We’re now several weeks out from the end of the “transition period” for the withdrawal of the U.K. from the European Union (EU), a process collectively known as “Brexit.” The economic impacts of Brexit will be largely determined by the EU-UK Trade and Cooperation Agreement and will likely be felt for years to come.
While this is all happening an ocean away, it will still have a significant impact on retailers in the U.S. that make sales to customers in the U.K. Keep reading to find out how!
A Quick History Of Brexit
The U.K. originally joined the predecessor of the EU, the European Economic Community, in 1973. Skepticism regarding the membership has been around almost right from the start, however. The first national referendum on whether the U.K. should remain a member actually took place in 1975.
More recently, Brexit has been making headlines since the historic 2016 United Kingdom European Union membership referendum, when 51.9 percent of voters who turned out for the referendum voted to leave the EU. Since then, lawmakers have had the arduous task of planning the U.K.’s exit and how to deal with the immediate fallout.
The official exit of the U.K. from the EU took place on Jan. 31, 2020, with the U.K. entering a transitional period where trade, travel and freedom of movement remained largely unchanged.
At the end of 2020, the exit was finalized and the transition period ended.
How Does Brexit Impact U.S. Retailers?
Now that we’ve established the background of Brexit, let’s discuss how it will impact U.S. retailers making sales into the U.K.
According to Avalara, the main change comes from the elimination of Low-Value Consignment Relief (LVCR). Before Brexit, imported goods valued at or below £15 were exempt from value-added tax (VAT). Starting Jan. 1, 2021, all imports (with the exception of some specific exempt goods or services) are subject to import VAT.
There are three VAT rates in the U.K.: 20 percent, 5 percent and 0 percent. Which one applies is based on the type of good or service being imported into the country. Certain reliefs may also be available depending on the nature of goods.
All businesses who sell goods and services that are not exempt within the U.K., even those that are in the 0 percent category, are required to register for U.K. VAT. In addition, businesses will be required to charge and collect U.K. sales VAT at checkout on certain transactions, whereas previously the tax would be paid as import VAT at the U.K. border.
Another area of consideration for U.S. businesses is that marketplace facilitators will be required to collect and remit U.K. VAT at checkout if the shipments are less than £135.
Similar VAT changes will also go into effect in the 27 other member states of the EU in July 2021, creating additional complications for U.S. retailers.
In addition to goods that are imported directly into the U.K., U.S. businesses who transact in goods between the U.K. and EU and vice versa will also have a number of new VAT considerations and processes to implement within their business. Indeed, careful planning and structuring will be vital to avoid unnecessary costs and delays to products reaching their destination.
Do You Have Questions About U.K. VAT Compliance?
If you have questions regarding U.K. VAT compliance, the impacts of Brexit on U.S. retailers or any other tax questions, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate.
The changing rules arising as a result of Brexit are complex, and can cause real issues to businesses if not fully considered. Stay tuned for further technical articles by our VAT colleague Richard Barrett, which will assist you in navigating the requirements for your business.
Have a question? Contact Monika Miles And Team.
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