The VAT rules in respect of EU cross-border B2C sales are to change with effect from 1 January 2021, a date which coincides with the end of the proposed Brexit ‘transitional period’. From that date, the current distance selling rules will, for the most part, disappear and VAT will be due in the member state of destination. To accommodate this change, the mini one-stop shop regime, currently applicable to cross-border B2C supplies of electronic services, will be extended to B2C sales of goods (and low-value imports). Retailers selling to customers in other EU member states will be required to register for MOSS and submit MOSS VAT returns covering the VAT in any member state in which they do business.
They say 'only fools and horses work'... An adviser explains the intricacies of VAT to a small Peckham based business with ambitious plans to expand its trading operations. David Rudling reports.
Good morning, Mr Trotter, how may I help you?
Well, me and Rodney want to expand our trading activities beyond Peckham. The world is our oyster but we want to start with mail order sales to the EU. But what about the VAT? And what’s all this I hear about changes to the VAT rules on intra-EU transactions?
Well, the VAT rules applying to movements of goods between member states are to change over the next few years. The changes to the distance selling rules, which apply to mail order sales to end customers, are steps on the way to the ultimate goal of ensuring that all supplies of goods and services are taxed in accordance with the ‘destination principle’, under which VAT will be collected in, and at the rate applicable to, the member state of destination. Business to business (B2B) sales are likely to be affected as well, but some time later.
I’m only interested in selling to punters, not to other businesses, at the moment.
OK, I’ll only talk about B2C sales. The B2B changes are currently only proposals, but have a provisional date of coming into force of 1 July 2022. We’ll have another chat about them in a few weeks if your interests develop along those lines.
As far as the B2C rules are concerned, the date of change is principally 1 January 2021.
B2C rules change with effect from 1 January 2021? Isn’t that the day after the proposed ‘transitional period’ for Brexit ends? Does that mean I don’t have to worry about any changes?
The effect of the changes on UK businesses will depend on the outcome of the Brexit negotiations. But one way or another, things will change; in the event of full alignment between the UK and the EU, it may be the new rules will apply directly to movements to and from the UK. In the event that there is no alignment and the UK is treated as a third country, movements between the UK and the EU will be regarded as exports/imports. And of course there may be some sort of fudge between the two extremes. But there will, in any case, be new rules for low value B2C supplies imported into the EU. So one way or another, there is likely to be an impact.
So what’s the current position regarding intra-EU transactions in B2C goods?
The VAT regime currently in place in respect of B2C goods moving between member states is quite complicated. It works as follows:
A supplier in one member state selling goods by mail order (more generally, ‘distance selling’) to a final customer (i.e. a B2C sale) in another member state will have to ask himself the following questions:
OK, got that. So I charge UK VAT on my sales to German customers until I hit the German distance selling threshold, at which point I stop charging UK VAT, register for German VAT and start charging German VAT. Same with France, Spain, etc. That’s all a bit of a faff. So what are the changes?
The current regime, as you so trenchantly observe, is indeed a bit of a faff. It’s hardly conducive to the smooth operation of the single market, given that the supplier may have to be VAT registered in all 28 member states. This issue was recognised and in 2015 the European Commission announced that, as part of its digital single market strategy for Europe, it would make legislative proposals including:
That’s a bit of a mouthful. What does it mean?
In broad terms, the revised regime does away with the existing distance selling rules, i.e. the €100,000/€35,000 limits. Instead, the place of supply of distance sales between member states (which, incidentally, will be known as ‘intra-Community distance sales of goods’) will be ‘the place where the goods are located at the time when dispatch or transport of the goods to the customer ends’. In other words, taxation takes place in the member state of destination, and at the appropriate rate in that member state. This means that the supplier will no longer be able be able to use his domestic VAT registration to account for VAT on sales until he reaches the distance selling threshold in the customer’s member state; he will be liable to register in the customer’s member state pretty much as soon as he starts making sales there.
So does that mean that as soon as I sell a pair of trainers to some bloke in Bulgaria I will have to register for Bulgarian VAT? Not much of a simplification, is it?
