What Changes to VAT treatment of overseas goods sold to customers from 1 January 2021?
At the end of the transition period, the government will introduce a new model for the VAT treatment of goods arriving into Great Britain from outside of the UK. This will ensure that goods from EU and non-EU countries are treated in the same way and that UK businesses are not disadvantaged by competition from VAT free imports. It will also improve the effectiveness of VAT collection on imported goods and address the problem of overseas sellers failing to pay the right amount of VAT on sales of goods that are already in the UK at the point of sale.
This paper follows publication on 13 July 2020 of The Border Operating Model and expands on the sections covering the VAT treatment of consignments not exceeding £135 from 1 January 2021.
This paper does not cover matters specified in the Northern Ireland protocol. The government continues to work through the implications of the Northern Ireland Protocol, including in relation to VAT and excise. The government is committed to providing guidance on how the Northern Ireland Protocol will work ahead of the end of the transition period.
Outline of the changes
For imports of goods from outside the UK in consignments not exceeding £135 in value (which aligns with the threshold for customs duty liability), we will be moving the point at which VAT is collected from the point of importation to the point of sale. This will mean that UK supply VAT, rather than import VAT, will be due on these consignments.
The new arrangements will also involve the abolition of Low Value Consignment Relief, which relieves import VAT on consignments of goods valued at £15 or less.
Online marketplaces (OMPs), where they are involved in facilitating the sale, will be responsible for collecting and accounting for the VAT.
For goods sent from overseas and sold directly to UK consumers without OMP involvement, the overseas seller will be required to register and account for the VAT to HMRC.
Business to business sales not exceeding £135 in value will also be subject to the new rules. However, where the business customer is VAT registered in the UK and provides its valid VAT registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge.
The changes will not apply to consignments of goods containing excise goods or to non- commercial transactions between private individuals. Existing rules will continue to apply for these transactions.
In addition, for sales of goods by overseas sellers, where the goods are already in the UK at the point of sale, we will move the responsibility for accounting for VAT from the overseas seller to the OMP that facilitates the sale.
Overseas sellers will remain responsible for accounting for the VAT on goods already in the UK and sold directly to UK consumers without OMP involvement.
Although these arrangements will mean that for many consignments not exceeding £135 in value there will no longer be any VAT to collect at the border, customs declarations will still be required for non-fiscal purposes. However, in recognition of the changed role of the customs declaration for affected consignments, a number of facilitations, including the use of reduced data sets and bulk declarations will be available
For imports of goods by UK VAT registered businesses which are not covered by the provisions in this guidance note, there will also be changes from 1 January 2021. Businesses will be able to use postponed VAT accounting to account for import VAT on their VAT return for goods imported from anywhere in the world. This means the business will be able to declare and recover import VAT on the same VAT return, rather than having to pay it upfront and recover it later, subject to normal VAT recovery rules.
There are 2 strands to the measure, which will change the way VAT is collected on sales of goods in the following circumstances:
- Goods sold to UK customers where the goods are located outside the UK at the point of sale and the supply involves the later importation of the goods into the UK.
- Goods sold to UK customers where the goods are in the UK at the point of sale, sold by an overseas seller and where an OMP facilitates the sale.
Goods located outside the UK at the point of sale
These new arrangements will apply to sales of goods to GB customers where the consignment does not exceed £135 in value. This aligns with the threshold for relief from customs duty, thus minimising the impact on customs procedures. Consignments above that value will remain subject to existing customs rules and processes and from 1 January 2021 UK VAT registered businesses will be able to use postponed VAT accounting to account for import VAT on their VAT return.
For most consignments not exceeding £135 in value, instead of VAT being collected at importation or delivery to the customer, VAT will be accounted for at the point of sale.
For VAT purposes the supply will be treated as follows:
- if an OMP is not involved in facilitating the sale, there will be a supply direct from the seller to the consumer, which will be deemed to take place in the UK and so liable to UK VAT
- if an OMP is involved in facilitating the sale, they will be deemed, for VAT purposes, to be making the supply to the UK consumer, which will be deemed to take place in the UK with UK VAT chargeable accordingly
In both instances the value of the goods for VAT purposes will be based on the price at which they are sold to the consumer rather than any valuation calculated at the point of importation.
