Imported goods and online market places

The Taxation (Post-transition Period) Bill will introduce a new regime for the importation of certain goods into the UK after the transition period comes to an end on 31 December 2020 -- in particular, goods imported into the UK as a result of a sale on an online market place and goods valued under £135 posted to UK recipients. These new rules will apply to importations into the UK with the exception of Northern Ireland.

The new model for the importation of goods sold into the UK by overseas sellers involves the following main elements:

• Abolishing the current EU based relief from import VAT for low value consignments which applies to goods not exceeding £15
• Moving the place of collection of VAT on importations of goods which do not exceed £135 in value to the UK
• Moving the responsibility to pay import VAT onto the overseas seller or an online marketplace, where they facilitate a sale (where the UK recipient is not VAT registered)
• Introducing an online marketplace liability for payment of VAT where goods are already located in the UK when sold by an overseas business to a UK consumer irrespective of the value of the item

Low value consignments (LVCR) and VAT imports

At present, goods imported into the UK by post benefit from an exemption from import VAT where they are valued at less than £15. After the end of the transition period, the UK will remove this exemption (except in Northern Ireland which will remain in step with EU rules). The intention is to protect the UK high street from unfair competition from overseas sellers being able to sell low value goods into the UK free of VAT. The risk of this would increase after withdrawal given the close geographical proximity of EU member States, which allows goods to be delivered to the UK relatively quickly.

This will mean that import VAT will be due on all goods entering the UK as parcels sent by overseas businesses, irrespective of value (unless they are already relieved from VAT under domestic rules, for example zero-rated children's clothing). As such, removing LVCR will increase the number of parcels on which import VAT will have to be collected, and therefore the potential additional burdens on parcel carriers.

To deal with this, the UK will move the responsibility to pay import VAT on any goods valued at under £135 to the overseas seller, unless the recipient is a UK VAT registered business (or unless the goods are excise goods such as alcohol and tobacco). It is expected that overseas sellers will be able to discharge their obligation either by registering with HMRC and paying any import VAT due on a periodic return or by paying the import VAT due to the parcel carrier who will make a payment to HMRC on their behalf.

It should be noted that the £135 figure matches the existing exemption from customs duty on commercial imports of goods valued at £135 or less (again except those that contain excise goods -- alcohol, tobacco or perfume). Where the value of imported goods exceeds £135, then customs declarations and import VAT will in general need to be accounted for on import as at present.

Overseas sellers using online marketplaces

There are additional rules which apply where the purchase of goods by a UK consumer from an overseas buyer is facilitated by an online marketplace. Unless the overseas seller has registered for VAT in the UK then the Bill will treat there as being a supply for VAT purposes both to and by the online marketplace where the value of the goods imported as a result of the sale does not exceed £135. The deemed supply from the overseas seller to the online marketplace is treated as zero-rated and, accordingly, the obligation to account for VAT on the deemed supply in the UK to the UK customer will be placed on the marketplace.

Where the goods are already located in the UK and sold by an overseas seller not registered for VAT in the UK via an online marketplace, then the online marketplace is made liable for the payment of VAT in the UK irrespective of the value of the goods sold.

For these purposes, an online marketplace is defined as "a website, or any other means by which information is made available over the internet, which

facilitates the sale of goods through the website or other means by persons other than the operator (whether or not the operator also sells goods through the marketplace)".

Comment

It does not currently seem entirely clear how HMRC intends to police these new measures, especially where requiring overseas sellers with no UK presence to register and account for UK import VAT. Equally, one would expect there to be measures to make the UK customer jointly and severally liable for any import VAT where the seller does not account for it, but again there does not seem (at present) to be such measures put in place.

Whilst the reasoning for removing the LVCR is clear, the measures appear to be open to abuse and evasion. It is not clear at this stage how HMRC will be able to enforce the rules on overseas sellers which do not use an online marketplace with a UK presence. Whilst the majority of such sales may go through the large online marketplaces such as Amazon and eBay, the experience with VAT is that those seeking to evade VAT will not baulk from setting up facilities which exploit any weakness in the UK system to sell goods VAT free to UK customers.

Further information on these changes is available on HMRC's website here.