In 2021, the UK government introduced changes to the Value-Added Tax (VAT) system for goods being shipped into the country as part of the country's exit from the European Union, commonly referred to as 'Brexit.' The changes aim to ensure that goods imported from outside the UK are taxed appropriately.
To comply with the new VAT system, businesses must register with the UK government to collect VAT, report the value of imported goods, and pay the applicable VAT. Additionally, businesses may face legal and tax consequences, such as changes to their intellectual property, licenses, and added fees like surcharges and insurances.
VAT is a tax applied to goods and services in the UK, and all e-commerce retailers selling products in the country must register for and charge VAT on their products. This tax is calculated as a percentage of the total sales price and must be added to the final purchase price. The current standard rate for VAT in the UK is 20%. Retailers must submit their VAT returns to HM Revenue & Customs (HMRC) quarterly.
Before sending stock to the UK, international businesses must obtain an EORI number and VAT account, which are necessary for completing a commercial invoice required by customs authorities when calculating taxes and import duties for a shipment.
To register for VAT in the UK, businesses can do so with HMRC, where they can determine their appropriate VAT rate and a VAT accounting scheme. They must file their VAT returns regularly and pay any VAT owed on time.
Disclaimer: The information provided is general advice on VAT in the UK for e-commerce retailers and is not a substitute for professional consultation. For personalized guidance, seek advice from a qualified tax professional.
EORI is short for Economic Operators Registration and Identification. It is a unique identification number issued by HMRC (Her Majesty's Revenue and Customs) in the UK to identify businesses that trade with countries outside the European Union (EU). After Brexit, EORI numbers are required to ensure businesses can continue to trade and move goods freely between the UK and the EU.
To apply for an EORI number, you can visit the UK government website. Once you receive your EORI number, you will use it when completing customs declarations, which are mandatory for businesses that import or export goods in and out of the EU.
A commercial invoice is a crucial document that customs officials use to determine the value of goods shipped internationally. It is required for all international shipments sent with a carrier, whether within the EU or between countries. The document provides essential details on the package and its contents so that the appropriate customs fees and taxes can be applied.
The commercial invoice should include:
- Shipper / Exporter details
- Consignee details
- Package’s contents
- Shipping details
- Sender’s signature and date
- Value of goods
- Country of Export
- Harmonized System (HS) Codes
- Reason of Export
- Country of Origin
- Country of Manufacturer
- Unit Value
- Terms of Trade
When working with a UK warehouse, it is crucial to ensure that they are compliant with the Fulfillment House Due Diligence Scheme (FHDDS). The FHDDS was introduced by HMRC in 2018 to combat online VAT fraud in the UK. It specifically targets businesses that store, pick, pack, and dispatch goods on behalf of other businesses.
Under the scheme, logistics businesses based in the UK are required to register with HMRC and complete an annual self-assessment. This assessment includes providing evidence of due diligence in areas such as risk assessment, customer and supplier due diligence, data security, and accounting records. By following this framework, businesses can ensure they are compliant with the VAT rules.
The FHDDS enables HMRC to identify businesses that are not complying with the rules and take appropriate action. Therefore, it is essential to work with a warehouse that is FHDDS compliant to avoid potential legal and financial consequences.
After Brexit, it's important to register your trademark and Intellectual Property (IP) for products separately in the UK, even if you already own IP in Europe.
Products that have been approved in their country of origin may require additional certification to sell in the UK. It's important to acquire all necessary licenses and certificates before shipping products. Medical equipment, electronics, and food may also have shipping restrictions, so researching regulations and standards is crucial for eligibility to sell in the UK.
Investing in contents, inventory, and transit insurance can provide additional protection for shipments. Insurance companies cover lost or damaged packages and can help ensure safe and timely delivery. Insurance can also protect against potential financial losses due to delayed or damaged shipments. Researching and purchasing the right type of insurance can provide peace of mind and protect your business.
