New UK VAT model for cross-border low-value goods

The UK has revealed a new VAT model for the cross-border sale of goods to Great Britain (GB) customers. New information from HMRC specifically states that additional guidance for goods sold in Northern Ireland will come at a later date. The new VAT model is effective from the end of the Brexit transition period (i.e. January 1, 2021).

This new VAT model will largely mirror that of the E.U. which will also come into effect in 2021. The original introduction date for the E.U.’s rules was January 1, 2021, but there was a recent agreement to postpone to July 1, 2021.

So, what will actually happen on January 1, 2021? The VAT due on GB sales via online marketplaces will be due at the point of sale, rather than the current rules that deem VAT to be collected at the point of importation. As a result, online marketplaces that facilitate cross-border sales to GB customers will be responsible for collecting and accounting for the UK VAT due on these sales for consignments below £135. In the case of consignments above £135 the collection will still be done at the customer level upon delivery of the goods.

New UK VAT number validation service

In early December 2020, the UK Government revealed its new UK VAT number validation service. This service has been introduced as UK VAT numbers will no longer be validated using the E.U.'s VAT Information Exchange System (VIES). The UK VAT number validation service can be used to check:

• If a UK VAT registration number is valid
• The name and address of the business the number is registered to

The UK Government guidance is that "if you are a UK VAT-registered business, you can also use this service to prove when you checked a UK VAT number".

New invoicing information 

The UK Government advice, updated on November 20, states that online marketplaces will not need to charge and account for VAT on business to business sale if they validate the VAT registration number on the online service tool. However, the advice goes on to state that online marketplaces will still have an obligation to issue invoices indicating a wording similar to ‘‘reverse charge: customer to account for VAT to HMRC”.

Online marketplaces should issue a full VAT invoice for the sale of goods when deemed liable for the VAT. The overseas supplier selling on the online marketplace, however, does not have to issue invoices for the deemed sale to the online marketplace for supplies that are considered to be zero-rated. In practice, the online marketplace can still decide to issue such an invoice on behalf of the supplier through self-billing.

Mirroring other global implementations

These rules mirror those recently introduced on VAT collection on the cross-border sale of low-value goods in Norway, New Zealand and Australia with a much lower threshold. The relevant thresholds in these jurisdictions are: Norway (circa £257), New Zealand (circa £520) and Australia (circa £555). It also follows the recommendation in the OECD report on the role of digital platforms on collection of VAT published in 2019.

One area in the UK legislation that differs from the other jurisdictions to have introduced VAT rules on low-value goods is that it does not only focus on cross-border sales. On this point, the UK follows the EU approach where the platform is liable for VAT paid on the sale of goods already in the country by a foreign seller. There is no consignment value threshold that applies. Platform liability is triggered despite the foreign seller having a VAT registration in the UK.

The UK’s motivation for this change is clear in their communication explaining the new VAT model. "This will ensure that goods from EU and non-EU countries are treated in the same way and that UK businesses are not disadvantaged by competition from VAT free imports. It will also improve the effectiveness of VAT collection on imported goods and address the problem of overseas sellers failing to pay the right amount of VAT on sales of goods that are already in the UK at the point of sale."

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