VAT on low value consignments

As Brexit approaches, a number of important tax changes are coming into place for businesses.  Many of these changes will mean that from 1st January 2021, EU and non-EU countries will effectively be treated the same for VAT and Custom Duty purposes.

HMRC recently released information relating to the VAT treatment of consignments not exceeding £135 from 1 January 2021[1].

The new arrangement will abolish Low Value Consignment Relief, which relieves import VAT on consignments of goods valued at £15 or less. Please remember that the £135 threshold applies to the value of the consignment (excluding other costs such as transport and insurance), not to each individual item within the consignment.

 

How these changes will affect businesses

The changes will affect non-UK businesses selling goods directly to both UK businesses and private individuals. The change will also affect businesses running Online Market Places (OMPs) for overseas sellers. The UK tax authorities will require many overseas businesses that are not currently registered for VAT in the UK to be registered for VAT in the UK with effect from 1 January 2021.

If a non-UK business sells goods using OMPs, OMPs will be collecting and accounting for the VAT.  However, where goods are sent from overseas and sold directly to UK consumers without an OMPs involvement, the overseas seller will be required to register and account for the VAT to the tax authorities in the UK.

If the UK customer is VAT registered in the UK and provides its valid VAT registration number to the overseas seller or to OMPs, the VAT will be accounted for by the customer by means of a reverse charge. In that case, the overseas seller will not need to register for VAT in the UK if the sale did not involve OMPs.

The new rule will increase OMPs responsibilities such as checking the location of the goods, the value of the goods, whether the customer is a VAT registered business or private individual and what VAT rate will apply on the goods etc.

The UK based Garbutt and Elliott tax team has recently won a national award for “Best Tax Team in a Regional Practice”.  We have broad experience helping UK and non UK businesses navigate VAT and Custom Duties.

Please feel free to contact Naveen Sahney at nsahney@garbutt-elliott.co.uk or Alex Millar at amillar@garbutt-elliott.co.uk for any further help or assistance required.

[1] Note that the release does not cover matters specified in the Northern Ireland protocol and we hope they will release the information before the transition period ends.