Brexit: what are the new rules?

Following the United Kingdom's exit from the European Union, trade exchanges have changed between these two entities. Despite this thunderclap, on December 24, 2020, a trade and cooperation agreement was concluded between these two protagonists. This post-Brexit agreement determines the rules applicable to relations between the United Kingdom and the European Union from January 1, 2021.

From now on, commercial relations with the United Kingdom can no longer apply the rules of the European Union, and rely solely on the competences of the British tax authorities . As of 1 January 2021, deliveries and movements of goods between the European Union and the United Kingdom are now subject to VAT rules on imports and exports , as well as the associated customs formalities. These import and export operations now involve filing a specific declaration with the customs and indirect duties administration at the time of import or export of the goods.

If this is your case, we strongly urge you to contact the local tax authorities to be sure of the correct tax rate to affiliate with your goods, in order to then pay them correctly.

A new British VAT

Following the transition period, new UK VAT laws came into force on 1 January 2021 and affect EU and non-EU merchants selling to UK-based entities.

There are two weights, two measures:

• within the European Union, procedures are simplified and EU merchants can be exempted from registering for VAT in other countries when they sell in other Member States - as long as they do not do not exceed the threshold of €10,000 in total. On the other hand, above this threshold, registration for VAT in their country of origin remains compulsory .
• for any interaction with the United Kingdom, this type of simplified procedure does not exist . This applies to UK merchants wishing to sell to EU customers, and vice versa, EU merchants wishing to sell to UK customers.

This major change requires numerous checks and an update of your tax processes if you are in the following situations:

• a British merchant, whose business is established in the United Kingdom,
• a merchant from the European Union, whose business is established in a country of the European Union,
• or a merchant outside the European Union, whose business is established in a country outside the European Union and outside the United Kingdom.

→ The case of goods located in the United Kingdom

Any shipment from the United Kingdom to a member country of the European Union is now counted as a shipment of goods from a customs union to outside it .

From now on, this type of shipment - which was practiced until then in the EU - has turned into export , and involves greater fiscal constraints, but also customs, with the establishment of declaration prior to exit (customs declaration, re-export declaration, or exit summary declaration). This export must be governed by the customs regime .

Britons will also need to register for VAT and account for import VAT into the EU. It can be recovered a posteriori under certain conditions.

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→ The case of goods located in the European Union

In the other direction, for EU merchants selling goods to UK customers, this is referred to as importing - with the receipt of goods from a customs union into a foreign customs union - rather than acquiring - with the receipt of goods from one EU member country to another member country .

With the new UK VAT, the sale of goods with a value equal to or less than 135 GBP (≃157.84€) requires you to register for VAT in the UK and will then be collected at the point of sale and remitted by merchant. But if you already have a UK VAT number , the tax will be applied directly to your customers .

On the other hand, for the sale of goods with a value of more than 135 GBP , you are not necessarily required to collect VAT at the point of sale . Therefore, VAT and customs fees will be paid by the importer . But there are a few exceptions:

• if you have a UK VAT number , this will not be applied to your sales to UK customers .
• If you wish, you can charge VAT and customs fees to your customer at the time of sale, then pass them on to the shipper or importer using a shipping label .
• you can also get rid of all this and send orders without charging VAT and customs fees . It will then be your customer who will pay them upon receipt of the order .

→ Goods stored in countries outside the EU and UK

This new UK VAT applies to everyone, including non-EU merchants. The latter should be able to register for VAT in the United Kingdom if they wish to sell goods in this territory. Here, we are no longer talking about customs, but about law . And still according to this limit of 135 GBP:

• if you are selling goods of a value less than or equal to this limit, you will need to register for UK VAT and collect the VAT through your point of sale. On the other hand, if you already have a VAT number and you apply the taxes per registration, this tax will be applied to your sales to customers in the United Kingdom .

• if the sale of your goods exceeds this limit , then you will not be required to collect VAT at the point of sale. From then on, the VAT and duties will be paid by the importer . Idem, several scenarios exist:

  ⇒ If you apply tax per listing and have a UK VAT number, then this tax will not be applied to your sales to UK customers .

  ⇒ You can also charge VAT and duties at the time of sale to your customer , then transfer these amounts to the shipper or importer using a shipping label.

  ⇒ And last possibility, you will be able to send orders, without charging VAT and duties, and your customer will pay an additional amount upon delivery of his order.

The exception of Northern Ireland

With the occurrence of Brexit, Northern Ireland has adopted dual status and is part of the European Union and VAT tax regimes.

If you use the tax by registration systems, the VAT is calculated according to the origin and the destination of the goods.

A breakthrough for the European Union

But from July 1, 2021, the individual thresholds for countries will no longer apply since a single threshold will apply to the whole European Union. Indeed, a new Single Window (OSS) program and an Import Single Window (IOSS) program will be proposed to replace the Mini VAT Window (MOSS) system.

Update your tax settings

You may need to make some changes to your tax settings.

NB : You will probably have to modify your T&Cs on the "imports and customs taxes" part.

Tax settings per registration

If you are already using a tax per listing system in the UK, your listings will update automatically. For new registrations, we invite you to be vigilant.

After each registration with the tax authorities of a country, you will obtain a VAT number (value added tax). This number is issued by different countries to allow merchants to charge value added tax . With Shopify, if you're selling in the UK, all you need to do is update your tax settings and fill in your VAT number. All tax rates will then be automatically configured and applied to the domains for which you are registered.

On the other hand, if you are not subscribed to these tax parameters per subscription , your tax parameters will not be updated . You will need to intervene to update your tax rates.

The EORI number

The EORI number (Economic Operator Registration and Identification Number) is the identification code used to track and record authorizations, approvals and customs decisions . Whereas before, you only needed a single EORI identifier, since January 1st - with the separation of the United Kingdom from the European Union and the entry into force of the new VAT - you are in the ' obligation to have a separate EORI number for the United Kingdom and for the European Union .

And if you import goods into the European Union, without EORI or with an EORI from the United Kingdom, you will need to apply for an EORI for the European Union . For any more detailed information, we invite you to contact the local tax authorities concerned .

The same goes the other way around: if you want to import goods into the UK, without EORI, or with an EORI from the EU, you will need to apply for a UK EORI . To do so, register with HM Revenue and Customs.

HS codes for international

There is also a Harmonized System (HS) code that allows you to identify products shipped internationally so that the taxes and duties applied to shipments are accurate . This system was put forward by the World Customs Organization and offers resources to learn more about this system, and even a search system to find your HS codes against each of your products.