Selling to the EU - Brexit, DDP & IOSS

The Brexit Update

An hour before 1st January 2021, we implemented the changes to the VAT system brought about by Brexit. This update constitutes the biggest change to the Bluepark tax system for many years.

Broadly, UK companies will now treat EU countries the same way as they have done in the past for countries outside the EU. However, in order to avoid a hard border between Northern Ireland and the Republic of Ireland, NI will still apply many of the rules set by the EU.

Firstly, the EU flag has been removed from both the UK and the Isle of Man.

Secondly, in the Tax Rules section, the Default VAT Rate activates the Bluepark tax system. The VAT Countries setting determines where the default rate will be applied.

There is now a new setting, "Within the UK", available alongside the existing settings:

Within the UK
Within the EU
Worldwide
Manual Selection

Our update has switched merchants across to "Within the UK" if they A: previously had "Within the EU" set, and B: have their country set as UK or Isle of Man in Settings: Company. This "Within the UK" setting works for Northern Ireland also, as it respects NI's unique status. Our system recognises Northern Ireland where the country is UK and the postcode begins with "BT".

The following is a summary of the VAT rules, following the changes.

Northern Ireland:

Regardless of the VAT Countries setting, Bluepark treats Northern Ireland like any other EU country. Essentially, Northern Ireland behaves like the rest of the UK did in 2020.

Gov.uk Source 1
Gov.uk Source 2

UK to EU (Goods):

VAT is no longer charged for sales from the UK to the EU, as is the case for sales to other countries overseas.

Gov.uk Source

Overseas to UK (Goods):

This scenario is the most complex. VAT is not charged for sales from overseas to the UK, EXCEPT where the total value of the goods in the consignment is less than £135.

If this is the case, then the seller must register for UK VAT and charge it at the point of sale. If the buyer is also VAT registered in the UK, and supplies a VAT number, then VAT is not charged and the reverse charge mechanism comes into play.

This new threshold system, beginning with the UK, will extend to the EU in July 2021. The work we have done has prepared Bluepark to implement these changes when they come into effect.

Gov.uk Source 1
Gov.uk Source 2

UK to EU (Digital Services):

Bluepark continues to respect the rules for selling digital services to the EU. If you use the VAT MOSS system, you must register for the scheme in an EU member state.

Gov.uk Source
Europa.eu Source

Overseas to UK (Digital Services):

Bluepark similarly respects the rules for selling digital services to the UK. You must register for VAT in the UK.

Commercial Invoices:

For sales to other countries, Bluepark will now modify invoices with additional information, if supplied. This includes your EORI number, along with the HS Code and Country of Origin for your products.

Important:

Because of the level of complexity involved in implementing the changes required to our system, and the short amount of time we have had to make these changes, we require all clients to take some responsibility to make sure that VAT is being applied correctly to their invoices. It is important to check orders very carefully before shipping and report any anomalies or errors to us immediately.

Customer EORI Numbers

Bluepark now supports the collection of customer EORI numbers, and the field will appear automatically if you are already displaying the VAT number field.

Shipping Overseas and DDP (Delivered Duty Paid)

One of the challenges presented by Brexit is shipping to overseas customers, who will now incur customs duties and taxes in their own country. These are additional charges that must be paid on receipt of the goods. Surprise charges can lead to returns, especially from EU customers who are not used to the new system.

Many couriers offer a solution to this, in the form of DDP (Delivered Duty Paid). This means that you offer the customer the opportunity to pay their duties and taxes upfront, and then you take full responsibility for all customs and import fees on behalf of the customer.

Bluepark cannot internally calculate accurate landed costs, but we are providing two solutions - one free and very approximate, along with an accurate paid solution.

The free solution can now be found in the Shipping Editor, where you're able to estimate DDP as a percentage of the net order value. If you can predict the rough DDP percentage based on the types of products you're selling, then this solution might suffice, with the understanding that you will be collecting an approximation of the cost from the customer.

The paid solution is provided by Zonos, who we have partnered with to provide accurate DDP charges per order:

https://zonos.com

Simply add your Zonos API key via Integrations: Website Plugins.

Our Zonos integration uses the customer's address, commodity codes and the country of origin to calculate accurate landed costs. Once again, this feature is activated via the Shipping Editor.

EU VAT Changes from July 2021: IOSS

From 1st July 2021, the EU is changing its VAT rules for B2C sales.

To provide some background, since January this year, the UK has already implemented a similar system. For a non-UK business, selling to the UK under a £135 threshold, UK VAT (at 20%) MUST be charged at the point of purchase, i.e. the seller needs to be registered for UK VAT to sell to the UK under £135.

From July, the EU's changes largely mirror the UK's rules. For a non-EU business, selling to the EU under a €150 threshold, EU VAT (at the destination country's rate) SHOULD be charged at the point of purchase, i.e. the seller should be registered for EU VAT to sell to the EU under €150.

As an aside, there is a distinction here, as the EU system includes something called Special Arrangements, which enables sellers to opt out and pass the import VAT collection role to postal services.

Obviously, it is impractical to expect sellers to register for VAT in every EU country, so the EU have created the IOSS (Import One Stop Shop) solution. This means that sellers can register in one EU member state and this will be valid for the declaration and payment of VAT on all distance sales to customers within the EU.

In order to support this system, we have added an IOSS Registration Number field in Settings: Company. If you enter an IOSS number in that field, Bluepark will calculate VAT at the standard rate for the destination EU country for sales under the €150 threshold.

The charging of VAT with an IOSS number is set to begin from 1st July 2021.

To find out more, please follow the link below:

https://ec.europa.eu/taxation_customs/business/vat/ioss_en

EU VAT Changes from July 2021: IOSS (Addendum)

This update follows on from our previous update, where we detailed the EU VAT changes beginning 1st July 2021 (tomorrow, at the time of writing this update). If you missed the previous update, please read that first.

We have now introduced an additional solution for reduced and zero rated products, as groups of products can attract different VAT rates in different EU countries. This opens the door for a great deal of complexity.

To simplify this problem, we have created a new field in the Product Editor called Tax Code. This is a letter from A to Z, similar to the existing Pricing Code and Shipping Code fields.

If you go to the Tax Rules section, in addition to the standard VAT rate, you are also able to select a Tax Code. You can then enter a custom VAT rate, for each country, applying to all products having that particular Tax Code assigned.

For example, you may be selling books, which attract a reduced VAT rate in many EU countries. In this case, you could assign the Tax Code "B" to all of your products that are books, then in Tax Rules you could select the Tax Code "B" and enter the correct reduced (or zero) rate for all countries that apply.

Finally, as per our previous update, don't forget that our IOSS VAT feature requires that you enter an IOSS Registration Number in Settings: Company.