While the UK voted to leave the EU on June 23, 2016, the real impacts of Brexit are just starting to sink in for many eCommerce businesses as Brexit officially took effect on January 1, 2021.
In this post, we’re going to take a closer look at what this means for eCommerce businesses.
Does it make sense to continue selling into the UK market?
This is a question that a lot of international eCommerce entrepreneurs should be asking themselves.
On the one hand, the UK is the fourth largest eCommerce market in the world.
On the other hand, Brexit has created a lot of new red tape and bureaucracy for anyone looking to import goods into the UK.
By and large, most medium and large eCommerce businesses will comply with the new regulations and continue business as usual in the UK. However, for small merchants or anyone who doesn’t have many customers in the UK, the new regulations might create more hassles than it is worth.
In fact, we’ve heard of a few people even considering withdrawing from selling to the UK altogether because they don’t want to deal with the red tape, getting VAT numbers, EORI numbers, and new shipping and delivery logistic hurdles. (More on that below)
Understanding UK VAT
Importing to the UK
The biggest change is that you now have to collect and pay VAT at the point of sale on all imported goods with a value of £135 or more. For B2B sales, VAT will be reverse charged to the customer.
When it’s under £135, you can account for VAT on your next VAT returns, but if they send something that’s over £135, they have to pay it at the moment of sending, like an import tax.
Most sellers are eating the costs and paying it themselves instead of passing it on to their customers. However, it is always a good idea to review your P&L statement before you decide whether you are going to pass that VAT on to the customer, increase your prices, or absorb it yourself.
Pro Tip: If you decide to absorb the costs, make sure to include a line item for UK sales VAT.
The other big change is that all overseas sellers – including those in the US, Canada, Australia, and all EU countries – are now required to register and account for VAT to HMRC.
Once you’ve registered as an overseas company, you’ll need to get a UK VAT number. And then, once you have got your UK VAT number, you’ll also need to apply for an EORI number. This requires a considerable amount of time, paperwork, and administrative burdens to ensure you are fully compliant, especially for smaller businesses.
You’ll also want to update your tax settings in your eCommerce platform, such as Shopify and WooCommerce.
Pro Tip: If you are looking for additional considerations and are based in Australia, check out this post.
Exporting from the UK to EU
For all VAT-registered UK businesses, No VAT is charged when exporting to non-EU countries and EU businesses.
Goods that are exported by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds.
Customs border tariffs
This means that border checks have now been introduced for all goods entering and leaving the UK. This has led to increased paperwork, extra checks, processing delays, and increased costs for sellers.
Shipping and processing delays
Due to increased border checks and increased paperwork, many eCommerce businesses are already experiencing significant delays to their supply chain with an increased lead time in shipments being delivered both ways.
If you are not proactively communicating these order delays, this can lead to more refunds, unhappy customers, and damage to your brand’s reputation.
This can be particularly problematic if you sell products that require refrigeration, such as meat and ice cream. Having these orders delayed by UK customs for an extra day or two means the order could spoil before it arrives to customers.
For larger international eCommerce businesses that are processing a high volume of UK orders or smaller companies that sell goods that require special processing and handling – like refrigeration – it might make sense to set up a warehouse in the UK to speed up order processing. This means you’d only have to import things once into the warehouse and then ship to anyone in the UK from there.
With the implications of Brexit only just starting to be felt in the eCommerce industry, nobody knows what the real second and third-order effects will be from this massive change.
However, in the near term, you can expect more administrative paperwork, red tape, and delays when it comes to importing and exporting into the U.K. Whether you need help registering and getting VAT and EORI numbers to sell into the UK or want help analyzing your P&L statement to account for the recent changes, we can help. Schedule a free call with Tom, our U.K.-based accountant, here.