
Furthermore, the recently released guidance from HMRC underlines the continuing complexity faced by businesses in Northern Ireland and those operating under the Northern Ireland Protocol, given that ongoing compliance with EU VAT rules is required.
For many affected UK businesses, making use of one of the One Stop Shop schemes is likely to be significantly advantageous compared to the potentially onerous obligations of normal VAT accounting in each EU member state.
But businesses need to ensure they are able to register in time and in a suitable Member State in order to be compliant from the implementation date. A missed deadline could be costly and there are strict compliance and record keeping rules that will be new to UK businesses. Failure to comply with these carries potentially high penalties and could result in businesses being barred from the One Stop Shop schemes - with obvious implications for ongoing VAT compliance.
About the Author
Andrew Diver is Head of Taxation at Beatons Group, based in Ipswich, Suffolk. Beatons Group provide high-quality accountancy services, tax advice, audit, management accountancy and financial outsourcing to clients nationwide. Established in 1981, Beatons has developed into a major independent provider of accounting and financial services in the UK.