I guess everyone in UK ecommerce knows they’re in for a slightly bumpy ride now Brexit has kicked in. If you’ve had to ‘pivot’ your business due to Covid, more ‘pivoting’ is going to be needed. As a retailer, you’ll need to reconsider how to optimise your order fulfilment and so avoid customs-induced bottlenecks and long delivery times thanks to super tedious bureaucratic procedures for international cross-border fulfilment.
With some smart thinking, a little rearrangement and the right support, you can keep the disruption and negative effects to a minimum and keep on selling what you’re selling without getting tied up in knots with the new (sadly excessive) paperwork. We’re here to show you how.
So what’s changed?
It’s definitely all change, whether you’re a UK business, EU-based business or elsewhere. Sales to and from the UK are now subject to a bunch of new set of customs, regulations and duties. So brace yourself. The customs border is now reinstated between the EU and UK (England, Wales, and Scotland), which means new VAT rules for goods imported into the UK. Northern Ireland is a bit different. They have dual-status, which means they are a part of the UK customs territory but also part of the EU single market for VAT purposes.
Lots more rules and formalities
Since the UK is no longer part of the EU Customs Union or VAT regime, the previous VAT and customs simplification measures that make it very easy to sell goods to the continent have now disappeared. Sellers now have to consider:
- paying Customs Tariffs
- identifying HS and commodity codes
- completing customs declarations
- managing increased VAT liabilities
“For ecommerce sellers, Brexit basically means more bureaucracy and more tax,” says Richard Asquith, Avalara’s vice-president of global indirect tax. “With the compliance costs, it’s a real existential challenge, particularly for smaller ecommerce businesses.”
Let’s look practically at what you will have to do now
Complete customs declarations
For starters, you’ll need to fill out a customs declaration form for every sale of goods into the EU from the UK. Otherwise they won’t be allowed into the country. If what you’re shipping is valued above €150, you may need to pay a tariff too. More on that later.
Get HS codes
You’ll also need an HS code for your goods before EU customs will allow them to be delivered. An HS code is part of the classification system the World Customs Administration uses called the International Harmonized system (HS). This six digit ‘HS code’ is used by every country in the world to classify imported and exported goods. You’ll need one of these codes for anything you’re planning to ship. You can find your product’s HS code in this searchable database or use Avalara’s classification service.
Get a second EORI number
GB Economic Operator Registration Identification (EORI) numbers are now no longer accepted for EU imports. Regardless of where your business is based, you’ll now need two numbers; a UK one and an EU one. You can find out more about getting a second local EU EORI number for your imports into the EU here.
And if, up until now, you’ve had an EU EORI number, but you want to now import directly into the UK, you’ll need to get a GB EORI number. Numbers and more numbers.
Register for VAT
The European Fulfilment Network (EFN) will no longer operate between the UK and the EU. So if you were using this to service customers in the EU, you won’t be able to any longer. If you have a UK fulfilment centre, your goods won’t be covered by the EFN or the distance selling thresholds. So whereas previously you could charge the local VAT rate up to a threshold in a calendar year. Now, if you’re the ‘importer of record’ ie liable for the VAT owed, you’ll have to hold your goods in an EU country and register for VAT there. You need a VAT registration in place in the country of arrival in order to account for the VAT, as well as an EORI number. This identifies you as the importer to the EU customs authorities and identifies your business when you’re importing into the UK and EU. It means you can reclaim import VAT in countries where you’re VAT registered, as long as it’s on your import documentation.
Of course, if you’ve previously sold to UK customers and fulfilled from an EU country, you’ll now need to hold your goods and VAT register in the UK and fulfil them from there.
You’ll need to take into account the extra logistics costs of moving your goods to where they have to be now to service your customers. Plus of course now you need to manage inventory levels in different locations. There’s a double whammy on the duties and import VAT being charged twice. Although you can reclaim your import VAT when you file your VAT return.
Other useful VAT stuff you need to know
For goods shipped from the U.K. to the EU between Jan 1., 2021 and June 30, 2021, the following changes will take place:
- Merchants are not required to collect VAT on orders shipped from the U.K. to the EU, provided that the EU customer will import
- Buyers are responsible for paying any applicable import VAT and duties on orders shipping from the U.K. to the EU
- Customs documents are required with all orders being shipped to the EU
The other thing you may not know, unless you already sell to Norway, Australia, Japan, or South Korea, is that now you will need your own fiscal representative. A fiscal representative helps tax authorities ensure VAT compliance. They’re essentially a local counterpart—often a lawyer or accountant—who is responsible for your tax reporting and payment. Before Brexit you will have come under the umbrella of the EU if you were a UK-based business. But now you’ll need to use your own fiscal rep in places like Italy and Poland. This is obviously an additional cost - these representatives often demand high fees, as they’ll be held liable if you’re not tax-compliant. It may affect the viability for you to trade in certain markets. Wait for a little more clarity on this one though, as although it’s predicted that the majority of EU member countries (19 out of 27) will insist on this, some experts predict that requirements will be lower for ecommerce sellers.
How will Brexit affect ecommerce sales?
The UK is the world’s third-largest online retail market – and the top market in Europe - according to a 2019 report from global ecommerce insights firm Edge by Ascential. In 2019 it was worth an estimated $101 billion—but Brexit may change that, for three main reasons.
- Everything is going to be slow. So if you thought Covid slowed everything down, wait until the effects of Brexit hit. Supply chains are set to struggle and slow to a snail’s pace as sellers, shipping businesses and border agents adjust to new rules, checks and customs clearances. All that extra paperwork will slow delivery times.
- It’s going to be more expensive – either for your customers or you. And sometimes both. That’s because there will be additional tariffs to pay and when these get whacked on at the checkout, customers may rethink and decide to buy within the EU rather than from the UK.
- And the pound sterling is likely to drop in value. Which means that although goods in the UK will now appear cheaper and potentially boost sales, the longer delivery times and custom duties may make the goods seem less attractive after all. UK etailers will have to work hard to convince European consumers that UK products will continue to be good value
Interestingly though, Brexit could help ecommerce gain an even higher share of overall retail sales in the UK, already reaching above one-fifth, according to some estimates.
Non-EU destinations are already more popular among UK online shoppers when buying cross-border, and their lead over EU sellers could strengthen after Brexit. You may want to thoroughly research non-EU markets to potentially grow your international business in.
By 2023, more than one-quarter of UK's overall retail sales could be online.
How can you adapt to take advantage of changes?
U.K. e-tailers will have to work hard to convince European consumers that U.K. products will continue to be good value. Now all online businesses need to comply with local laws specific to ecommerce, if you don’t want stock being blocked at customs, frustrated and unsatisfied customers, and potential fines from U.K. or EU tax authorities.
You can crack it!
This article summarises the main changes you’ll need to be prepared for. But you may feel that your time is better spent on other parts of your business than ticking off these new rules and making changes to meet the new regulations. We don’t blame you. That’s where outsourcing your order fulfilment to a professional operator can make good business sense. Using existing EU-based fulfilment centres and preparing the necessary paperwork well in advance, means that you can rest assured that the rules – and your customers’ expectations – are being met. You’ll have EU-wide cross border fulfilment effortlessly within your reach. And you’ll be able to focus on growing your business internationally, rather than navigating around post-Brexit blocks. A much better use of your time.
If you’d like to talk to Omnipack about how we can help you can eliminate these Brexit headaches, and spend more time on interesting ways to grow your business, get in touch here.