For goods that are located overseas at the point of sale, the new arrangements will apply irrespective of where the OMP or the business selling the goods is established.
This means that the following types of businesses will have to register for UK VAT (if not already registered) and account for VAT to HMRC:
- any business that operates an OMP that facilitates sales of goods to UK customers
- any business that sells goods directly (without OMP involvement) to UK customers where the goods are (a) outside UK at the point of sale (b) imported to the UK in consignments not exceeding £135 in value
Businesses established outside the UK and selling goods to UK customers where the goods are already in the UK at the point of sale are liable for UK VAT on those sales under existing rules. Such businesses should already be VAT registered.
What the £135 threshold is based on?
The starting point for determining whether a sale of goods located outside of the UK, made to a UK consumer, is subject to UK supply VAT under this measure is to consider whether the selling price of the goods exceeds £135, exclusive of VAT. For this purpose, the value should be based on the ‘intrinsic value’ of the goods, which equates to the price at which the goods are sold, excluding:
- transport and insurance costs, unless they are included in the price and not separately indicated on the invoice
- any other taxes and charges identifiable by the customs authorities from any relevant documents
It is important to bear in mind that the £135 threshold applies to the value of the consignment, not to each individual item within the consignment.
To determine the correct VAT treatment you will need to know whether the goods are to be packaged and sent singularly to the customer or as part of a consignment with other goods.
If the latter applies then it is the overall value of the consignment that must be considered, and if this is over £135 then normal VAT and customs rules will apply, meaning that import VAT will be chargeable and so supply VAT should not be charged at the point of sale.
Business to business sales
Consignments of goods not exceeding £135 in value, where the goods are outside the UK at the point of sale and the supply is to a UK VAT registered business, will also be covered by the new arrangements, which will operate as follows:
Where the UK VAT registered business provides the OMP or direct seller with its VAT registration number, the responsibility to account for VAT will switch to the UK VAT registered business customer, who will account for it by means of a reverse charge procedure. So the OMP or direct seller will not be liable to account for the VAT in these circumstances.
The OMP or direct seller must add a note to the invoice it issues to the UK business customer to make clear that the customer needs to account for VAT. The OMP or direct seller should include a reference to ‘reverse charge’ on the invoice, for example, ‘reverse charge: customer to account for VAT to HMRC’.
The VAT registered business will account for the VAT on their VAT return and will be able to recover that VAT as input tax, subject to normal VAT recovery rules, on the same VAT return.
If a business recipient of the goods is not VAT registered or does not provide the seller with a valid UK VAT registration number for its business at the time of purchase then the OMP or direct seller should treat the supply as a business to consumer, rather than business to business, sale, and account for VAT accordingly.
There is no obligation for the OMP or direct seller to actively verify that the customer is in business. They should treat the sale as a business to consumer sale unless the business customer provides a VAT valid registration number.
Sales made by persons who are not in business are outside the scope of these measures. This includes gifts and consignments sent from consumer to consumer. Guidance on whether an activity is a business activity or not for VAT purposes can be found in the Non-business manual
Import VAT liability and exceptions to the new rules
Consignments not exceeding £135 in value subject to the new measure will still need customs declarations and be subject to normal customs processes and procedures.
The new arrangements mean that import VAT will no longer be collected on consignments not exceeding £135, except for the following types of consignment, which are outside the scope of the new arrangements:
- non-commercial consignments, such as gifts (gift relief for consignments valued up to £39 will remain)
- consignments containing any goods that are subject to an excise duty
- consignments from Jersey and Guernsey that are covered by the Import VAT Accounting Scheme
Obligations at the UK border
Existing fiscal compliance checks at the UK border will continue, including checks to confirm the correct valuation for goods declared at import.
