In just a few days’ time on 1 July 2021, the EU’s new VAT one-stop shop (OSS) system will be coming, an initiative any UK business that sells goods in the EU should be clear on.
The sweeping changes will see one in ten UK eCommerce businesses needing to register for VAT for the very first time, costing companies around €8,000, or €208 million in total as they overhaul their systems to comply with new rules.
Keep reading to make sure you understand what you need to know and how to prepare to get your VAT obligations right the first time round.
The current rules
The rules starting next month aren’t completely new, changing everything at once. Instead, they build on the current rules, so we’ll touch on these briefly.
Under current rules, businesses from outside the EU are typically required to register in each of the various member states where they supply their goods and services, something UK businesses have had to quickly contend with post-Brexit.
Yet businesses offering B2C digital services have been able to use a different route, the mini one-stop shop (MOSS), to declare the VAT due on their supplies in a single quarterly VAT return, all the while only having to register in a single EU member state.
But MOSS has always been restricted to digital services, while imported goods from non-EU countries with a value above €22 (or £15) had to be registered for VAT in each EU member state with the necessary declarations – an administrative nightmare.
The new rules
This is what the EU new VAT rules are trying to address through the new, optional OSS, which will see B2C suppliers of all services and goods no longer having to make multiple VAT registrations for each EU state they supply to.
Instead, they can nominate a single EU member state that their goods or services are supplied to in which to register for VAT and file their returns.
Technically speaking, this scheme is known as the Union OSS, as opposed to the non-Union OSS, which is a simple extension and continuation of the existing MOSS system.
The EU will also be introducing a third OSS known as the import one-stop-shop (IOSS), the rules of which will apply from 1 July 2021.
Under this system, online sellers will need to apply VAT to their products when selling goods for a buyer in the EU, the VAT rate being the one applicable to the member state where the goods are being delivered, which can be found on the European Commission website.
The IOSS covers the sale of goods from a distance that are:
- dispatched from outside the EU at they time they are sold
- transported in consignments with a value not exceeding a total of €150 (low value goods) even if the order contains more than one item
- not subject to excise duties, typically applied to alcohol or tobacco products.
Not only will the IOSS make the collection, declaration and payment of VAT simpler for sellers making distance sales, but it will simplify the process for buyers too, who will only be charged at the time of purchase and therefore face no surprise fees, according to the EU.
What should I do to prepare?
The rules are changing soon, so make sure you’re prepared if not already, and register through an online OSS portal. Each EU state has its own portal where businesses can make a single registration for all eligible supplies.
Note that the new OSS is an optional system to be completed alongside a business’s regular domestic VAT return, with any Union and non-Union OSS return having to be completed quarterly, while IOSS returns are due every month, so start planning your time accordingly.
Some businesses might feel they can get to grips with the finer details of the new OSS and, in the case of the IOSS, certain exceptions.
Others might start feeling the heat as they struggle with the costs of extra training, a higher workload, and perhaps even more staff to detail. If that’s the case, you might be eligible for the SME Brexit fund as added support.
Nevertheless, a particularly meticulous accountant is the surest way to make sure you’re ready for the changes next month.
At James Scott, we can relieve the burden and stress that the new EU rules for the VAT system might have on you and your business. Mistakes in VAT can also be costly – more costly than any service we provide – so don’t hesitate to get in touch with us at 0161 653 2274 or fill out our contact form.