If there’s one law that attracts more attention than any other in 2021, it’s the ‘law of unintended consequences’.
Judging by the number of people who’ve been hit by tax bills, customs charges and courier bills for ‘administration’ on items bought from the EU, few of us were prepared for the cost of shopping across the pond after Brexit. And businesses on both sides of the channel are reeling with the reality of the new rules.
Resolver has asked top legal expert, Gary Rycroft to talk us through what’s going on, but we’re still waiting on clarity from the Government on a range of things, from ‘double charging’ of VAT to the cost of returning goods.
What are tariffs and customs duties?
A tariff (sometimes called Customs Duty) is a tax imposed by a national Government on imports or exports of goods. It’s a source of revenue but also a form of regulation to protect internal markets. UK/EU post-Brexit trade is ‘tariff free’ but there are hidden traps that mean in some circumstances buying goods from the EU and importing them to the UK may attract tariffs.
Before Brexit, we had free trade with all of the EU. Since Brexit the UK has a ‘tariff free’ deal with the EU. What’s the difference?
Post-Brexit UK/EU trade will be tariff free if the goods being imported or exported EU to UK are wholly or partially made or manufactured in the EU or UK. It gets more complicated if the ‘rules of origin’ come into play when goods cross the new border between the UK and EU.
What are ‘rules of origin?’
Rules of origin determine the economic nationality of goods imported or exported, that is where they have been produced or manufactured. This may not be where they are shipped from. If the rules of origin dictate goods are not from the UK or EU, tariffs may apply to import or export them across the UK/EU Border.
What is VAT?
Valued Added Tax (VAT) is a tax on goods and services assessed and paid at different points (production, distribution and sale). It was introduced in the UK in 1973 when we joined the Common Market (now EU) and replaced Purchase Tax. Consumers in the UK are used to paying for goods inclusive of VAT at the point of sale.
Haven’t we always paid VAT on goods purchased in the EU?
Yes, each nation in the EU has its own VAT regime and when the UK was part of the EU consumers would pay local VAT on goods at the point of sale just like in the UK.
What’s changed with VAT since 1st January 2021?
There may now be additional VAT to pay on the import of goods from the EU. There used to be a £15 VAT exemption which has gone. For goods or consignments of goods valued at less than £135 VAT will continue to be collected at the point of sale.
Over that figure import VAT will be payable on crossing the border, which in practice will be payable on delivery of the goods to a consumer. This has led to consumers paying more than expected when they placed the order.
What about gifts sent to us in the UK from the EU?
Sadly, even gifts crossing from the EU into the UK will be subject to import VAT if valued at more than £39 and customs duty if valued at more than £135 (and not exempt under rules of origin).
What about gifts we send from the UK?
Gifts we send from the UK to the EU will now need a customs declaration, just like gifts being sent further afield. So if you’ve sent things in the past to countries from the USA to New Zealand you’ll be familiar with the process.
Who pays if I want to return goods bought online from an EU retailer?
Under the Consumer Rights Act (2015) consumers have the right to return goods bought online within 14 days of delivery, but that right does not cover the cost of postage or a courier. Such expenses will only be covered if offered by the retailer. So if you decide not to accept goods because of additional import VAT or customs duty you may (almost certainly will) have to pay to send them back. You would then be caught between a rock and hard place.
Of course, if you refuse to accept the goods they’ll be returned anyway – but we don’t know if the business or courier will try to recoup these charges (and from whom).
Is it different in Northern Ireland?
The UK/EU Brexit Deal includes a Northern Ireland Protocol. This imposes unique complexity on the position of Northern Ireland. Northern Ireland remains in alignment with the EU VAT rules for transactions in goods. However Northern Ireland is still part of the UK VAT system. Technically goods movements from Great Britain (mainland UK) to Northern Ireland will be imports and exports. The UK government will treat them as normal UK domestic transactions.
Needless to say, the impact on people in Northern Ireland is significant, with some UK retailers declining to send orders to Northern Ireland. This is of considerable concern.
Are some businesses adding VAT on already?
Some businesses are adding on VAT at point of sale as part of their ‘online marketplaces’. So we understand Amazon and eBay are adding on VAT – but we’d still urge caution while the dust settles given the scale of these marketplaces and number of businesses involved.