2021 has been characterised by constant change, and as we are acutely aware, VAT has been in constant flux since the EU VAT reforms launched in July of this year. Understandably, businesses may be left scratching their heads. As we approach the busiest shopping period of the year, and potentially the biggest Q4 for online retail, ecommerce sellers need to get to grips with their VAT compliance obligations to make the most of this holiday!
The EU VAT reforms ushered in a refresh cross-border VAT liability, highlighting the principle that VAT should now be due where customers are based, rather than where businesses are established. For both EU and non-EU businesses, new schemes were put in place to simplify the process of accounting for cross-border VAT.
As a business owner, you may have found these new changes difficult to adjust to and may have experienced poor customer reviews due to delayed shipping estimates and even returns from foreign customs offices. With the potential to form the perfect sales-season storm, now is the time to plan to avoid further disruptions for your customers’ , just in time for Christmas.
On issues that have arisen since Brexit and the July EU VAT reforms…
“[Post and parcel carriers] whole EU physical and data infrastructure is designed around border-less trade. So, what’s happening at the moment is you’re trying to get a round peg in a square hole. As a European nation, we have a unique relationship with the EU, we weren’t cut off from the EU, we were completely decapitated from it.”
Post-Brexit changes alongside the EU VAT reforms have created a challenging environment for large postal operators and couriers in the UK, whose processes have largely focused on straight-forward access to the EU market. As we have seen in recent weeks with the continuing supply-chain disruption and HGV driver shortage, businesses have had a hard time delivering smoothly as of late.
As Simon explains, ‘…large parcel operators don’t have the agility to quickly respond to the changes…it’s extremely difficult for them to change their processes to make it easier for the customer’. Much of the difficulty experienced by businesses lately has stemmed from HS/Tariff Code confusion, with some EU countries often sending consignments back with little information for sellers to remedy the issue. ‘
Before the changes, parcel operators would export consignments directly to their country of destination and cleared there, but now, when a parcel from the UK reaches these destinations in the EU, they often go through longer checks and experience delays as they are processed as non-EU imports.
Current logistical issues, future predictions, and the introduction of IOSS…
“The air freight and container problems are a COVID problem, not a Brexit problem, that issue is all over the world. From a parcel distribution perspective, the volumes of parcels carriers are dealing with because of COVID, as more people have switched over to online shopping, is massive.”
Throughout the COVID pandemic, online shopping has naturally overtaken physical retail as globally consumers were restricted from visiting in-person. Although international restrictions are being lifted, online shopping is still predicted to be the chosen means of buying Christmas gifts for shoppers worldwide.
If you are an ecommerce business ramping up for the Christmas sales season it’s never been more essential to get prepared for possible eventualities and issues. Particularly for non-EU brands importing into the EU using standard postage procedures. Postal carriers are expected to be inundated with parcels this Christmas 2021, and so processes are expected to be slower than usual.
During the July EU VAT reforms a new scheme was introduced to simplify cross-border VAT reporting. The IOSS Scheme, although optional, is ideal for non-EU sellers that need to expedite shipping times throughout the Christmas period.
The IOSS Scheme – what it is, who it’s for and the pros/cons…
“IOSS is going to be cost prohibitive for me! I can’t do this as I’m not making enough profit to have my monthly/annual returns covered.” I can see exactly where they’re coming from – Where do they start? How do they penetrate the EU market? They’ve got to make a commercial decision, either to do it or not to do it and to not do it is hugely unfortunate – they could be the next Calvin Klein!”
The Import One-Stop Shop (IOSS) is for both EU and non-EU businesses and marketplaces, to report the VAT due on B2C distance sales of imported goods to EU customers. The IOSS scheme will only apply to consignments below EUR 150, however, as anything above this will be subject to import VAT and standard customs procedures. Requiring only a single monthly VAT return, IOSS can save your business administrative time reporting cross-border sales throughout the EU, which is particularly important during the shopping season.
As Simon explains, the current taxation environment in the EU has proven challenging for smaller businesses starting out – ‘For smaller ecommerce companies, these are our future designers’ brands, our future corporations, they all start somewhere’. The IOSS Scheme, which is ideal for brands sending between 100-200 parcels weekly, may not be suitable for the margins of a smaller company and so often their EU access is limited. This is where scaling ecommerce businesses need to make a vital decision surrounding their expansion and growth, which IOSS can significantly help with. As a relatively new scheme IOSS is still settling into EU processes and naturally has encountered some issues along the way. Here we’ll break down some of the pros and cons of the scheme:
- Streamlines cross-border VAT reporting
- Expedites customs clearance throughout the EU
- Ensures all consignments are compliant
- Saves businesses from VAT registering in each country where they have customers
- Can be costly for smaller scale businesses
- Some businesses opted into IOSS have had parcels returned from EU customs offices due to HS Code restrictions and/or limited information as to accepted codes
As Simon continues, although it’s not ‘perfect’ and still has kinks to be flattened in due course, IOSS is ‘a great idea’ for businesses. To avoid shelling out a costly sum to VAT register in each country where you have customers, IOSS can provide space for your business to expand in the EU, if planned correctly to cover your margins.
After the July reforms, lots of businesses hastily registered for IOSS without sufficient advice or information, which has led to disruptions and returns from EU customs. That’s why it’s so important to have an expert by your side, helping you to understand your own VAT compliance obligations and save you time and unnecessary stress.
At SimplyVAT.com we understand how challenging this period has been for businesses of all sizes. We want every business to have the opportunity to grow without barriers or borders – that’s why we offer a range of IOSS services that can help small, medium, and large companies access the EU market without damaging margins. It’s important that young businesses research the possibilities when IOSS registering and find a solution that suits them. Contact a member of our International VAT team to discuss which of our IOSS services will work for your business and take the next step to success in the EU.
Christmas preparation options for ecommerce businesses in 2021…
“If you’re shipping direct to these EU countries from the UK, that’s where your problems will start. You’ll have no choice to ship directly if you’re using the big mail or courier suppliers in the UK, as that’s how their infrastructure works, and they don’t have the agility….it’s extremely difficult for them to change their processes to make it easier for the customer.”
If your business is looking to avoid delays, returns or costly VAT registrations throughout the EU, now is the time to set up a forward-thinking plan for the Christmas shopping season. As previously mentioned, large volumes of parcels are predicted to be flowing through mainstream postal services this year, with the potential to cause significant disruption to delivery. If your business may be affected by this, considering smaller parcel operator could be a massive help to keep your business running smoothly.
SAMOS E-Commerce operates a reliable EU B2C delivery service that specialise in customer-centric solutions for UK ecommerce businesses. They understand how difficult it has been for some businesses to successfully deliver to customers EU-wide and therefore developed their own shipping and customs solutions and can ship B2C consignments of any value into the EU hassle-free and at very competitive rates. It’s a bespoke and refreshing approach if you have you have experienced difficulties when sending B2C via IOSS, DAP or DDP with post and parcel operators.
Unlike large postal carriers and courier services, SAMOS E-Commerce have the agility and flexibility to quickly accommodate any changes and issues with importing into Europe. With an excellent track record, SAMOS E-Commerce have had no issues getting parcels to EU customers on time for businesses struggling with importation and customs. During the Christmas season, dealing with unexpected fees or delays can add unnecessary stress to an already busy period. With SAMOS E-Commerce, you can deliver across the EU on an excellent service this Christmas hassle-free as you sell.