Back in the summer of 2016, the United Kingdom (UK) voted by a slim margin to leave the European Union (EU) in what has become known around the world as “Brexit.” The UK continued their involvement in the European Union Customs Union (EUCU) and European Single Market during a transition period in 2020, but that ended, as of December 31.
The move has significant ramifications for the ecommerce community, so it's essential to understand the way in which Britain has exited and how a recent agreement will change the trajectory.
The EU and UK reached a trade deal in late December, 2020.
After about nine months of negotiating, the EU-UK Trade Cooperation Agreement was reached on December 24th, just days before the end of the transition period.
This bypassed a “no-deal Brexit,” which was worrisome to many with ecommerce interests, due to the risk of expensive external EU tariffs, a chain of possible transaction charges from banks and other entities, as well as significant delays caused by new information requirements.
While a trade deal didn’t rule out those factors, it lessened their extent. It also avoided what has been referred to as an “evident border” that would have been be created between the Republic of Ireland and Northern Ireland and could have stifled the free trade of goods between the two countries.
However, even with the trade deal in place, Brexit has moved forward, which changes the landscape for ecommerce companies with business flowing to or from the UK and EU.
Certain import tariffs apply, despite the “zero tariff, zero quota” agreement.
According to the tax compliance experts at Avalara, many ecommerce businesses are facing the threat of double taxation, specifically major marketplaces that were required to clear goods into the EU or UK ahead of the 2021.
The trade agreement states no tariffs or quotas on goods, a major win for businesses and consumers that avoided potentially losing billions in additional taxation. The only caveat? It requires tracking and self-certification, adding a level of challenges that can still result in tariffs. Hundreds of thousands of businesses moving goods between the UK and EU will have to complete customs declarations for the first time and follow specific rules of origin, but many might not be able to qualify for selling.
“Since many UK and EU sellers have imported their inventory from China or elsewhere into their domestic stores, they will not be counted as originating from the UK or EU under customs ‘rules of origin’. Shipments to EU consumers from the UK, and vice-a-versa, will therefore still subject to EU or UK tariffs,” writes Richard Asquith, VP Global Indirect Tax at Avalara.
Asquith says while customs thresholds have been set up for smaller selling markets, many large sellers won’t meet those levels unless they can prove their stocks originated from the UK or EU. That’s significant as major players like Amazon and eBay have historically dominated the UK’s ecommerce market share, which happens to be the third largest ecommerce market in the world.
Brexit changes VAT regulations, EORI number requirements and logistics.
Let’s take a close look at the list of changes ecommerce businesses will need to adhere to:
1. Value-Added Tax (VAT)
VAT is defined as a tax that is placed on goods and services at a given point in the supply chain and is paid by the customer. While previously, UK companies didn’t have to register for VAT within other EU countries because of set laws for the entire union, it is now required that VAT regulations be followed, just as they would for countries outside of the EU.
Sage notes that safeguards have been put in place to avoid immediate cash flow issues but that there will be a number of administrative changes:
- Import VAT accounting – on goods exceeding £135.
- Special ecommerce rules must be followed on imports beneath the threshold amount – such as VAT being applied at the point of sale, instead of at customs.
- Exports to EU countries are zero-rated for UK VAT – which applies for B2B and B2C companies, the same as is currently done for non-EU countries.
- Northern Ireland has its own protocol – with different rules for the supply of goods and services.
VAT has registration requirements and specific VAT numbers that are assigned throughout the processAccording to Shopify, a local VAT representative may also be required for countries you’re selling to, in order to successfully complete tax reporting and payment information.
2. Economic Operators Registration and Identification (EORI) numbers
An EORI number is now required and will be used to keep track of which businesses are exporting or importing to the EU. Those without the proper identification could be required to incur costs, such as storage fees, as well as delays. Here’s what the UK has to say about EORI numbers:
- They must start with “GB” to trade with EU countries (for businesses in Great Britain).
- You’ll need an EORI number from an EU country if your business will be making declarations or getting a customs decision in the EU.
- Moving goods to or from Northern Ireland may require a second EORI number with the prefix “XI.”
- An EORI number may not be required if you a.) only provide services or b.) move goods between Ireland and Northern Ireland.
Ecommerce businesses should view the full rundown of information about EORI numbers to make sure they are correctly following the changes.
Preparing for the possibility of delays is a must with all of the modifications, especially new declaration requirements, sanitary measures and phytosanitary controls, as well as rules on excise and other goods.
Your company should create contingency plans for any backups, and regularly evaluate every step of their selling process. If delays occur, work with your customers and be as transparent as possible about recent changes and provide information when you receive updates. Even with the transition process completed, there will likely still be growing pains.
A few key information pieces for moving goods that can help you avoid delays:
- If you’re exporting or importing goods with the UK and EU, have the complete government plan on hand as a reference. Companies exporting goods from the UK can also follow this step-by-step guide.
- Logistics UK offers a complete Brexit Advice Hub with a variety of resources, links, webinars, and a member advice center (MAC) regarding logistics related issues.
- There are also end of transition government helplines available.
You can even use the “Brexit checker,” which creates a personalized list of actions that you can implement in your business process.
Brexit will require many ecommerce businesses to change their strategy, and a solid plan can help you quickly adapt your policies and selling structure. At Americaneagle.com, we have thought-leaders who can help you navigate this difficult time with the latest ecommerce web design and development services. If you need to adjust your merchandising strategy or integrate new tax, shipping or production information options, we have the experience to ensure you’re set up for financial success.