Current requirements for importers and agents to assure the completeness and correctness of declarations will remain. Systems should be extended to cover EU imports with a view to identifying false information from consignors, to assure HMRC that clear anomalies can be pulled out from the high scale of declaration volumes typically handled. In particular, importers and agents will need to ensure their systems can identify consignments that are outside the scope of the new arrangements and thus remain liable to import VAT.
We would continue to expect vigilance around consignment valuation generally, but with more focus on the declaration boundary at £135 or less for this policy. Systems will need to identify excise goods and goods being sent by one private individual to another, which are outside the scope of the new arrangements.
Compliance arrangements and invoicing
VAT invoicing obligations will apply.
The person liable to account for the VAT will be required to provide the customer with a full VAT invoice at the point of sale – this obligation will fall on either the seller (for sales not facilitated by an OMP) or the OMP, where it is facilitating the sale and so acting as deemed supplier for VAT purposes.
The invoice can be in paper or digital form, but the option to issue a simplified or modified invoice will not apply. Read more information record keeping.
In addition to risk-based checks at the border, HMRC will, as it does now, carry out extensive risk-based compliance activity away from the border using various data sources to identify and tackle non-compliance.
Consignments with multiple goods
Where goods are sent as part of a single consignment with other goods, and the customs value of the consignment exceeds £135, the consignment will not be subject to the new measure.
Supply VAT should not be charged and import VAT will be chargeable at the border. If such a situation arises and it subsequently transpires that supply VAT has been incorrectly charged then the OMP or seller will need to have arrangements in place to process an appropriate refund of the supply VAT to the customer, which will then be recoverable by the OMP or seller through their VAT return in accordance with normal VAT adjustment procedures.
Transactions before 1 January 2021
The new rules will apply to all sales that have a time of supply for VAT purposes of 1 January 2021 or later.
For example, if an order is placed and payment received from the customer on 31 December 2020 then the new rules will not apply, even if dispatch and delivery take place after 1 January 2021. Therefore, for imports the consignment will remain subject to import VAT (unless it is below the Low Value Consignment Relief threshold of £15) and supply VAT should not be charged. For goods already in the UK at the time of supply the VAT liability will remain with the seller rather than the OMP.
Imports of goods from Jersey and Guernsey
Existing arrangements for imports from Jersey and Guernsey will continue after the end of the transition period.
Consignments of goods from Jersey and Guernsey, where VAT is collected and paid to HMRC under the Import VAT Accounting Scheme, will be outside the scope of the new measures.
Goods in the UK at the point of sale – sold by an overseas seller through an online marketplace
This strand of the measure will apply to goods of any value where the:
- goods are owned by a seller who is based outside the UK
- goods are located in the UK at the point of sale
- seller sells the goods to a customer in the UK through an online marketplace
- supply is not to a VAT registered business
The following VAT treatment will apply.
The goods will already have been imported into the GB from outside the UK and existing VAT and duty obligations will apply at importation.
UK VAT will be due at the time the sale of goods takes place as it is now, but the significant change here is that the OMP will be deemed to be the supplier and so liable to account for the VAT on sales facilitated through its marketplace. This means that for VAT purposes the seller, operating through an OMP, will no longer be making a supply to consumers in the UK.
At the point the goods are sold to the customer, the overseas seller will be deemed to make a zero-rated supply of the goods to the OMP. This is so that the overseas seller will be eligible to register for VAT in the UK and reclaim any import VAT it has incurred in the course of importing the goods, subject to the normal rules for VAT deduction. The overseas seller should show the value of its supplies in box 6 of its VAT return (value of sales) but will not be responsible for declaring VAT on those deemed sales made through the OMP.
OMP liability will not apply to business to business sales where the goods are in the UK at the point of sale. The business recipient will need to provide a valid UK VAT registration number to show that the supply is business to business sale. If this is not provided the sale should be treated as a business to consumer transaction. Where a valid VAT registration number is provided the supply will be from the overseas OMP seller, rather than the OMP, to the business recipient and will follow existing VAT rules. There will be no VAT reverse charge applied to this transaction.
