VAT One Stop Shop New Rules

Online retailers are now having to face yet another challenge as a significant change in tax is about to take place for those who sell to customers within the EU. Here we explain in a bit more detail about the VAT One Stop Shop scheme and how it will affect e-commerce businesses.

What rules are changing?

From 1^st July 2021, new EU VAT e-commerce rules will be introduced, and whilst we are no longer in the EU, it will directly impact those retailers that are still selling their products to EU consumers online. Businesses need time to prepare for these changes and not leave it to the last minute.

As of the beginning of July, all supplies (both goods and services) that are sent to EU consumers should be taxed where the consumer is physically located within the EU. This change has the potential to create additional EU VAT compliance and reporting obligations for UK businesses. For those companies that struggle to keep on top of their reporting, this could be problematic, and changes will need to be put in place to ensure this is managed efficiently.

Why are these changes happening?

The current rules mean that businesses which sell goods to consumers in other EU member states need to register for VAT in that member state once their turnover exceeds a certain threshold. This can bring administrative burdens on businesses once they reach this threshold and can stop growth online. Issues also arise with people abusing the rules and making the most of low-value imports. With these current rules, suppliers outside the EU have a clear competitive advantage over suppliers of the same goods within the EU.

The European Commission has partly created the new rules in order to make EU and non-EU companies have a more level playing field.

One-Stop-Shop Schemes

New One-Stop Shop Schemes are being introduced as part of the changes to help facilitate compliance. These schemes will allow eligible traders to register with only one EU tax authority to manage all of their VAT obligations. The aim of the schemes is to significantly reduce the amount of administrative and time costs that would otherwise be involved.

What are the different schemes?

There are three One-Stop Shop schemes that will be available:

Non-Union Scheme

There is currently a Non-Union scheme in place but this will be extended for use by any business, not established in the EU, which supplies services to consumers taking place in the EU.

Union Scheme

Again there is a current Union scheme for a limited range of suppliers, but the extended scheme will be available to any business located in the EU which supplies services to consumers in another Member State where that business has no establishment.  It will also apply to any business, whether located within or outside the EU which carries out intra-Community distance sales of goods.

Import Scheme (IOSS)

The last type of One Stop Shop Scheme is the Import Scheme which applies to any business carrying out distance sales to EU consumers, of goods that are imported from outside of the EU in quantities that do not exceed 150 euros in value. If the supplier has no establishment in the EU, they will need to appoint an intermediary in order to use the scheme. This new scheme has been created to facilitate distance sales of low-value goods imported from non-EU countries.

What impact will these changes have?

Many UK businesses affected by these regulation changes will benefit from the use of one of the One-Stop-Shop Schemes rather than doing the usual VAT accounting for each EU member state they do business with.

The use of the schemes require strict compliance or businesses could be barred from using any of the One-Stop-Shop Schemes. UK Businesses will need to familiarise themselves with the rules of the scheme and arrange to be registered under the appropriate scheme as soon as possible.

These changes are important and coming into action soon which means UK e-commerce retailers should make it a priority to ensure they understand how these rules will impact their business. Those who plan early will be able to register in plenty of time and be ready for the launch date. If you want to know more about these changes or need advice on what to do next, then please get in touch with a member of the Wright Vigar team. Our specialists are always up to date with these changes and are in the best position to help you and your company.