Iain Masterton

The new EU VAT rules for B2C sales, being introduced on 1 July, come on the back of Brexit and are designed to ensure VAT charges are applied where the customer is located. They’re also being implemented to facilitate with EU cross-border trade to ensure there is fair competition for suppliers based within EU countries and combat VAT fraud.

The key changes include withdrawal of distance selling rules; removal of the import VAT exemption for small value imports; a new VAT scheme for imported goods, the Import One Stop Shop (IOSS) for goods worth less than €150; and a new single VAT return for ecommerce sales.

From 1 July UK companies that sell online to buyers in the EU will have to charge the VAT rate of the customer’s country of residence at the point of sale. This will be accompanied by the roll-out of various One Stop Shop (OSS) schemes which avoids companies having to register for VAT in each applicable EU country.

UK businesses will have the option to register for a new scheme called IOSS in a member state of the EU. They would then be responsible for charging and collecting VAT at the point of sale on products below €150 for EU sales. Each month businesses would then be required to declare and remit the total applicable EU VAT through their IOSS return. These sales will then benefit from a VAT exemption upon importation, allowing a fast release at Customs. With VAT rates varying across the EU from 17 to 27%, UK businesses will need to carefully consider their pricing structure under the new regime.

Where the IOSS is not used, UK businesses have the option of using another mechanism applicable on EU sales worth less than €150 where the import VAT will be collected directly from customers by the postal operator, courier firm, or customs agent when delivering a package. The importing businesses will then be required to pay the VAT to the customs authorities via a monthly payment.

While many UK businesses with online trading operations in the EU have taken measures to prepare for these forthcoming changes, there will be others that will struggle. Part of the core problem is the distinct lack of clarity on where companies can seek guidance on these measures. Because the new rules do not impact UK taxation, businesses are unable to turn to HMRC, the usual port of call when it comes to seeking advice on legislation changes.

With limited time to go before the new rules come into effect, it’s essential that any Scottish or UK business wishing to sell goods or services to the EU consumer market considers their position and how the changes will impact on them. In some cases businesses will benefit from the support of a fiscal representative – typically from an accountancy or legal firm – which can advise on issues around VAT registration for businesses trading in another country and manage the correct calculation and reporting of VAT on their behalf.

What is certain is that those affected by these changes will need to take immediate action or they could be faced with significant administrative barriers and major financial consequences. Given all the additional challenges of the past year, businesses will want to avoid these pitfalls as the height of summer approaches.

• Iain Masterton is head of VAT at accountants Chiene + Tait.