Significant changes in VAT rules for sales to EU consumers from 1 July

Any business selling goods (and some services) to consumers in the European Union (EU) will need to understand and implement new VAT rules from 1 July 2021. Our Head of Indirect Taxes, Nigel Roberts, explains how the changes may impact your business. 

Prior to the UK leaving the EU, UK businesses which sold goods to consumers (B2C sales) in the EU had to deal with a particularly complex set of VAT requirements. These ‘distance selling rules’ could often mean VAT registrations in multiple EU states. Brexit meant that UK businesses (except in Northern Ireland) could forget about these rules, but the respite was temporary, as the EU will introduce a new VAT regime for B2C sales of goods from 1 July. The rationale for the changes, which will cover all B2C sales of goods to and within the EU,  is to overcome the barriers to cross-border online sales and, in particular, to address challenges that arise from existing VAT rules for:

  • Distance sales of goods
  • The importation of low value consignments
  • Sales through online marketplaces
  • Some B2C services

What will be covered by the new EU VAT rules?

The new rules will impact on the distance sale of goods that are imported into the EU either from third territories or from third countries by suppliers and/or ‘deemed’ suppliers. Third countries now include Great Britain (England, Wales, and Scotland) but not Northern Ireland which, under the terms of the Withdrawal Agreement, remains subject to EU VAT law.

The changes will also impact on cross-border B2C sales of goods within the EU by EU established suppliers, and on the EU domestic supply of goods via online marketplaces within an EU Member State.

Finally, B2C supplies of some services by businesses not established in the EU, or cross-border supplies of some services by EU established businesses, will be caught by the new VAT rules. Services affected are those with which have a “location-based” place of supply – for example, admissions charges, some transport services, and some services relating to land. Most professional services won’t be caught.

What are the new rules?

The wide-ranging VAT changes being introduced by the EU to combat the issues noted above, include:

The extension of the current Mini One Stop Shop (MOSS)

Currently, this applies only to some electronically supplied services. It requires sellers to register in one EU Member State, charge VAT on relevant services at the rate in customer’s state, and account for these multiple rates through a single MOSS return.

From 1 July, the MOSS concept will be extended to create a much wider One Stop Shop (OSS) covering some other B2C services and B2C distance sales of goods.

Abolition of the existing distance selling rules for goods.

The existing rules, which still apply to businesses established in the EU, will be abolished, as will the previous distance selling registration thresholds (to be replaced for EU businesses by a new EU-wide €10,000 threshold).

Special provisions for businesses operating online marketplace platforms.

Such operators will be referred to as ‘deemed’ suppliers and will be assumed to have both received and made the supplies that they are selling. Sellers operating via such platforms may find their terms of trade will change.

Removal of the VAT exemption for low value consignments, and a new special scheme for distance sales of goods imported from third countries where the goods are valued at €150 or less

Known as the Import One Stop Shop (“IOSS”), this scheme will be particularly relevant for UK businesses supplying goods on a B2C basis to the EU. It will require a registration in one EU Member State, which may also require the appointment of a local representative. This scheme is optional for UK suppliers, who can continue to apply existing rules, However, this will usually result in VAT and possibly Customs Duty costs being passed on to EU customers by shippers or couriers, together with transaction charges.

New measures for dealing with the distance sales of imported goods in other circumstances (where the IOSS is not used)

These will include new record keeping requirements for online marketplaces.

What are Distance Sales of Goods?

Supplies of goods will be "distance sales" where the supplier of the goods is established in the EU (but in a different member state to the consumer) or established outside the EU (for example, in the UK, except Northern Ireland) and the supplier arranges, directly or indirectly, for the goods to be dispatched or transported to the consumer. B2B sales aren’t caught by the changes.

Online marketplaces

A marketplace facilitates the trading of goods between the supplier of the goods and the end consumer by the operation of an electronic interface. Amazon is, of course, the obvious example.

The new rules coming into force in July 2021 will ensure that such marketplaces, for distance sales of goods imported from third countries, where the value of the goods is less than €150, will be deemed to have both received the supply of the goods and made the supply of goods in question.

The aim behind these changes is to ensure that VAT is collected on supplies of goods made by businesses that are not established in the EU. The UK has introduced similar rules for marketplaces operating here.

Anyone selling goods via an online marketplace needs to ensure they understand the impact on existing terms of trade.

Accounting for VAT

Where a UK business (outside Northern Ireland) supplies goods to consumers in the EU (i.e. distance sales), the value of the goods is less than €150, and they opt to apply the new rules, it will be covered by the new Import One Stop Shop (or IOSS). A GB business selling goods to EU consumers will need to familiarise itself with the new IOSS rules and, where necessary, arrange to be registered under the scheme in a single member state or to appoint an intermediary established in the EU to act on its behalf.

Northern Ireland businesses making similar supplies will also be caught by the new rules but will not have to worry about appointing an EU representative.

The effect on services is more limited, but UK providers of potentially affected services should confirm the impact.

Affected businesses will need to consider the impact on terms of trade, invoicing, and pricing.

What next?

The new VAT rules are far reaching and will have a wide impact for businesses selling goods and some services to EU consumers on a B2C distance sales basis. They should consider:

  • The impact on existing supply chains and terms of business
  • Pricing
  • New VAT registration and accounting requirements
  • The need for an EU representative

To discuss the impact of these changes for you, please contact Nigel Roberts or any other member of our VAT team.

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