The Byline Times is amongst many media organisations reporting one of the most crass consequences of Brexit, so far. As they note (and the whole story is worth reading):
Businesses in the UK have been left reeling from a post-Brexit change in VAT that has already left many with gaps in their supply chains just days into their new trading relationship with the EU.
Changes in VAT rules introduced by HM Revenue and Customs on 1 January mean that VAT is now being collected at the point of sale rather than at the point of importation. The result is that companies all over the world that deal directly with the public now have to register with HMRC and collect VAT on goods over £15.
In response, a growing number of firms have decided to boycott the UK rather than register with the country for VAT — leaving people unable to order goods including materials not manufactured here.
There are a number of things to say.
First, this change in the law slipped through Parliament without any effective scrutiny, or warning, in December as part of the Internal Markets Bill, on which the attention was elsewhere, for good reason.
Second, the complaint made by overseas traders is entirely fair. The requirement that they be registered for UK VAT to make a single sale to the UK is absurd, not least when the UK's VAT registration limit is £85,000. Not only does this smack of an unlevel playing field, it is administratively absurd. A business could, if this arrangement was replicated around the world, be registered in well over 150 countries and have to do VAT returns for each once a quarter. That is clearly impossible. It is the UK's job to collect its tax owing, and not that of those who might wish to sell to us. It is entirely reasonable that companies are now refusing to sell to the UK.
Third, there is no way of enforcing this tax collection system, of course, or of effectively recovering the VAT paid to foreign companies, which makes the whole arrangement even more ridiculous. It is hard enough to collect VAT in the UK, not helped by the fact that HMRC now almost never send VAT officers out to actually visit VAT registered businesses. Collecting money due from overseas registered businesses will only happen on a voluntary basis, and that is not a reasonable way to run a tax system.
So what should be happening? Either a UK paying agent must be appointed, and Amazon and eBay can play that role, or VAT has to be collected on all imports by the person making delivery i.e. the Royal Mail or the courier company. And yes, they should have the right to charge.
Collecting VAT outside the EU was always going to be harder; their compromise arrangements for this worked as well as any system might. But we seem to have gone for the worst of all possible options here. But then, on Brexit nothing surprises me. The aim would appear to be maximisation of red tape as if the aim is to drive business into the shadow economy.
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This is simply extreme ideology trumping common sense.
Although I agree that it will as a consequence drive business into the freeport scenario and of course make this Tory policy look successful.
But it does show how low these xenophobes are willing to go to win.
The UK is doing exactly the same as the EU, but 6 months earlier as the EU delayed the changes by 6 months due to Covid. And pretty much the same as every major economy including the USA in taxing consumption in their country by individuals. This is a key OECD principle – tax where consumed. There is absolutely no doubt that the present system including LVCR has been widely abused.
My only complaint is that the methodology used to collect the tax places intolerable burdens on small business and instead the tax should be collected and remitted by the payment provider, for online transactions. This would ease the burden on business and leave the consumer, whether they be in the UK, EU or USA in roughly the same tax position.
I am nit arguing against VAT
I am arguing about an incompetent method of tax collection
Holland, Australia, USA et al adnauseum, all do the SAME thing.
Silly criticism.
No they do not because most is covered by the EU scheme
Your comment is the inane one
I can not see how this new VAT payment and collection system can work.Could it be a ploy to make it more complex to those purchasing overseas and encourage buying British.I work in textiles and import from South America and The EU. Allport at Heathrow ship for me from South America and I pay them two invoices when they deliver.They require cheques.One immediate payment is the VAT on the goods and the shipping and customs fees and the other is the fees less VAT.This is quite simple and uncomplicated.
From The EU I would pay for the merchandise and shipping costs and DPD would bring to my location.A great service.I would sell the goods and charge VAT on my invoices and all that 20% would be paid to HMRC.I still do not fully understand the new system.I have had my EORI number for over three years and believe that there is a six month transition period and I must keep records and can pay outstanding taxes then.I presume I will learn more over time but as The PM has said ,”it is tragic but unavoidable”.
This won’t apply to your business as you would be VAT registered. Allport will still be doing the same thing for you. As Richard points out above “deal directly with the public”
This is for those small direct sellers and those who use the online market places. The EU is bringing it in later as well. The issue is those direct sellers that avoided VAT on the products due the £15.00 minimum (which is going) undercutting EU businesses.
Still a daft way of doing it though.
And the EY has a way of managing this within the EU which the UK is now excluded from
I sense a Slo-Bo “U-turn” coming on!
“…administratively absurd. A business could, if this arrangement was replicated around the world, be registered in well over 150 countries”
Wouldn’t that be the consequence if, as you have suggested, businesses pay profits tax where their customers are, rather than where the business is?
Only if they have an actual presence there
But you have been on record as criticising overseas companies for paying little or no tax in the UK despite high sales into the UK.
Amazon SA has no presence in the UK, Dell Inc has no presence in the UK, Google Inc has no presence in the UK.
