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Brexit Essentials Series: Part 1 – Taxes

Today we begin our Brexit Essentials Series which, over three instalments, will cover the key changes to taxation, customs, and customer communications as a result of Brexit. Part 1 below discusses Brexit and taxes.

In addition to this series, we’ll be participating in special Brexit webinar with taxation specialists Avalara and delivery gurus Shipstation in late April. If you’d like to join, sign up for our newsletter and we’ll let you know when details are available!

Brexit outdoor advertising banner on a street

Our Brexit Essentials Series: here to help you manage all the changes.

Government Brexit checker.

Before jumping into taxation changes, it’s worth noting that the Government has an official Brexit Checker. This hub of information outlines the new rules on things like exports, imports, tariffs, data and hiring. The checker itself creates a personalised list of actions for you, based on the answers you provide to a series of questions.

You can find the Brexit Checker here.

Brexit checker website

The Brexit Checker tool: have you got your personalised checklist?

A certainty in post-Brexit life: updating your (VAT) taxes.

In Part 1 of this Brexit Essentials Series, we’re reviewing taxation changes for UK retailers.

Following the UK’s departure from the European Union on 1st January 2021, a number of VAT and tax changes have come into effect when selling to customers within the EU. As such, you may need to:

Complete extra VAT registrations.

Post-Brexit, the EU’s VAT distance selling thresholds no longer apply to UK sellers. This means that if you wish to keep selling to the EU market from UK held stock, you must VAT register in each country you’re selling in or face fines. Alternatively, you can shift some of your stock to an EU location and sell from there on a distance selling-basis.

For more information on how and when to register, selling or moving goods in Northern Ireland, or registering for VAT in EU countries, visit the gov.uk VAT page here.

Should you want more hands-on support, taxation specialists such as Avalara or Vatglobal can assist you with specific information for your business.

Re-apply for a MOSS return (digital goods only).

If you’re a UK merchant selling digital goods to EU customers, you’re no longer able to use the Mini-One-Stop shop (MOSS) single VAT return with HMRC to report on EU sales and pay EU VAT.

Digital goods can include products such as online software, apps, e-books, e-learning, and membership sites. So if you’re selling digital goods to customers in an EU member state, you need to apply for a MOSS registration number in those states. From there, you then must report quarterly sales under the non-Union MOSS scheme.

Decide who’s responsible for import VAT.

The two main options for the payment of import VAT are:

  • Delivered Duty Paid (DDP). This means you (the merchant) pay the import duty and sort all the paperwork.
  • Delivered At Place (DAP). This means you offload both the cost of import duty and the hassle of filing taxes to the customer.

“While Delivered At Place (DAP) may seem like the easiest option, merchants need to think long term and focus on customer retention,” says Leigh Barnes, Technical Director at blubolt. “For example, how many customers will return if they’re getting slapped with these extra costs and administration? It’s far more attractive to your customers to sell your products inclusive of all VAT and duties (DDP).”

Appoint a VAT agent / fiscal representative (if required).

The agent/representative is responsible for managing all your tax reporting and payments in the EU country you’re selling in. Out of the 27 EU member states, 19 states require you to have a fiscal representative so check whether you need one here. Failing to hire one means your VAT registration and goods are likely to be blocked and you’ll face fines.

Update your Shopify store tax settings.

It’s critical to review your Shopify tax settings and, where needed, add the correct UK or EU VAT ID numbers.

Registration-based tax settings.

If you have registration-based tax settings enabled, Shopify will automatically update your existing registrations. Easy peasy!

However, do be aware that Shopify won’t automatically update new registrations. This means if you do have new VAT registrations, you’ll need to update your tax registrations in the Shopify admin. If you’re stuck Shopify Support can assist (but not provide tax advice) here.

Legacy tax settings.

If you haven’t switched to the above registration-based text settings, Shopify refers to your settings as legacy tax settings. In this situation, you can either switch to registration-based tax settings or manually update your rates.

Working with third parties.

If you’re a Shopify Plus merchant and use a provider like Avalara AvaTax, then your settings will be updated there. Contact your third party supplier for more detailed assistance on Brexit and taxes.

Note for Shopify Plus merchants.

Shopify Plus’ functionality around charging international duties and taxes is currently in closed beta. “In the meantime, Shopify has produced a guide on what they’re planning,” says Richard Ayles, Head of Development at blubolt. “But the launch date for this functionality is still pending.”

The guide is available here but we’d recommend staying in touch with your eCommerce agency for further assistance and updates.

Securing a seamless transition.

Big change tends to be fraught with challenges! However, all UK online retailers selling to customers in the EU are sharing your frustrations. Seeking help early on from official guidance on Brexit taxes and, where appropriate, a tax specialist will ensure you’re making the correct changes and avoiding any hefty fines later on.

In the next two parts of this series, we’ll cover custom duties and customer communications. Subscribe to our social channels to be alerted as soon as posts go live.

Need more help with Brexit changes?

If you’ve got more questions on how Brexit impacts your eCommerce site, don’t despair! Along with two further posts around customs and communications changes, we’re participating in an upcoming Brexit webinar with tax specialists Avalara and shipping experts Shipstation in late April (date to be confirmed). We would love for you to join us!

If you’re interested in attending, sign up for our newsletter in the footer and we’ll send you details later this month.

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