Not quite; there is a de minimis limit of €10,000 (or the Sterling equivalent), below which the seller can account for VAT in the normal way (i.e. at the rate applicable in his member state, and on his domestic VAT return) – but this de minimis limit applies to the seller’s total sales to all other EU member states, i.e. it is not €10,000 per member state. That’s the ‘common EU-wide simplification measure (VAT threshold) to help small start-up e-commerce businesses’ referred to above.
Ten grand isn’t going to get me very far; what happens when I top that?
To accommodate the seller’s liability to be registered in each member state where he makes distance sales, the mini one-stop shop (MOSS) regime, which currently applies only to certain electronically supplied services, will be extended to cover distance sales. So the seller will only be required to register in a single member state (the member state of identification) and will account for VAT in all member states in which he makes supplies via a single on-line VAT return. In your case, of course, the member state of identification would be the UK, if the UK were still a member state on 1 January 2021; a non-established seller, which is what you may be by the time these rules come into force, will be at liberty to choose whichever member state he wishes as his member state of identification.
So I would only need one VAT registration for sales to all other member states? That sounds all right. But what about all the paperwork? Me and Rodney, we’re a bit too hands-on to worry too much about invoices and the like.
Some good news there; the current requirement to produce an invoice for each sale is linked to the need to monitor the distance selling limits. Since those limits will no longer exist from 1 January 2021, the need to produce an invoice also goes from that date. Of course, you would have the MOSS VAT return to complete, but that’s done online.
Cushty – online stuff is no problem; Rodney has an ‘O’ level in geography. But you said that sales might be regarded as imports into the EU. What’s the story in that case?
Well, as I pointed out, these rules come into force just as the proposed transitional arrangements come to an end. If no agreement is reached, and the UK is regarded as a third country, sales to the EU will be regarded as exports from the UK and imports into the EU; import VAT will be payable.
Isn’t there a relief from VAT in respect of low value imports? Denzel used to get all his stuff VAT-free from Jersey, although he stopped that a few years back.
Yes, the relief from VAT on goods from the Channel Islands was removed by the UK in 2012. Low value consignment relief, as it is known, still exists for other imports, but will be abolished from 1 January 2021.
So what’s the system for paying VAT on goods delivered to EU countries from 1 January 2021?
Well, you could register for VAT in a member state of your choice and use the MOSS system to account for VAT on your sales. In that way, the importation itself is exempted from VAT, so you don’t account for VAT twice (i.e. once on the import and once on the sale). In those circumstances, you might have to appoint an intermediary who is established in the EU to be responsible for the VAT debts and to deal with MOSS returns on your behalf.
Alternatively, you could make your customer liable for paying the import VAT, in which case it would be collected from him by the postman, courier, etc. But this only applies where the member state of importation is also the member state of destination.
In either case, you would have to obtain evidence of export (normally a certificate of posting) in order to zero-rate the export from the UK. You would also have to attach a value declaration form CN22 to the packet.
Blimey. Anything else?
Yes. The above methods only apply to imported consignments with an intrinsic value not exceeding €150. After that you are into the full import/export regime; more computerised systems, but ones in relation to which, I fear, even Rodney’s ‘O’ level geography may not avail. So you might have to employ import/export agents. You could, of course, periodically move a single bulk consignment from the UK to a member state of your choice, register for MOSS there and distribute from that stock, using MOSS to account for the VAT. You would still have to deal with the import/export rules, but only in respect of the periodic bulk consignments.
Luvvly jubbly. But isn’t there any way of avoiding this MOSS stuff?
If you make your sales via an online marketplace, such as Amazon, the marketplace is deemed to have both received and supplied the goods itself (in the case of imported goods, this is subject to the €150 consignment value limit). In that case your sales would be B2B, not B2C.
Hmm. Looks like we’ll need to speak again on B2B once I’ve digested all this. This EU stuff is a bit of a malarkey, isn’t it?
C’est la vie, Mr Trotter.
Plume de ma tante, sunshine, plume de ma tante.
