How Brexit Affected Ecommerce

“Therefore from mid December 2020 onward we ship to every country in the world... except the UK.”

On December 2020, the UK and the EU closed a historic trade deal ensuring goods originating from the two trade partners can be traded free of duties, and the never-ending discussion on fishing rights was resolved. But now, three months in since the UK effectively left the EU Customs Union and VAT regime, has most of the dust settled or are businesses still facing severe issues?

Upon departure from the EU, the UK has introduced some new rules for taxation of foreign imports and some additional formalities. One of these new rules is that for goods shipped to the UK with a consignment value not exceeding £135 =, UK VAT is due at the point of sale. This also includes previously exempted imports of low-value goods valued at £15,= or less. If there is no online marketplace involved in the transaction, overseas sellers are required to register in the UK to report and remit the VAT on these sales. And there is no registration threshold for overseas vendors. Import VAT will not be due on those sales, but this, unfortunately, does not also imply no customs declarations are needed. This additional red tape made quite a few non-UK-based ecommerce retailers decide to postpone or even stop selling directly to UK customers.

Many UK sellers also struggle with direct sales to their customers in the EU because of Brexit implications. For trade with EU customers, customs declarations need to be filled out for both export from the UK and import into the UK. This additional red tape was not required before Brexit, and it results in additional costs for customs clearance. As many traders are not familiar with the required formalities, shipments to customers were delayed. And, as around 30% of items bought online are returned, for these returns all steps need to be completed again to export the items from the EU back to the UK. As this is quite expensive - some retailers refuse returns and opt to have them destroyed.

And returns should have seen a spike in the previous months because customers shopping in the other territory all of a sudden were facing additional charges from couriers for import VAT, customs duties, and additional charges. These unexpected costs could amount to 30-40% of the original price. And now, any careful reader would ask, how come customs duties are being charged while the EU-UK trade deal arranges for duty-free trade? Here the “origin” of goods comes into play, a frequently overlooked little detail.

Only goods that originate from the EU or the UK can benefit from a customs duty exemption in the other territory. Vendors selling goods that originated from China, for example, will be confronted with duties. And even worse, if you first import these goods in bulk in your own territory and distribute individual items to the other region, you will face a significant increase in duties, import VAT, and handling costs if you supply Delivered Duty Paid. Alternatively, customers will be confronted with these additional costs which potentially result in increased returns. A suggested option for UK vendors to overcome this issue is to start supplying from an EU entity.

It looks like ecommerce is still facing substantial challenges as a consequence of Brexit. And the options to stop selling into the other territory or start trading from a local entity are not viable for all.

This blog post was contributed by partner, Vertex

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