12 months after the UK and EU relationship ended, the tremors of Brexit continue to be felt by thousands of e-commerce retailers. Despite sellers recording bumper holiday season sales figures, the evolution of tax legislation never stops.
According to Alex Baulf, senior director of government and influencer relations at Avalara, “Despite the pandemic-fueled boom in online shopping driving huge growth, a tidal wave of legislation post-Brexit has left many businesses feeling overwhelmed by the practicalities of selling online and internationally”.
In case you missed it, further customs changes were introduced on 1 January 2022. The date in which full customs control came into effect following the conclusion of the Brexit transitional period. If your business buys and/or sells goods between the UK and the EU, then you’re likely to be impacted.
What are the 2022 Changes?
Until this date, businesses have been able to defer customs registrations. Now, all businesses importing into the EU are required to complete a full import declaration.
The implications of this means that customs officials are now paying much closer attention to declarations and, as a result, are more likely to inspect goods traveling through the bloc. No longer are self-certified declarations an option; full proof is now required.
One Stop Shopping in the EU
January 2022 also marks 6 months since the introduction of the One-Stop-Shop and Import One Stop Shop (IOSS). For non-EU companies, IOSS provides a single registration needed to trade with all 27 EU members. As a result, it greatly reduces a business’ financial reporting requirements and frees up time for selling.
Post-Brexit, IOSS provided UK businesses the opportunity to charge VAT at the point of sale without having to register in multiple EU countries and deal with complex importation and customs requirements.
The EU estimates the new rules impacted 1.2 million businesses and more than 7,500 businesses have registered for IOSS. While a significant number have already registered, reports suggest smaller businesses are feeling the impact of IOSS—most with a lack of understanding when it comes to having the correct documentation in place, leading to issues with goods being stuck at the border and issues and double taxation.
“The adjustment is not going to be easy, and it certainly won’t be cheap,” says Alex Baulf. “To prepare for the changes, UK ecommerce sellers are facing £180m in additional red tape costs to navigate these new tax reforms. That’s a tough bill to swallow — particularly in the current volatile economic climate.”
Yet, he adds, “If sellers can get the right solutions and support in place now, there’s real potential to open up cross-border trading and empower British businesses to become major exporters. Though the upfront investment will hurt, if sellers can successfully embrace the benefits presented by IOSS, the UK is in a strong position to lead the world in ecommerce — unhampered by its third country status.”
New HS Codes for 2022
Another big challenge facing many companies is the release of the seventh edition of the Harmonized System by the World Customs Organization (WCO) on January 1, 2022. As with every edition since the first was created in 1988, the newest edition of the Harmonized System (HS 2022) will affect all participating countries — currently more than 200.
HS codes are tough to get right no matter what you sell or where you sell it. When they change, getting them right becomes even harder–as happened on January 1, 2022.
Assigning the proper HS code to cross-border shipments is critical because HS codes are tied to import tariff (duty) rates. Misclassified products may be assigned a rate of duty that’s too low, which could cause delays, fines, or other problems at the border. Alternatively, a rate that’s too high could lead to disgruntled customers and fewer sales.
UK businesses should review their customs classification policy. It’s important to identify if any changes are needed based on HS 2022. In addition, they should review the mapping and correlation tables.
The Digitalization of Tax Compliance
HMRC continues to work to streamline VAT compliance, minimize the VAT gap, and make tax digital. The next phase of the Making Tax Digital (MTD) program will go into effect April 1, 2022.
HMRC anticipates these requirements will affect approximately 1.1 million VAT-registered businesses with taxable turnover below the £85,000 VAT threshold. Companies selling into the U.K. and other countries that are digitalizing compliance must be able to pull necessary data in a specific format, ensure it’s technically correct, then submit it to the tax authorities as required
Changes to Intrastat declarations
Lastly, Intrastat declarations will only need to be submitted for movements of goods between Northern Ireland and the EU from January 1, 2022. Movements between Great Britain (England, Scotland and Wales) and the EU, will no longer be covered by Intrastat due to Brexit.
The new Northern Irish Intrastat exemption thresholds from January 1, 2022 will be:
- £500,000 for arrivals (NI imports/acquisitions from EU)
- £250,000 for dispatches (NI exports/dispatches to EU)
- Delivery terms threshold will remain at £24,000,000
How to stay ahead
The repercussions of Brexit have hit UK businesses hard – supply chain issues and additional shipping costs have been a hot topic throughout 2021 and will continue into 2022. If your business sells goods or services in or out of the EU, the increasing pace of regulatory change is a challenge to navigate.
With many retailers struggling to remain abreast of their obligations, compliance experts Avalara are hosting a free-to-attend webinar on 20 January 2022 to help sellers untangle the changes.
Tax and customs experts, Alex Baulf, Senior Director, Global Indirect Tax, VAT expert Matt Harrison and Lyndsey Robinson, EMEA Customs Manager, will be on hand to guide you through the changes helping you make sense of it all. We will review the key legislations from 2021 and the impact on businesses, as well as looking ahead to give you the first mover advantage on new and upcoming tax reforms when selling internationally.
During the session, experts will cover:
- The impact of Brexit on UK / EU retailers
- The sellers’ experience of new EU VAT schemes such as One-Stop-Shop (OSS) and the Import One-Stop-Shop (IOSS)
- HS Code Changes for 2022
- What the future holds for Customs declarations
- How to stay ahead of 2022 tax legislations
To find out more about the event or to register, please see here.