The VAT rules in respect of EU cross-border B2C sales are to change with effect from 1 January 2021, a date which coincides with the end of the proposed Brexit ‘transitional period’. From that date, the current distance selling rules will, for the most part, disappear and VAT will be due in the member state of destination. To accommodate this change, the mini one-stop shop regime, currently applicable to cross-border B2C supplies of electronic services, will be extended to B2C sales of goods (and low-value imports). Retailers selling to customers in other EU member states will be required to register for MOSS and submit MOSS VAT returns covering the VAT in any member state in which they do business.
They say 'only fools and horses work'... An adviser explains the intricacies of VAT to a small Peckham based business with ambitious plans to expand its trading operations. David Rudling reports.
Good morning, Mr Trotter, how may I help you?
Well, me and Rodney want to expand our trading activities beyond Peckham. The world is our oyster but we want to start with mail order sales to the EU. But what about the VAT? And what’s all this I hear about changes to the VAT rules on intra-EU transactions?
Well, the VAT rules applying to movements of goods between member states are to change over the next few years. The changes to the distance selling rules, which apply to mail order sales to end customers, are steps on the way to the ultimate goal of ensuring that all supplies of goods and services are taxed in accordance with the ‘destination principle’, under which VAT will be collected in, and at the rate applicable to, the member state of destination. Business to business (B2B) sales are likely to be affected as well, but some time later.
I’m only interested in selling to punters, not to other businesses, at the moment.
OK, I’ll only talk about B2C sales. The B2B changes are currently only proposals, but have a provisional date of coming into force of 1 July 2022. We’ll have another chat about them in a few weeks if your interests develop along those lines.
As far as the B2C rules are concerned, the date of change is principally 1 January 2021.
B2C rules change with effect from 1 January 2021? Isn’t that the day after the proposed ‘transitional period’ for Brexit ends? Does that mean I don’t have to worry about any changes?
The effect of the changes on UK businesses will depend on the outcome of the Brexit negotiations. But one way or another, things will change; in the event of full alignment between the UK and the EU, it may be the new rules will apply directly to movements to and from the UK. In the event that there is no alignment and the UK is treated as a third country, movements between the UK and the EU will be regarded as exports/imports. And of course there may be some sort of fudge between the two extremes. But there will, in any case, be new rules for low value B2C supplies imported into the EU. So one way or another, there is likely to be an impact.
So what’s the current position regarding intra-EU transactions in B2C goods?
The VAT regime currently in place in respect of B2C goods moving between member states is quite complicated. It works as follows:
A supplier in one member state selling goods by mail order (more generally, ‘distance selling’) to a final customer (i.e. a B2C sale) in another member state will have to ask himself the following questions:
OK, got that. So I charge UK VAT on my sales to German customers until I hit the German distance selling threshold, at which point I stop charging UK VAT, register for German VAT and start charging German VAT. Same with France, Spain, etc. That’s all a bit of a faff. So what are the changes?
The current regime, as you so trenchantly observe, is indeed a bit of a faff. It’s hardly conducive to the smooth operation of the single market, given that the supplier may have to be VAT registered in all 28 member states. This issue was recognised and in 2015 the European Commission announced that, as part of its digital single market strategy for Europe, it would make legislative proposals including:
That’s a bit of a mouthful. What does it mean?
In broad terms, the revised regime does away with the existing distance selling rules, i.e. the €100,000/€35,000 limits. Instead, the place of supply of distance sales between member states (which, incidentally, will be known as ‘intra-Community distance sales of goods’) will be ‘the place where the goods are located at the time when dispatch or transport of the goods to the customer ends’. In other words, taxation takes place in the member state of destination, and at the appropriate rate in that member state. This means that the supplier will no longer be able be able to use his domestic VAT registration to account for VAT on sales until he reaches the distance selling threshold in the customer’s member state; he will be liable to register in the customer’s member state pretty much as soon as he starts making sales there.
So does that mean that as soon as I sell a pair of trainers to some bloke in Bulgaria I will have to register for Bulgarian VAT? Not much of a simplification, is it?
