For many merchants, the build-up to Brexit has felt like forever. But as of January 2021, the Brexit trade deal changes finally happened. Months later, many ecommerce businesses, brands and retailers still feel unprepared. In fact, 76% of small businesses, post-Brexit admit to feeling unsupported and confused.
With so much uncertainty, we wanted to set the record straight and help you understand what you need to do and how you need to do it, so we caught up with shipping experts, ShipStation to discuss exactly that.
What are the key things merchants need to consider for smooth shipping into and out of the UK, post-Brexit?
All ecommerce businesses need to provide the following information for items to pass through customs:
- UK EORI Number
- The importer’s EORI Number (if sending to another business)
- Sender and recipient’s name, address and contact details
- Item details (quantity, weight, value and description)
- Country of origin
- Harmonisation code (typically an eight-digit number)
- Recipient VAT number (if applicable)
The above list is non-negotiable and missing them will lead to delays, fines, additional duties or failing to pass through customs entirely.
Collectively this information is really important. It tells customs what an item is, its value, where it comes from and where it’s going. For example, the EORI (Economic Operator Registration and Identification Number) number helps to identify the sender, while harmonisation codes are in place to standardise how customs operate across the globe.
Gaining an EORI number is easy and applying for one takes minutes via the UK Government’s dedicated portal. From small businesses to large enterprises, it’s imperative that you have an EORI number if you’re sending an item out of the UK commercially.
When it comes to harmonisation codes, you can search for these here. Simply describe what the item is and its code, VAT rate, duties and any other information that comes up.
What are customs forms and why do ecommerce businesses need them?
Sending any product out of the UK now requires custom declaration forms.
These forms vary slightly depending on your courier.
- Royal Mail and DPD use two types – a CN22 or CN23 form
- DHL, FedEx, and UPS use an EDI form
The CN22 form is used for items with a value of up to £270. Whereas, a CN23 form is for items valued above the £270 threshold and requires additional accompanying paperwork such as a commerce invoice or an appropriate licence. EDI forms operate in the same way.
Ecommerce business owners can access more information about UK customs here.
For UK merchants shipping goods to the EU, what are the VAT changes?
Now that we have a Brexit trade deal, and the UK is no longer part of the EU, things aren’t as simple as they used to be. UK businesses need to consider EU Import VAT.
To be clear, this differs from UK VAT. Currently, UK businesses only need to collect VAT on sales after they surpass the £85,000 threshold. These domestic limits do not change, though all ecommerce businesses should ensure they understand what their UK VAT obligations are.
EU Import VAT varies from country to country and depends on how your business operates, the value of the package you’re sending, and the item’s country of origin. We suggest seeking official tax advice when necessary to ensure your business is charging the amount of VAT and is meeting necessary legal requirements in every country you sell in.
So, when do UK merchants need to pay EU Import VAT?
There are a few things merchants need to consider:
- Is your product item value less than €22? If the answer is yes, then you’re not subject to EU Import VAT. However, it’s important to keep in mind that this threshold may change as of July 2021, as currently there are low-value consignment relief thresholds in place.
- Is your product item valued between €22 and €150? Here, EU Import VAT is due. This is often charged at 20% but can vary on the country.
- Is your item valued at more than €150? Again, EU Import VAT is due, and additional import duties may apply.
If the item you’re exporting is alcohol, perfume or a specialist product additional excise duties may apply, no matter what the value of the item is, so always check!
How do merchants pay EU Import VAT?
There are two options:
- You leave EU Import VAT unpaid
With this option, the customer will see the price of delivery without VAT. All you need to do is complete the paperwork, and the courier charges the customer the EU Import VAT.
Whilst this might seem like the easier option, it can lead to long shipping delays, payment refusals and disgruntled customers.
So, check whether you need to register for tax in the countries you’re operating in.
- You collect EU import VAT and pay the courier
Just like with option one, the customer sees the delivery price, but you pay the VAT and other duties to the courier, not them. They often call this Delivered Duty Paid (DDP).
Again, check whether you need to register for tax in the countries you are operating in.
Are there any differences for merchants based in Northern Ireland?
If your ecommerce business is based in Northern Ireland and you’re shipping to the EU, then you will require an additional EORI number starting with XI.
However, duties don’t apply if you’re shipping from Northern Ireland to the Republic of Ireland. This is because the shipment is treated as an ‘intra-community’ and not subject to extra charges.
For Northern Ireland to Great Britain, exports are treated as a domestic UK transaction. UK VAT is also still applied.
What does Brexit mean for the future of ecommerce?
Around the world, COVID-19 has accelerated the shift towards more online shopping. In the UK, it’s unlikely that Brexit will reverse this trend, but it is having an impact. As a result, your customers’ buying experience is of greater importance than ever, and is key to your growth.
The new customs and tax regulations can complicate the ecommerce journey, resulting in delivery disruptions and delays if you don’t get it right. For example, what’s an EORI number or harmonisation code, the difference between DDP and DAP, how to update your fulfilment and delivery process software, communicate with the customer, and set realistic expectations.
For many online retailers, Brexit can seem daunting, particularly smaller businesses and entrepreneurs just starting out. Understanding Brexit’s impact on the ecommerce industry and what is expected of you is critical to navigating your way through this post-Brexit era successfully.
Where can I learn more about Brexit?
- HM Revenue & Customs’ policy paper: “Changes to VAT treatment of overseas goods sold to customers from 1 January 2021”
- GOV.UK’s Brexit Transition guide
ShipStation makes EU shipping easier by managing much of the new administrative procedures, but even if you decide to go it alone, remember that Brexit has happened and now is the time to act. Brexit related EU import VAT, customs charges and changes to how you ship items are here to stay.