What does the Brexit Mean for Ecommerce?
Discover what does the United Kingdom Brexit mean for ecommerce and how does the Brexit affect ecommerce sales between Europe, UK and worldwide.
In what might be the understatement of the decade, Brexit, the United Kingdom’s Jan. 31, 2020, departure from the European Union, has been a long time coming. Since 52% of U.K. citizens voted to leave the EU in June 2016, it’s been four years of ambiguity compounded by bureaucracy and exacerbated by an unprecedented global pandemic.
So perhaps it’s not surprising that even back in June 2020, government data indicated that as many as 61% of British businesses hadn’t made any preparations, at all – for leaving the EU.
Even six months later, with only weeks to go until the new policies come into effect, it’s not entirely clear how Brexit will affect ecommerce businesses.
Brexit Mean for Ecommerce
The one thing that’s clear is that regardless of whether your business is based in the U.K., the EU, or elsewhere, sales to and from the U.K. will be subject to new regulations, customs, and duties. The customs border will be reinstated between the EU and Great Britain (England, Wales, and Scotland) which will introduce new VAT rules for goods imported into the U.K.. Northern Ireland will have a dual-status post Brexit, so they will be part of the U.K. customs territory but also part of the EU single market for VAT purposes.
“For ecommerce sellers, Brexit basically means more bureaucracy and more tax,” says Richard Asquith, Avalara’s vice-president of global indirect tax. “With the compliance costs, it’s a real existential challenge, particularly for smaller ecommerce businesses.”
As attempts are made to hammer out a free trade agreement between the U.K. and EU, what trade rules and tariffs look like moving forward still remains somewhat unknown. But here’s what we do know about how Brexit will likely affect ecommerce—and how you can prepare.
How does Brexit Affect Ecommerce Sales?
According to a 2019 report from global ecommerce insights firm Edge by Ascential, the U.K. is the world’s third-largest online retail market and the top market in Europe. Right now, it’s worth an estimated $101 billion—but Brexit may change that, with three main factors at play.
First, if you thought delivery times slowed significantly during the early months of COVID-19, get ready for Brexit. Experts predict that supply chains will struggle during the adjustment period, as sellers, shipping companies, and border agents adjust to new checks, protocols, and customs clearances.
Secondly, the addition of new tariffs on goods will either cost you, your customers, or both—which may make your goods less attractive than a foreign competitor’s. According to a 2019 survey conducted by ResearchAndMarkets.com on the implications of Brexit for ecommerce, customers will refrain from buying internationally if additional costs apply after checkout. On the flip side, these duties and taxes may encourage U.K. consumers to buy locally.
Finally, the third factor is a predicted drop in the value of the pound sterling. While this will make purchasing goods from the U.K. more affordable for consumers, the long shipping timelines and custom duties may outweigh the benefits.
How do I Get Ready for New Tax Regulations?
If you’re not sure how VAT rules will impact you, speak to a local tax professional.
For goods shipped to the U.K. from outside the U.K., the following changes will take place:
Businesses need to collect VAT on orders shipped to the UK below ￡135. But if your brand is using a platform like an online marketplace to supply imported goods with a value below ￡135 to U.K. customers, the VAT liability will be shifted to the platform.
Brands need to file for and remit VAT to HM Revenue and Customs (HMRC) every quarter. Note: Orders above￡135 will be subject to duties and import VAT.
For goods shipped from the U.K. to the EU between Jan 1., 2021 and June 30, 2021, the following changes will take place:
1) Merchants are not required to collect VAT on orders shipped from the U.K. to the EU, provided that the EU customer will import
2) Buyers are responsible for paying any applicable import VAT and duties on orders shipping from the U.K. to the EU
3) Customs documents are required with all orders being shipped to the EU
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