The OMP must notify the overseas seller that they should account for VAT on a particular sale where a business customer provides a valid UK VAT registration number. The OMP should provide the overseas seller with the UK VAT registration number.
There is no obligation for the OMP to actively verify that the customer is in business. They should treat the sale as a business to consumer sale unless the business customer provides a VAT valid registration number.
For sales by non-UK sellers that are not facilitated by an OMP, where the goods are located in the UK at the point of sale, the existing rules remain unchanged, such as the seller remains liable to register and account for VAT on all such sales to UK customers.
There is no VAT registration threshold for businesses not established in the UK, so the seller is liable to register and account for VAT as soon as it starts making sales or holds stock for sale in the UK.
General information covering both strands of the measures
Who should register for VAT
OMPs must register for UK VAT in order to account for VAT on their deemed supplies, with effect from 1 January 2021.
You will also need to register if you sell goods directly (without using an OMP to facilitate your sales) to UK consumers and the goods are outside the UK at the point of sale. From 1 January 2021 the distance selling threshold for sales from EU member states will no longer apply. There is no VAT registration threshold for businesses established outside the UK so you will be required to register for VAT on any value of sales where you become liable for VAT under these new measures.
You should register for UK VAT if you haven’t already.
If you are already registered for UK VAT you do not need to register again. There is no separate form of registration for these measures – just the standard UK VAT registration for non-established taxable persons.
If you are a business established in the EU and making sales to UK consumers that were covered by the distance selling rules prior to 1 January 2021 then you may already be registered for UK VAT and can continue to use your VAT registration to account for VAT under these new arrangements for the VAT treatment of overseas goods.
What an online marketplace (OMP) is
We use the term OMP to describe any electronic interface (website or mobile application) such as a marketplace, platform, portal or similar that facilitates the sale of goods to customers. As well as facilitating supplies, operators of OMPs may also sell their own goods on the OMP, but where they do so they are treated for VAT purposes as a direct seller rather than an OMP.
HMRC’s definition of an online marketplace is a business using a website or mobile phone app (such as a marketplace, platform or portal) to handle the sale of goods to customers which meets all of the following conditions:
- in any way sets the terms and conditions on how goods are supplied to the customer
- is involved in any way in authorising or facilitating customers’ payments
- is involved in the ordering or delivery of the goods
A business which only provides one of the following will also not be regarded as an OMP:
a) the processing of payments in relation to the supply of goods
b) the listing or advertising of goods
c) the redirecting or transferring of customers to other electronic interfaces where goods are offered for sale, without any further intervention in the supply
What a UK customer is
Whether the sale is to a ‘UK customer’ will be determined by whether the final customer’s delivery address for the goods is in the UK, irrespective of the customer’s billing address.
What information OMPs will need to operate the new arrangements
Under these new arrangements the critical information that OMPs will need to determine the correct VAT treatment is:
- the location of the goods at the time of the transaction, such as whether the goods are within the UK or not
- if goods are outside the UK, whether the intrinsic value (excluding VAT) of the consignment is less than £135
- if goods are within the UK, whether the seller is a business established in the UK or not
- whether or not any business customers are registered for UK VAT – where the customer does not provide a valid UK VAT registration number for its business then the sale should be treated as made to a consumer
- the precise nature of the goods to determine the appropriate rate of VAT (for example standard, reduced or zero rate)
OMPs will need to be vigilant in ensuring that they get accurate information, as above, to apply the correct VAT treatment. This means they will have to undertake reasonable and proportionate due diligence and consider all the information available to them in determining the correct VAT treatment.
OMPs will not be held liable for any VAT underdeclared where they can demonstrate that they have taken all reasonable steps within their power to ensure that the correct VAT is charged.
Direct sellers – businesses making sales direct to GB customers rather than via an OMP
Businesses making sales of goods not exceeding £135 in value (per consignment) to customers in the UK, where the goods are outside the UK at the point of sale, will become liable to register and account for VAT on those sales. You can find more information on Overseas business selling goods in the UK.