Not quite; there is a de minimis limit of €10,000 (or the Sterling equivalent), below which the seller can account for VAT in the normal way (i.e. at the rate applicable in his member state, and on his domestic VAT return) – but this de minimis limit applies to the seller’s total sales to all other EU member states, i.e. it is not €10,000 per member state. That’s the ‘common EU-wide simplification measure (VAT threshold) to help small start-up e-commerce businesses’ referred to above.
Ten grand isn’t going to get me very far; what happens when I top that?
To accommodate the seller’s liability to be registered in each member state where he makes distance sales, the mini one-stop shop (MOSS) regime, which currently applies only to certain electronically supplied services, will be extended to cover distance sales. So the seller will only be required to register in a single member state (the member state of identification) and will account for VAT in all member states in which he makes supplies via a single on-line VAT return. In your case, of course, the member state of identification would be the UK, if the UK were still a member state on 1 January 2021; a non-established seller, which is what you may be by the time these rules come into force, will be at liberty to choose whichever member state he wishes as his member state of identification.
So I would only need one VAT registration for sales to all other member states? That sounds all right. But what about all the paperwork? Me and Rodney, we’re a bit too hands-on to worry too much about invoices and the like.
Some good news there; the current requirement to produce an invoice for each sale is linked to the need to monitor the distance selling limits. Since those limits will no longer exist from 1 January 2021, the need to produce an invoice also goes from that date. Of course, you would have the MOSS VAT return to complete, but that’s done online.
Cushty – online stuff is no problem; Rodney has an ‘O’ level in geography. But you said that sales might be regarded as imports into the EU. What’s the story in that case?
Well, as I pointed out, these rules come into force just as the proposed transitional arrangements come to an end. If no agreement is reached, and the UK is regarded as a third country, sales to the EU will be regarded as exports from the UK and imports into the EU; import VAT will be payable.
Isn’t there a relief from VAT in respect of low value imports? Denzel used to get all his stuff VAT-free from Jersey, although he stopped that a few years back.
Yes, the relief from VAT on goods from the Channel Islands was removed by the UK in 2012. Low value consignment relief, as it is known, still exists for other imports, but will be abolished from 1 January 2021.
So what’s the system for paying VAT on goods delivered to EU countries from 1 January 2021?
Well, you could register for VAT in a member state of your choice and use the MOSS system to account for VAT on your sales. In that way, the importation itself is exempted from VAT, so you don’t account for VAT twice (i.e. once on the import and once on the sale). In those circumstances, you might have to appoint an intermediary who is established in the EU to be responsible for the VAT debts and to deal with MOSS returns on your behalf.
Alternatively, you could make your customer liable for paying the import VAT, in which case it would be collected from him by the postman, courier, etc. But this only applies where the member state of importation is also the member state of destination.
In either case, you would have to obtain evidence of export (normally a certificate of posting) in order to zero-rate the export from the UK. You would also have to attach a value declaration form CN22 to the packet.
Blimey. Anything else?
Yes. The above methods only apply to imported consignments with an intrinsic value not exceeding €150. After that you are into the full import/export regime; more computerised systems, but ones in relation to which, I fear, even Rodney’s ‘O’ level geography may not avail. So you might have to employ import/export agents. You could, of course, periodically move a single bulk consignment from the UK to a member state of your choice, register for MOSS there and distribute from that stock, using MOSS to account for the VAT. You would still have to deal with the import/export rules, but only in respect of the periodic bulk consignments.
Luvvly jubbly. But isn’t there any way of avoiding this MOSS stuff?
If you make your sales via an online marketplace, such as Amazon, the marketplace is deemed to have both received and supplied the goods itself (in the case of imported goods, this is subject to the €150 consignment value limit). In that case your sales would be B2B, not B2C.
Hmm. Looks like we’ll need to speak again on B2B once I’ve digested all this. This EU stuff is a bit of a malarkey, isn’t it?
C’est la vie, Mr Trotter.
Plume de ma tante, sunshine, plume de ma tante.
