Despite announcing their departure from the EU in 2016, it took over four years for Brexit to come into effect. However, many businesses across the UK are still unprepared as a lot of uncertainty surrounds the knock-on effect it will have on their daily operations.
So, how exactly will Brexit affect ecommerce sales? And what measures should be put in place to protect a business?
Major changes to the ecommerce market
One issue that all businesses will have to face, whether in the UK or the EU, revolves around shipping. From additional duties and taxes to slower delivery times, the initial post-Brexit teething period won’t come without its frustrations.
Top factors at play include:
1. Supply chain flow
The coronavirus pandemic had a massive effect on supply chains and delivery times and Brexit will only exacerbate this. We are already seeing long delays as a result of additional customs checks and clearance protocols with early indicators showing a massive drop in delivery speed as vendors struggle to cope with the changes.
2. New tariffs
It’s a fact that Brexit has come with new tariffs on all types of products, but what’s less certain is how this will affect businesses. Is the customer or the seller bearing the brunt of these costs? It’s still early days, but chances are your products may seem less appealing compared to local alternatives if these costs need to be passed on to the customer. Overall, this will act as a huge blow to ecommerce markets.
3. Currency devaluation
A final game changer is the proposed devaluation of the pound sterling. On the one hand, this will make UK products cheaper for ecommerce customers abroad, but delayed shipping times and additional tariffs may overshadow this.
What can you as an ecommerce retailer do?
In order to protect yourself from the aforementioned changes, you should consider applying for Authorised Economic Operator (AEO) status. An AEO certification essentially refers to traders who are deemed to be low risk and compliant with customs obligations. If awarded AEO status you may enjoy certain relaxations from standard customs controls.
Some of key advantages to achieving AEO status for ecommerce fulfilment include:
- International recognition as a secure and compliant supplier
- A reduction in delays at customs leading to faster delivery times
- Quicker and easier admission through customs
- Subject to fewer physical and document based controls
Apply for both a UK and EU Economic Registration and Identification (EORI) number
Businesses that import from or export goods to the UK need to have an Economic Operator Registration and Identification (EORI) number. If you are operating a business out of the UK, you will need a second EORI number; one for the UK and one for the EU. The EORI number needs to be quoted in documentation such as customs declarations and clearances and it is integral to obtain both numbers to ensure the smooth clearance of goods at customs.
Your EU EORI number can be obtained from the customs authorities of the EU country in which you are based, while a UK EORI number can be applied for through HM Revenue and Customs.
What will new tax regulations mean for your business?
Since the 1st of January this year, ecommerce businesses have had to comply with new rules surrounding VAT. Here is what you need to know:
If you are shipping products to the UK from outside the UK:
- Collect VAT for purchases of less than £135 if selling independently
- If selling on an online platform, the ecommerce site will face VAT liability for orders of less than £135
- All orders of more than £135 are subject to an import VAT which must be filed quarterly at the HMRC (HM Revenue and Customs)
If you are shipping products to the EU from the UK up until the 30th June 2021:
- All orders being shipped to the EU must be accompanied by customs documents
- VAT collection is not required on orders shipped from the UK to the EU, if imported by the EU customer
- Buyers have to pay import VAT and any extra duties
If you are shipping products to the EU from the UK after July 1, 2021:
- One-stop-shop rules are put into play
Up until the 1st of July when the latter rules come into effect, UK-based business will need to register for VAT in every country they sell to. Additionally, UK-based businesses will need to appoint fiscal representatives in each of these countries in order to avoid racking up fines. Essentially, this representative will be responsible for the declaration and payment of tax on your behalf.
Business owners outside of the UK need to register for VAT with HM Revenue and Customs. This is applicable to goods the value of less than £135 that are shipped to the UK.
What can you do to deal with EU VAT and customs charges?
- Make your EU customer the importer of record
Pro: The customer incurs the VAT cost while the merchant does not
Con: This will likely result in low repeat business and goods being sent back
- Clear goods into the EU at sale
Pro: Smooth flow of goods from one place to another
Con: The merchant has to pay customs and VAT costs. However, postponed accounting schemes let you avoid this cash payment in many places.
- List EU customer as an importer, but you pay VAT and tariffs
Pro: Fast and smooth delivery without burdening your customer with the VAT
Con: You will need a power of attorney from your seller, which takes time. Additionally, this policy will be revised after the 1st of July 2021.
- Hold cleared goods in the EU
Pro: Lets you bypass the cash flow hassle of import VAT and you don’t have to complete customs declarations.
Con: Shipping is inconvenient and carries a higher cost.
We will most certainly continue to experience the after effects of Brexit for some time to come. For many it will mean a complete reset in business processes. Following the above advice will at the very least steer you in the right direction. And though it will be challenging, as with anything, ecommerce along with all other businesses will no doubt find their way in a post Brexit world.