All of which are legal fictions, as you well know, seen through by country-by-country reporting which taxes groups
I remember many years ago attending an HMRC presentation on a new construction industry tax scheme that was being rolled out. Seeing the obvious flaws in the system, the main one being that cash transactions would increase under the new scheme, I stood up to ask a question of the speaker “what bear of small brain devised this?” and going on the explain the pitfalls. Silence in the room – I was having an argument with the District Inspector. My colleague vowed never to attend another meeting with me.
🙂
Yet more complexity in the UK tax system. At more than 10 million words it already claims to be world beating. But we voted Brexit to get rid of bureaucracy so that is all right then.
https://www.independent.co.uk/news/uk/politics/brexit-trade-deal-unstable-boris-johnson-b1783130.html
One of the problems that future foreign investors could be face with investing in the UK with a deal that could fall apart or tariffs could be imposed at any time. Therefore the UK would not be attractive to them.
Cynically I’d say with so many “u-turns” taking place with this “out-of-its-depth” government and still supported by so many voters, who barely seem to know the time of day, foreign investors would be wise to stay away.
I still go back to this New York Review article “The Death of British Business” by Simon Head now over four years old. Here’s the sub-heading prediction:-
“The large-scale flight of foreign capital from Britain would be a mortal blow to the UK economy, which has long depended on investment from abroad to make up for the weaknesses in its own corporate and financial institutions.”
https://www.nybooks.com/daily/2016/10/18/brexit-death-of-british-business/
“I am arguing about an incompetent method of tax collection”
Such as a business having to file a corporation tax return in 150 countries if, as you want, companies are taxed where their customers are?
Country-by-country reporting would not create a liability where there was genuinely mo presence and only exports
You clearly have not read country-by-country reporting
Just to clarify, the UK, EU, USA etc all are adopting VAT/GST collection obligations without the need for a presence for general tax purposes. This concept of implied ‘nexus’ to a country, even through local affiliates or by virtue of a certain level of turnover places a B2C seller who wants to sell to lots of countries in a nightmarish compliance situation for VAT. Yes, they could be liable to register and administer VAT/GST in 150 countries under the current OECD thinking.
This is absolute madness. There needs to be a more simple collection regime, and I say that collection by a few major payment companies is better than the whole B2C world being caught up in this.
The idea of selling through agents – including online – is what they are clearly aiming for
Blimey that Byline piece isn’t very good.
Although the conclusion ‘Ludicrous’ is fair enough they haven’t understood it at all.
It is dealing with direct to public sellers not company to company trade.
That’s fair comment
I believe I am right in saying that these new arrangements only apply to goods with a value of less than £135 (and more than £15 which is the de minimis threshold) when supplied to private customers living within the UK. If the shipment is more than that the existing rules apply, although I have been unable to ascertain what those are. It is still bad enough. I have a friend who regularly sends (or sent) small consignments from France to the UK and he has blocked his website to UK visitors because of this. I have suggested he should impose a £135 minimum order quantity but he has written to HMRC to ask what the correct accompanying declaration forms should be and has recieved no response. Meanwhile he will not be dispatching anything to the UK as he certainly has no intention of registering for UK VAT. The rules on the £135 limit are contained in a Government publication “The Border with the European Union – Importing and Exporting Goods” but it does not make clear to my reading what happens about goods of a higher value. Nor is it in an HMRC Policy Paper “Changes to VAT treatment of overseas goods sold to customers from 1st January 2021”. I do know of several firms who have ceased trading with UK private customers as it is obviously not worth their while.
Thanks Nigel
Hope you are well Nigel.
Correct but they are doing away with the de minimus threshold. That’s fair enough as it was beihg completely abused but that doesn’t warrant either the UK or EUs response,
Not according to my research, Andy, with respect. Consignments under £15 are still outside the scope of VAT. I think it actually used to be £25 but who knows? The whole thing is just complete incompetence. I’m sure all the competent people who used to occupy Whitehall have got plum jobs in the City these days.
JNigel
The £15 de minimus was pre 2021, this is the big change in that it has gone now.
“From 1 January 2021, overseas retailers supplying goods to UK customers which are imported into the UK will account for VAT as follows:
Consignments of no more than £135 in value will be subject to import VAT at the point of sale and overseas retailer or, if used, online market place will be liable to account for this
Consignments exceeding £135 in value are subject to the normal rules at import, i.e. the overseas retailer will need to declare them to customs and pay import VAT, etc”
It’s the second paragraph of that quote that is the change and the subject of this post, it used to be that up to €135 in value exempt but no more.
I understand that the £15 has gone
“The new arrangements will also involve the abolition of Low Value Consignment Relief, which relieves import VAT on consignments of goods valued at £15 or less.”
I stand corrected. Missed that. It makes it even more ludicrous.
It is ludicrous or at least the way they are going to do it. As Richard says any honest trader won’t bother. It will get the online market places though as there was a report in the Times yesterday that prices on Amazon have gone up (typically that’s the Chinese and Far East sellers which is who it’s aimed at).
I am sure this is true…
New Zealand has been doing this for over a year. It works better than the previous system of import duty being haphazardly applied on goods coming into New Zealand and creates a transparent cost on all goods. Lots of websites and overseas suppliers have registered as NZ GST payers and that’s for a nation of only 5 million. I’m sure they will register for UK VAT.
I bet they gave more than a few days notice
And agreed the basis of charge a long time before introduction