The transition period between the UK and the EU ended on 31 December 2020, with the new Trade and Cooperation Agreement (TCA) coming into effect the following day. The provisions of the new TCA replaced UK membership of the Single Market and the Customs Union. This has led to new costs being faced by domestic consumers who purchase goods online from EU suppliers.
Consumers in Scotland, and elsewhere in Great Britain, when buying online, or receiving gifts, from the EU are now likely to face a more complicated experience post-Brexit. VAT, customs duties and handling fees may all need to be paid. Similarly, the rules for sending items to the EU have changed.
In this blog we set out the impact of these changes for individuals receiving or sending items from or to the EU.
Receiving parcels or items from the EU
From 1 January 2021, the UK has extended the requirements which previously applied to non-EU postal items to EU postal items, as a result of the UK’s departure from the Single Market and Customs Union. This means changes for consumers when receiving items directly from EU suppliers.
When getting items from the EU the Royal Mail advises:
“When receiving goods from abroad, recipients may have to pay VAT and duties. The VAT and duties will be applied depending on the type and value of the goods. For gifts over £39 and goods over £135, Royal Mail may collect the VAT and customs duties on behalf of HM Revenue & Customs (HMRC) from the recipient prior to delivery. Letters, postcards and documents are usually exempt.”
Here we look in more detail at the guidance around VAT, duties, and any other fees.
Supply VAT and import VAT
On the 1 January 2021, the UK Government introduced a new model for the VAT treatment of goods arriving into Great Britain (GB) from outside of the UK. For goods imported from outside the UK not exceeding £135 in value, the point at which VAT is collected will be moved from the point of importation to the point of sale. This means that UK supply VAT, rather than import VAT, will be due on these items.
The change applies to foreign traders based outside the UK that sell parcels to GB buyers worth £135 or less, who must apply the UK’s prevailing VAT rate at the point of sale. Different rules apply to Norther Ireland, as highlighted in a later section of this blog. They must also register with HM Revenue and Customs to report and pay the supply VAT. The rate will be between 0% and 20% depending on the item.
According to the Financial Times smaller EU foreign traders have criticised the new bureaucracy because they used to charge their domestic VAT rates. Some have even refused to supply to GB. The rollout of the new rules was described as “chaos in ecommerce”.
For items over £135 existing Import VAT and customs rules will apply, meaning that Import VAT will be chargeable, and Supply VAT should not be charged at the point of sale.
Import VAT is charged at the same rate that applies to similar goods sold in the UK (the prevailing UK rate for most adult items is 20%) and applies to commercial goods over £135 in value, and on gifts that are over £39 in value. The value of the goods for Import VAT is based on the:
- basic value of goods
- postage, packing and insurance
- any import (Customs or Excise) duties charged.
A HMRC spokesperson recently highlighted:
“the value of the import VAT is calculated based on the value of the goods for customs purposes plus any customs duty, therefore it may appear to be higher than 20% of the original sales price.”
The UK Government has provided further guidance on VAT and overseas goods sold directly to customers in the UK.
Customs Duty becomes payable if the value of the goods is over £135.
The amount of Customs Duty charged will depend on the type of goods imported and the value stated on the customs declaration CN22/CN23 (converted to pound sterling using the rates of exchange for the month of importation as shown on the HMRC website). It can range from 0% to 25% of the item’s value.
The UK Trade Tariff tool allows you to search for the tax, duty and licenses that apply to specific goods. There are thousands of different rates of duty.
It should also be noted Excise Duty is charged on alcohol and tobacco products and is additional to Customs Duty. Excise duties are indirect taxes on the sale or use of specific products such as petrol and diesel, alcoholic drinks and tobacco products.
Treatment of gifts
Goods sent as a gift from the EU that are over £39 in value are liable for Import VAT. Customs Duty also becomes payable if the value of the goods is over £135. To qualify as a gift, it must be sent from a private person outside the UK to a private person(s) in the UK. Gifts of alcohol, tobacco, perfumes and toilet waters are subject to the limits, as detailed by HMRC. Where the value of gifts is below £630 per consignment, a flat rate of duty of 2.5% will be applied, but only if it’s to your advantage. HMRC provide details on gift thresholds and the treatment of multi-gift packages.
For gifts over £39 and goods over £135, delivery companies and Royal Mail will likely collect the VAT and customs duties on behalf of HM Revenue & Customs from the recipient prior to delivery.
