Whatever happens on 31 December when the transition period for the UK's departure from the EU is due to end, the EU's member states will remain important trading partners for UK business. Therefore, news that the EU is likely to postpone changes to a raft of VAT measures for six months to 1 July 2021 will be very welcome.
The e-commerce package, the EU’s latest phase of its reforms to the VAT treatment of intra-community trade, was originally planned for introduction on 1 January 2021. However, the European Commission has just announced proposals to postpone these changes '… to take account of the difficulties that businesses and Member States are facing at the moment with the Coronavirus crisis.' While the changes are designed, in part, to simplify the VAT system, there is a recognition in the announcement that some preparation is required both for affected taxpayers and member states.
The precise changes affected by this proposed deferment are summarised below. By way of a summary, these measures are designed to ensure that VAT is charged in the member state of the consumer and not by reference to the supplier's location. As EU standard VAT rates vary from 17 per cent to 27 per cent (not to mention reduced rates as low as 2.1 per cent) this could have a significant impact on pricing decisions for suppliers serving customers across the EU.
- Goods from outside the EU for sale to consumers within the EU with a value of no more than EUR 150 will be subject to new rules. Sellers can elect to register for VAT in one member state and charge customers' local VAT by reference to the customer's location using the One Stop Shop (OSS) scheme (the current distance selling thresholds will be abolished). The customers of sellers that do not use this scheme will have to pay the import VAT due before receiving the goods in question. Not only should UK and other non-EU businesses selling goods to consumers in the EU consider their pricing policies, customer experience and delivery times may be affected by this change.
- The One-Stop-Shop scheme will also be extended to cover all services provided to EU consumers from other EU or non-EU member states.
- The final change is designed to prevent evasion by businesses operating through an electronic marketplace. The organisers of these marketplaces selling goods to EU consumers will be deemed, for VAT purposes, to be the supplier of these goods rather than the third-party sellers. Thus, they will be required to collect and pay the VAT on these sales.
While the delay to these new rules is good news for many organisations, it is also a useful reminder that the UK's departure from the EU will drive several more VAT changes above and beyond these measures. This comes at precisely the time that many businesses will be focussing on rebuilding their business after the headwinds created by the coronavirus outbreak.
For more information, please contact Philip Munn.