With Brexit and the pandemic, the past year has been incredibly hard for a lot of businesses. You may have heard that on the 1st July 2021 the way that VAT is handled for online sales from businesses worldwide to consumers in the EU has changed. Understanding exactly what this means can be a minefield so we thought it would be a good idea to break this down, so you can see what this means for your business.
What Are The New Regulations?
Although it may sound complicated, the idea behind the EU VAT e-commerce legislation is actually to make things easier for businesses selling across the EU’s national borders. Traditionally, the Mini-One-Stop-Shop (MOSS) has been used for lots of digital services, and this new regulation is really just an extension of that.
The new measures extend MOSS by opening it up to more services and goods including those imported into the EU. Helping to simplify the CAT process for many more types of sales. Alternatively, businesses can register and pay VAT in each of the EU countries in which they sell to consumers. B2B sales from a business within the UK to a business in an EU country are generally subject to the reverse charge.
One Stop Shop (OSS)
This is a new online portal where businesses can report non-domestic VAT. Intra-community distance sales are those where a VATable supply of goods is made from one EU country to a consumer in a different EU country. This can also be reported using the OSS, which is split into two different versions:
Union OSS – this can be used by businesses that are established in the EU, and can be used to report VAT on both intra-community distance sales, and non-domestic sales of services to EU consumers.
Non-Union OSS – this can be used by businesses that are established outside the EU and can be used to report VAT on sales of services to EU consumers only.
Just to clarify, the VAT rate of the destination country is charged at the point of sale, then reported and paid quarterly via an online portal.
Import One Stop Shop (IOSS)
Just like OSS, this is also optional, and if not used then a UK seller would continue to zero rate the export for domestic VAT purposes – the VAT is then applied upon import. IOSS offers a less confusing solution for customers as they can see a single accurate cost.
IOSS applies to online sales that are business to consumer imports of goods into the EU from outside the EU. They can also only be used for consignments of a value of £130 or less. The main advantage of IOSS is customer satisfaction, as they will be able to see a clearer final price.
On 1st July 2021, EU place of supply / distance selling thresholds were removed. Previously, this meant that VAT only applied to the intra-community distance sales if annual turnover was greater than £31,000 to most EU countries. The removal of this threshold was a mandatory change, and went hand-in-hand with the introduction of OSS (to encourage businesses to use it!).
Low-Value Consignment Relief
The final amendment that came into place as part of this VAT change was the abolition of low-value consignment relief. This means that import of goods less than £20 are no longer exempt from imported VAT. VAT must be charged on all goods, whether that be import VAT at the point of entry, or at the point of sale by the seller where the IOSS is used.
The main reason this change was introduced was in order to level the playing field between domestic and non-domestic sellers who were at an unfair advantage when selling goods below £20. Whilst low-value goods imported into the EU now incur VAT, sellers are now able to use the IOSS in order to help with the administrative aspect of the VAT.
We hope this has helped to clear up some of the confusion regarding the recent VAT changes within the EU. Of course the OSS and IOSS affect businesses in different ways, depending on the type of sales that you carry out. You may have to reconfigure both your ecommerce software and your accounting software to make sure everything is all aligned correctly. If you would like any help or advice on this topic, please give our experts a call on 01482 828000.
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