The Royal Mail or any other courier service are required by law to present all items arriving from outside the UK to Border Force. Any charges are calculated and applied by Border Force on behalf of HM Revenue & Customs. The charges depend on the contents, where the item came from and who sent it. Letters, postcards and parcels containing only documents are normally exempt.
For example, for items sent through the post, Royal Mail pay HM Revenue & Customs any Import VAT and Customs Duty on your behalf. This is to ensure items are delivered as quickly as possible. Royal Mail will then send the recipient a fee to pay card. This shows how much you need to pay before you can receive an item.
If customs charges are payable upon importation, Royal Mail or couriers will charge a handling fee to cover the costs for carrying out customs procedures, which includes paying any Customs Duty or VAT due and collecting it from you.
Examples of these handling charges include £8 (Royal Mail) and £11.50 (UPS), or 2.5% of the amount paid to clear customs, with a minimum charge of £11 (DHL).
Here is an example of the costs associated with buying online from the EU, using a men’s blazer from an Italian website costing £350. Once customs duty, VAT and other charges are paid, the GB consumer is paying almost £480 for a £350 item.
Sending items to the EU
The rules around sending items to the EU (and Northern Ireland) have also changed. The Post Office highlight that customers posting from Scotland, England and Wales will be required to attach customs declaration forms to all items containing gifts or goods being sent abroad, including to EU destinations. Customers posting from Northern Ireland will not be required to attach customs declaration forms to items being sent to EU destinations.
According to the Royal Mail when sending items abroad:
“…customers will need to complete and attach a customs declaration (CN22 or CN23), available from the Post Office® or Royal Mail’s Click&Drop. This does not apply to customers sending items from Northern Ireland to the EU. Letters, postcards and documents are usually exempt.
The recipient may then have to pay customs or VAT charges and a handling fee in the receiving country before they can claim the parcel. These charges will depend on the country they are sending to, the value of the item and whether it is a gift or commercial goods.”
Before sending an item to the EU, the sender should consider how the recipient will pay the relevant EU VAT and custom duties, as the item won’t be released to the recipient until payment has been received. The current value of goods thresholds are detailed below.
- Items valued at under €22 will remain part of the Low Value Consignment Relief (LVCR) Scheme for items sent to the EU and are not subject to VAT or duties until 1 July 2021 (subject to further extension date to be set by the EU).
- Commercial items/goods (excluding personal correspondence) sent to the EU over €22 and below €150 may be taxed at the border and may incur a customs clearance/handling fee in the receiving country.
- Commercial items/goods sent to the EU over €150 may attract VAT, customs duties and a clearance/handling fee
- The customs authorities in the destination country and the customs thresholds in place determine if charges are due on imported goods.
- The levels and thresholds of charges vary from country to country.
Northern Ireland requirements
There are different rules if you sell goods to Northern Ireland from the EU or move goods between Northern Ireland and the EU. However, Northern Ireland residents can continue to receive goods from Great Britain as they usually do, with no new requirements.
Individuals in Great Britain sending goods to Northern Ireland residents can continue to do so in the same way they do at the moment (such as using a Post Office). Similarly, they can continue to send goods to businesses (such as returned goods) as they usually do, with no new requirements.
Northern Ireland based business receiving goods from Great Britain valued at £135 or more through an express carrier or Royal Mail Group must submit a declaration within three months of receiving the goods using the use the Trader Support Service. Northern Ireland businesses receiving goods from a business in Great Britain valued less than £135 can continue to order these goods from Great Britain as usual, with no new requirements. These arrangements on moving goods from Great Britain to Northern Ireland are in place until 31 March 2021. Further details on the arrangements from the 1 April 2021 will be published in due course.
The UK’s departure from the Single Market and the Customs Union has led to UK consumers facing significant new additional costs when they purchase goods online from EU suppliers. In many cases, some of these additional costs will not become clear until the goods have arrived in the UK and when consumers have paid for them.
As with many of the other impacts of the UK’s departure from the EU, these new costs are here to stay. As a result, it is possible that UK consumers may begin to seek similar products from UK suppliers in the future to avoid those new import costs. However, it’s unlikely substitutes for all products will be found in the UK.
HM Revenue & Customs’ guide for international post users provides further details on sending and receiving gifts or goods abroad.
Alison O’Connor and Iain McIver, SPICe Research