There are new rules for businesses selling goods to UK consumers and UK businesses through an online marketplace from 1 January 2021.
The United Kingdom’s departure from the European Union has resulted in a number of new VAT rules being put in place from 1 January 2021. This briefing explains the rules for businesses that sell goods through online marketplaces, as well as the online marketplaces themselves.
What were the old rules?
While previously there were particular schemes (such as the fulfilment house due diligence scheme) - responsibility for accounting for VAT on sales through an online marketplace fell firstly on the seller, not the marketplace.
This meant either the seller had to have a UK VAT registration, and accounted for UK VAT sales, or it used the distance selling rules to charge local VAT (if in the EU and below the relevant thresholds).
Brexit means that distance selling rules no longer apply and the government has taken the opportunity to change the old rules to try to improve compliance.
Who is affected by the new rules?
As well as the online marketplaces themselves, the rules will potentially apply to any business that sells goods to consumers through an online marketplace (defined as a website that facilitates the payment and delivery of goods between third parties). The new treatment applies in two scenarios:
An overseas business sells to UK consumers (not VAT registered), through an online marketplace, using stock already in the UK. There is no monetary limit on such sales.
A business sells goods in consignments worth £135 or less, through an online marketplace and the goods are moved into the UK after the sale is made.
In both cases, the new rules move responsibility for accounting for and remitting VAT on the final sale to the online marketplace, rather than the seller or by the consumer paying import VAT.
The main changes from 1 January 2021 are:
- In Scenario 1 (overseas business with goods held in the UK) there is no longer a sale by the overseas business to the UK consumer for VAT purposes.
- Instead there is a deemed sale by the overseas business to the online marketplace, with VAT chargeable at a new zero rate.
- The online marketplace then makes a sale to the final consumer, and is responsible for charging the appropriate VAT and paying it to HMRC.
- In Scenario 2 the business that is sending the goods into the UK is also deemed to make a sale to the online marketplace, but the sale is treated as occurring outside the UK and so is outside the scope of UK VAT.
- The online marketplace then makes the sale to the consumer for VAT purposes and is responsible for charging the appropriate VAT rate and paying the tax to HMRC.
- In both scenarios, where the final UK customer is a VAT registered business, the customer should use the reverse charge and relieve the online marketplace or seller of its obligation to charge VAT (if a valid number is supplied).
- The goods in consignments of less than £135 should also be relieved of import VAT as they enter the UK.
What action should be taken?
- If you are an online intermediary you will need to consider whether you are an ‘online marketplace’ and therefore need to apply these rules and take responsibility for the VAT on sales occurring on your platform.
- VAT registered overseas sellers will need to change the way they account for VAT on sales – it is likely to be covered by the new zero rate where the goods are in the UK at the point of sale.
- Sellers holding goods in the UK will need to register for VAT if not already registered. This will also enable recovery of VAT incurred on costs and imports over £135.
- If you are an overseas business who only sells consignments worth £135 or less to consumers through marketplaces you may not need to register for UK VAT, as responsibility now rests with the online marketplace.
- Anyone using an online marketplace should check to see if these new rules have been implemented by your partner and if anything is required on your part to comply.
Your next steps
BDO UK LLP can help you to consider the best approach for your business and how it operates. If you need to register for VAT in the UK we can help and help you file VAT returns and advise on maintaining records. Please contact us to discuss your needs.
Visit our Brexit Hub for further details on workforce planning, financial reporting, vat implications and more.