From the time the concept of Brexit was first announced, it has become a highly Googled topic. It has become even more popular since the end of the transition period on the 1st of January, 2021. Brexit has made it very likely that changes are coming soon, but many businesses have yet to prepare themselves for these new rules. According to a survey conducted by PFS in 2020, only 54% of UK sellers reported that they had finished preparing for Brexit or would be ready by the end of 2020. And the longer the remaining businesses wait to get ready, the more difficult it will be for them to adapt.
While Brexit and its consequences are something that everyone in and around the UK should be familiar with, it’s especially important that businesses, particularly ecommerce businesses, are aware of them too. This is for two major reasons:
(i) Brexit is expected to change the rules around customs, taxes, deliveries, and shipping, which can all heavily affect ecommerce.
Whatever platforms or marketplaces you use to manage your sales, these tips will help you prepare your business for Brexit.
Register for VAT
Before Brexit was implemented, and during the transition period that lasted almost all of 2020, businesses in the European Union (EU) only needed to register for value added tax (VAT) in other countries if their total sales in that country exceeded a certain amount. This amount was EUR 100,000 for Germany, Luxembourg, and the Netherlands, and EUR 35,000 for every other country in the EU. After Brexit, however, there may be some changes to these rules:
Sellers located in the UK may be required to individually register for VAT in each country that they sell to, depending on the tax obligations for those countries.
Sellers from another country who sell in the UK may be required to register for VAT with HM Revenue and Customs (HMRC), if their total sales in the UK amount to less than GBP 135.
Update tax rates
Once you register for VAT, you may have to update your pricing for products, services, and existing orders with the new tax rates, and you’ll need to begin collecting VAT from your customers. For businesses located in the UK, the standard VAT rate is 20%, but your VAT charges could vary depending on the countries that you are selling to and the country that you’re selling from. To make sure that you’re implementing the correct VAT rates, check with a tax professional. See the rates for different goods and services.
Comply with new customs rules
As of January 1, 2021, all deliveries between the UK and the EU will be liable for customs fees, duties, and tighter customs restrictions.
Among other new requirements, sellers will be required to get individual EORI (Economic Operator Registration and Identification) numbers for each country that they trade with. If you are based in the UK and trade with the EU, then you most likely already have a UK EORI number, but may need an EU EORI number as well.
Here is a list of the information that you’ll need to attach to your shipments in order to get your products through customs checks:
HS code or harmonized commodity code, which is a worldwide standard used to identify the type of commodity that is being shipped
Value of the product
Country of origin
EORI (Economic Operator Registration and Identification) numbers, which identify sellers when they trade internationally
Seller’s contact information
Buyer’s contact information
Review shipping policies
In international trade, there are eleven recognized rules called Incoterms. Of these eleven terms, two are specifically essential for ecommerce sellers: DDP and DAP.
If the seller chooses delivered duty paid or DDP, it means that they will have to take responsibility for the import fees and costs involved.
If the seller chooses delivered at place or DAP, it means that they will only take responsibility for delivering the order, and the customer will be responsible for any import fees.
Regardless of which policy you choose for your business, make sure your customers are aware of it well in advance, so that you can avoid any confusion or miscommunications after the order has been placed. It would also be a good idea to clarify your policies on returns and refunds before orders are finalized.
Although Brexit has brought several changes to the world of ecommerce, a high percentage of ecommerce business owners have yet to prepare for it. One of the main reasons for this is simply because the business owners aren’t aware of how to prepare. These tips can help you register for VAT, update your tax rates, understand and follow customs rules, and also review your shipping policies, so that you can get started on preparing yourself for Brexit!