Consequences of Brexit for
e-commerce retailers
On 1 January 2021, the Brexit was actually carried out; after 47 years of belonging to the EU, the United Kingdom has now left the EU single market and the European customs union. Prime Minister Boris Johnson called it a "great moment" for the country.
What happened?
In autumn 2020, it was not yet clear whether the United Kingdom would leave the EU in the form of a hard Brexit or whether an agreement could still be reached at the last minute in the form of a treaty that would regulate common relations even after Brexit. After months of negotiations and several missed deadlines, the parties were able to reach an agreement at the last minute on 24 December 2020.
After that, everything went very quickly on the part of the islanders, the British Parliament waved through the ratification bill shortly before the turn of the year within a few hours and the Queen also approved the bill. The treaty was officially published in the EU's official gazette on New Year's Eve, and thus the hard Brexit, a no-deal, was history.
How does Brexit affect cross-border e-commerce?
The negotiated agreement governs trade relations between the EU and the UK. However, the withdrawal agreement is not affected; rather, it is about the trade and partnership agreements. And in the case of the trade agreements, i.e. the economic relations between the EU and the UK, for the movement of goods the focus is on issues of VAT and customs law.
In summary, it can be said that in the trade in goods – for certain goods – no customs duties or quantitative restrictions will apply in the future. At the same time, however, the UK will remain a third country from the EU's point of view, just like Switzerland.
Here are the key aspects of the agreement for trade in goods:
Effects on turnover tax
The ratified agreement does not affect the provisions of the withdrawal agreement with regard to turnover tax. The United Kingdom is a third country for EU members for tax purposes.
Customs implications
Even with the free trade agreement, the customs borders between the EU and the UK remain in place. This means that goods must be cleared through customs when crossing the border, import and export declarations must be submitted and the movement of goods is controlled.
On the other hand, the trade agreement provides that import duties will not be charged for goods that fulfil the rules of origin.
Thus, goods with preferential origin in the EU are exempt from customs duties when imported into the UK and vice versa. However, the relevant definition of the origin of the goods must be carefully checked, complied with and proven. Misconduct can be punished with fines or criminal proceedings. For companies, this means that they must know exactly what they are doing when they make use of the preferential right and weigh up the effort against the savings.
The Brexit changes for international online trade at a glance
Here is an overview of what online retailers have had to consider since 1 January 2021 in order to serve their customers in the United Kingdom:
- For low-value items (i.e. those with a low value of goods, previously under GBP 15), the previous VAT exemption has been removed. This means that consignments of goods of any kind (sales, samples, etc.) will be subject to VAT from the first pence.
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A new VAT system applies to goods sold to private customers BtoC with a value of GBP 0 to GBP 135. The seller or sales platform is responsible for paying the VAT. The VAT incurred must be paid directly to HMRC (His Majesty's Revenue and Customs), i.e. to the government authority or the UK tax authority. The advantage is that the consignment is then duty paid to the sender (DDP) and the recipient does not have to pay import duties, which is a very pleasant shopping experience for the buyer. VAT registration in the UK is mandatory for you as an e-commerce retailer. Click here to register.
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For shipments with a value of goods over GBP 135, customs duties and VAT apply. Retailers can choose between two options here – DDP or DAP.
- DDP (Delivered Duty Paid): You are registered for VAT in the UK and deliver VAT in the UK. You charge the costs for this to your customers when you sell the products.
- DAP (Delivery at Place): Your customers pay the VAT, handling fee (customs clearance fee) and any customs duties when they receive their order.)
* Fedex prices can be seen here.
How does the e-commerce shipping volume to the UK actually look now?
Before Brexit, around 69% of UK parcels came from domestic online purchases; 8.6% of parcels came from EU countries and around 9% from other non-EU countries. In the first half of 2021, post-Brexit deal, domestic purchases increased by 30%. In contrast, shipments of goods from the EU suffered a decline of around 55% and those from non-EU countries fell by around 35%. This trend to buy locally was already forced in 2020 by the Corona pandemic, but received a further boost due to the Brexit, as the development shows.
