HMRC plan to scrap UK VAT free imports and force marketplaces to collect VAT on sales for overseas sellers by the end of the year, according to consultation document seen by the FT. Although an informal consultation documents, “key design features” of the plans were not up for negotiation and there is a strong intent to bring the rules in from the 1st of January 2021.
This will send a shock wave through the ranks of Chinese sellers who are accustomed to UK VAT free imports. Over the past years we’ve seen everything from marking items as gifts, under-declaring the value to be below the £15 level where no customs duty or Import VAT is due, moving goods to UK warehouses but not paying VAT, being clobbered for VAT and moving fulfilment back to China and a whole raft of other measures to dodge expenses which UK sellers have to pay.
UK VAT free imports on goods under £15
Scrapping UK VAT free imports for low value goods would bring relief to many within the UK who also face higher postage costs than overseas sellers. It can be significantly cheaper in many countries, even with the cost of air transportation, to post an item from outside the UK than within the UK. Seeing VAT free imports scrapped would at least mean the 20% VAT UK retails pay on each sale would be equal to the costs for overseas sellers.
Current limits for customs duty and import VAT on commercial consignments
Imports valued of £15 or less are free from Customs Duty and import VAT with the exception of alcohol, tobacco products, perfume or toilet waters
Goods Value |
Customs Charges applicable |
|---|---|
| £0.01 to £15 | No customs duty No Import VAT |
| £15.01 to £135 | No customs duty Import VAT due |
| £135.01 and greater | Customs duty due Import VAT due |
Marketplaces to collect VAT
If UK online marketplaces, which would include eBay and Amazon, are forced to collect VAT on sales from overseas sellers from the 1st of January 2021 this wouldn’t be a huge surprise – we’ve seen it happen in other countries around the world and would mean HMRC would only have to deal with a few marketplaces rather than thousands of individual overseas sellers who can shut down and emerge as a different entity on a regular basis. It would also be easier for the marketplaces to collect VAT at the point of purchase rather then Customs to hold millions of packages flooding into the country to try and determine if they are personal gifts (gifts sent from overseas with a value of under £39 have no UK VAT due) or commercial packages when each individually might only generate pennies of VAT.
However there is a massive downside and that is currently there appears no exemption for smaller marketplaces and this would be a huge barrier to entry for growth of newcomers to the arena if they had to collect VAT on sales from overseas sellers. The other hole in the proposals is what would happen to the millions of small businesses selling on platforms which aren’t marketplaces such as Shopify, BigCommerce, WooCommerce and the likes. Would overseas sellers set up their own .co.uk webshops and try to attract traffic that way and indeed if they did would consumers seeing higher prices on marketplaces be willing to scour the web for lower priced goods from sellers avoiding VAT or would they simply pay the true value of goods?
The final question is does the government, HMRC and the marketplaces themselves have the time to implement VAT collection solutions to start in just under 7 months’ time? With the current disruption from the pandemic and the Brexit transition agreement also coming to an end, the 1st of January 2021 is going to be a deadline like no other if the plan becomes reality.
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