At the end of the Brexit transition period, new UK VAT rules entered into force which from 1 January 2021 will have UK VAT consequences for overseas e-commerce sellers and online marketplaces that sell imported low-value consignments of goods into the United Kingdom, or that sell UK-based goods to UK customers.
A consequence of these new rules is that, from 1 January 2021, e-commerce sales of imported goods worth more than £135, or of imported goods of any value subject to excise duties, to UK-based customers will attract import VAT when they are imported into the United Kingdom and declared under an appropriate customs procedure. This will be the case whether the goods are sold to the customer directly or through an online marketplace.
Generally, the person liable for import VAT will be the importer. In practical terms, this means that the seller or buyer (as appropriate) will need to settle the VAT with their customs agent or freight forwarder, which will pay the import VAT (together with any customs duty) at the customs border. However, VAT-registered customers should be able to use postponed VAT accounting to account for and recover the import VAT on the same VAT returns as their UK domestic supplies for the relevant VAT period (subject to normal UK VAT recovery rules) instead of having to pay the import VAT upfront and recover it later. Either way, neither the online marketplace operator nor the overseas seller will be liable to account for the import VAT in these circumstances, although they may indirectly be required to bear the cost of it, depending on the nature of their contractual arrangements with the importer.
Overseas sellers and online marketplace operators may nevertheless find themselves liable to account for UK VAT on business-to-consumer (B2C) sales of UK-based goods, or on B2C sales of imported consignments of goods worth less than £135 (low-value imported goods), to their UK-based customers. The overall effect of these requirements is to treat such sales as domestic supplies for UK VAT purposes, rather than imports under the import VAT rules. This means that online marketplace operators will need to either register for VAT themselves or check that their overseas sellers or buyers (as appropriate) are VAT-registered. Non-UK e-commerce sellers that have not previously been required to register for UK VAT may find that they must do so as a result of these new rules.
This article contains some guidelines to help potentially affected entities navigate the new UK VAT requirements and take action as needed. This article does not apply to goods arriving in Northern Ireland, for which there are special VAT and customs rules under the Northern Ireland Protocol.
For the purposes of this note, an “online marketplace operator” means the person who controls access to, and the contents of, the online marketplace, provided that the person is involved in (a) determining any terms or conditions applicable to the sale of goods; (b) processing, or facilitating the processing of, payment for the goods; and (c) the ordering or delivery, or facilitating the ordering or delivery, of the goods. An “online marketplace” for these purposes means a website, or any other means by which information is made available over the internet, which facilitates the sale of goods through the website or other means by persons other than the operator, whether or not the operator also sells goods through the marketplace.
Online B2C Direct Sales by Overseas Sellers to UK Consumers
Low-Value Imported Goods
Because these sales will attract UK VAT under the new rules, the overseas seller will need to charge UK VAT to the customer at the online checkout and include that VAT as output tax on its VAT return. To do this, the overseas seller must first register for UK VAT.
Online business-to-business direct sales of low-value imported goods to VAT-registered customers will be subject to a new reverse-charge rule, meaning that the business customer will need to account for the VAT on its VAT return on a reverse-charge basis. However, the overseas seller must obtain a valid VAT registration number from the customer to ensure that such reverse charge treatment applies, and must also include a note to that effect on its VAT invoice. If the seller cannot obtain of this information, then the sale should be treated as a B2C sale, with the overseas seller being liable to account for the UK VAT accordingly.
UK-Based Goods (of Any Value)
If the goods are located in the United Kingdom at the point of sale, the sale will be treated as a domestic supply for UK VAT purposes. In these circumstances, the overseas seller will be required to charge UK VAT on those sales under existing UK VAT rules and should be VAT-registered accordingly.
Online B2C Sales by Overseas Sellers to UK Customers Through an Online Marketplace
For UK VAT purposes, these sales are now characterised as two separate deemed supplies under the new rules, namely, (i) a deemed supply to the online marketplace operator, which is outside the scope of UK VAT, and (ii) a deemed supply by the online marketplace operator to the UK customer, which attracts VAT at the standard rate (currently 20%), for which the online marketplace is liable.
To collect and account for the VAT on the second deemed supply, the online marketplace operator will need to charge UK VAT to the customer at the online checkout and account for that VAT as output tax on its VAT return. To do this, the online marketplace operator will need to register for UK VAT. If the customer has already accounted for some or all of the VAT due, the online marketplace operator will not be liable for any excess VAT over and above that already accounted for by the customer, provided that the online marketplace takes all reasonable steps to ascertain the seller’s place of establishment and the location of the goods at the time of the supply, and to satisfy itself that the amounts charged were correct.
The above rules do not apply if the customer is VAT registered, and the online marketplace operator obtains a VAT registration number from the customer and passes it on, together with details of the sale, to the seller within seven days of the applicable tax point date. In these circumstances, one would expect the customer to reverse-charge the VAT instead.
Where UK-based goods are concerned, the deemed supply rules are the same as those applicable to low-value imported goods, except that the deemed supply to the online marketplace operator is zero-rated, rather than outside the scope of UK VAT.
Again, the deemed supply rules will not apply if the customer is VAT registered, and the online marketplace operator obtains a VAT registration number from the customer and passes it on, together with details of the sale, to the seller within seven days of the applicable tax point date. Instead, the sale should be treated as a domestic UK supply for VAT purposes under existing rules, meaning that the overseas seller, rather than the online marketplace, will be required to charge VAT on the sale, and should register for UK VAT accordingly.
If the overseas seller is not VAT registered when it should be, or is otherwise non-compliant with the UK VAT rules (for example, by failing to charge UK VAT when it should) the online marketplace operator will be jointly and severally liable to HMRC for the amount of VAT due in respect of all VAT-able sales made by the overseas seller during the period of non-registration or non-compliance, unless the online marketplace operator prevents that seller from offering its goods for sale through the online marketplace for a specified period. This same rule applies in cases of non-compliance by UK sellers as well.
Online marketplace operators and overseas sellers should have a due diligence checklist for all buyers and sellers making use of their website to help them ascertain whether they have a UK VAT obligation under any of the above-mentioned rules.
For online marketplace operators, the checklist should include:
For overseas sellers, the checklist should include:
In checking the VAT registration status of the transaction parties, consider asking them to confirm if they are liable to be VAT registered, particularly if they are unable to provide a VAT registration number.