Shipping to the UK and from the UK to the EU has become more complex. Despite the free trade agreement, trade between the EU and the UK is still accompanied by numerous problems and it takes time until those involved are familiar with the new rules and they can be effectively applied. Stricter controls, new customs processes for imports and exports, and additional documents lead to delays at the border when goods are shipped, because there is sometimes a lack of clarity about which documents are now required for shipping.
In addition, the mandatory implementation of the new VAT system for goods shipments of up to GBP 135.– for imports to the UK and the new returns management to be organised are further stumbling blocks.
For online retailers who have previously sent their parcels to the UK or imported goods from there, a lot has changed as a result of Brexit. It will certainly take some time for trade between the UK and the EU to settle down again.
What can already be said is that shipping to the UK and from the UK to the EU has collapsed. Especially traders with the so-called low value goods, who have to register in the UK and pay VAT, are afraid of this effort, as well as the electronic recording of all shippment data. Remember, until GBP 135.–, the seller of the goods is obliged to register in the UK and pay VAT to HMRC.
But British consumers who shop abroad will also have to reckon with additional costs, customs clearance fees or VAT for consignments of goods over GBP 15.–. Delivery times will also be longer for them due to customs clearance, inspections, etc.
The UK holds great growth potential in e-commerce – what's next?
The UK e-commerce market remains the largest in Europe, ahead of Germany. Around half of British online retailers make cross-border purchases, the majority of shipments come from the USA or China, but 9% of the products shipped come from Germany. On average, a British online shopper spends EUR 1780 a year.
It is predicted that UK consumers buying goods from foreign retailers will see a 7.3% drop in 2021.
British Post Office sources say that the new VAT system is easy to apply and no changes are expected in the near future.
However, they also see that volumes have been affected by Brexit and the new tax regime and that low-value items in particular have been reduced. The effort due to the data requirements has also had a negative impact and led to customer and volume losses.
A simple solution for e-commerce is needed
If you want to participate in the growth market of Great Britain as an EU trader or Swiss online trader, or if you don't want to annoy or lose British customers, you have to face these new circumstances. There are various solutions - the right one for you is also available!
Do you mainly send parcels with a value of less than GBP 135.–? Then the new VAT solution for shipments up to this value is attractive. Because it allows you to deliver to your British customers as obligingly as before.
How can Swiss online traders specifically take advantage of this simplified customs clearance and VAT solution?
For shipments up to GBP 135, the online shop itself or its selling platform can register in the UK and apply for a UK VAT number and EORI number. The consignments can then be sent either by postal channel with small goods up to 2kg or PostPac International or by Swiss Post GLS or URGENT Business Courier with the corresponding electronically created shipping labels and documents via our online services.
The UK VAT number and the UK EORI number can be stored in the online services to ensure correct customs clearance on the VAT number. The consignments are transported to the UK by Swiss Post or our partners, pass through customs there and the customs authorities compare the sender with an existing UK VAT number or EORI number. Consignments up to GBP 135.– from senders with a UK EORI number pass through customs duty-free and are handed over directly for delivery.
The mail order company or platform reports the relevant VAT duties to HMRC on a monthly or quarterly basis and pays them directly. The recipient receives the item without any delay or additional charges. This way you increase the shopping experience and the satisfaction of your customers!
Restrictions of the simplified customs and VAT solution for online trade
This solution only applies to shipments up to a maximum value of GBP 135.–. But beware: it does not apply to parcels containing products subject to excise duty!
Such products are, for example, tobacco, cigarettes, medication and alcohol. Such consignments are subject to excise duty regardless of their value. Customs controls issue the corresponding invoice to the recipient.
Next steps for your e-commerce business?
We will support you and help you with further information on the registration process and of course with other valuable tips and tricks.
You can find more information here: Brexit: Goods shipments to Great Britain
