EU VAT Changes - What Do I Need To Know?

From the 1st July 2021, changes are being introduced by the European Commission that impact how VAT can be handled for online sales. The changes specifically relate to B2C (Business to Consumer) transactions for consumers within the European Union. Whilst the changes also impact businesses who are established within the EU, we’re primarily going to cover the changes from the perspective of a UK-based business or a business established outside of the EU. If you are a business established within the EU, you can find some more information here on how the changes affect you.

What are the changes?

A new portal/system has been created in which any VAT owed to EU Member States for online sales can be declared and paid. It’s called the Import One Stop Shop or IOSS. It has been introduced with the intention of improving the customer’s sales experience - increasing pricing transparency, making the customs process quicker, and helping to prevent VAT fraud in the member states.

While this new system is being introduced, it’s important to note that using IOSS is not compulsory and businesses can continue to sell parcels with delivery duties unpaid (DDU).

The portal itself is similar to the previous MOSS system for digital sales, and enables businesses established outside the EU to submit any VAT owed by the seller for the importation of physical goods into the EU.

However, the IOSS does have a few requirements if you do choose to use it. As there is currently no tax agreement between the UK and the EU, UK-based businesses find themselves unable to submit any owed VAT themselves via the IOSS and they’ll need to sign up via an intermediary to do this. An intermediary is an EU-established business liable for the VAT owed by your business.

It’s also important to note that IOSS can only be used for consignments of €150 (around £130) or below. This is purely based on the total value of goods within a parcel and excludes any postage cost that may have been charged. Any consignments above this value are subject to Import VAT on importation and VAT cannot be collected at the point of sale.

If a business does opt to register and use IOSS, then VAT (of the delivery country of the consumer) needs to be charged at the point of sale. The IOSS number will then be added to the parcel as part of the shipping process via the postal service used, and no VAT or tax will be charged to the consumer upon importation. With orders where the value of the goods is above €150, Import VAT will be collected from the consumer via the postal service used upon importation of the goods. In this instance, no VAT is to be charged at the point of sale.

Key points about using IOSS:

- IOSS is completely optional, not a requirement

- Need to use an Intermediary to submit VAT on your behalf

- Need to charge VAT at the point of sale on all orders below €150

- Goods subject to excise duties (typically alcohol or tobacco) are not eligible for IOSS

- Further information on IOSS can be found here

In addition to IOSS, the changes will also specifically affect ‘marketplaces’ such as Etsy and eBay. The legislation means that any online marketplace will now be responsible for collecting and submitting any VAT owed on EU sales from any sellers on their platform, where applicable. If you manage your own ecommerce store(s) through Create or any similar platforms, you'll be responsible for any VAT obligations as the classification for a marketplace involves multiple sellers.

How do the changes affect me?

If you’re a UK-based business selling to the EU (or thinking about offering this in the future) you have a couple of options in approaching these changes. The first choice is to use IOSS. You can sign up via an intermediary and start to collect VAT at the checkout (point of sale) where applicable.

As using IOSS is completely optional, the second option is to continue with the current method of sending parcels DDU or ‘Delivery Duties Unpaid’. This means any Import VAT will be collected from the consumer at the point of importation to the EU through the delivery service you use. This means that no changes will be required to your checkout journey.

If you don’t currently sell to the EU, then you don’t need to make any changes at all.

Are Create implementing any changes to help me comply?

We’re currently working on a feature that will allow you to charge VAT at the checkout based on order value. This feature will be helpful if you’re looking to use IOSS as it will enable you to charge VAT at the point of sale for orders below a certain value (in line with the IOSS threshold) and remove any VAT on orders above the set value.

The feature itself is nearing the end of its development phase. If you’re a Create user and think this might be of benefit to you, get in touch with your Account Manager for some more information.

We’re also looking at the possibility of integrating with services that help simplify the IOSS process by taking on any VAT obligations on your behalf such as, Taxamo Assure. We’d also welcome any suggestions for similar services that we can consider implementing to help the Create community and its merchants.

Summary

From a business point of view, the changes can be considered to be beneficial. IOSS provides a system to easily submit any VAT owed on your online sales to EU consumers. Using IOSS may also help with the delivery speed of any parcels being sent to the EU (less holdup at customs) which is also of benefit to customers. As well as this, the customer experience as a whole should improve, since there will be fewer hidden charges that they have to pay as any tax is accounted for at the point of sale.

However, on the other side of this, UK businesses will need to go through an intermediary in order to sign up to IOSS. Intermediaries can be quite costly, so while a bigger business may be able to absorb this cost, it may not make financial sense for smaller UK businesses to use IOSS, especially if the majority of sales are domestic.

If you’re unsure what action to take from these changes, a good starting point would be to review how often you send goods to EU consumers. If you generate a large amount of revenue or send a high volume of consignments under €150, IOSS may be a good choice for your business. As such, it may be worth speaking to an intermediary who can help you get set up with IOSS (such as, Simply VAT).

If EU sales do not make up a large amount of your revenue or the majority of your orders to the EU have a value of €150 or above, it may be more worthwhile to continue to send parcels DDU.

Whichever options you may be considering, we do strongly advise speaking to a legal advisor or professional as they’ll be able to provide more information and advice on what the best course of action is for you and your business.

FAQs

Do I have to use IOSS if I sell to the EU?
No - if you’re established outside of the EU, IOSS is completely optional. You can continue to send parcels delivery duties unpaid and the consumer will pay any customs charges at the point of delivery to them.

What is an intermediary?
An intermediary is an EU-established business liable for the VAT owed by your business.

I’m not VAT registered in the UK, do these changes affect me?
Yes - these changes impact any business established outside of the UK that is importing goods into the EU via online sales (there is no threshold in place for distance sales).

Does the €150 threshold include postage costs?
No - the limit is purely the total value of goods within the consignment (all goods within a single parcel) and excludes any shipping costs or any domestic VAT usually charged.

Why aren’t Create liable for VAT like Amazon or Etsy are?
Only online marketplaces (a platform which facilitates both the selling and buying of items) are the deemed supplier for VAT purposes when distance selling to EU Consumers. Create, and other similar platforms, are not classified as a marketplace.

Can I use IOSS for both physical and digital goods/services?
No - you only submit any VAT owed for physical goods via IOSS. If you also sell digital goods/services to the EU, you need to use the non-union one-stop shop (OSS).