The impact of Brexit on international e-commerce
Brexit does not only affect the UK: Impact on e-commerce traders in Switzerland and the EU
At the moment negotiations for an agreement are still ongoing. If they fail, it will mean a severe economic split resulting in tariffs or trade barriers. The British government has therefore already warned the companies concerned to prepare for withdrawal without a trade agreement. The countdown has started ...
However, 1st January 2021 is not only a big deadline for British companies. Swiss and EU companies will also face major changes. And this is regardless of whether or not a hard Brexit takes place.
New Brexit rules require electronic processing
Brexit and the related changes in the UK and international law also affect postal services. How will the UK Post Office and other delivery services handle cross-border parcels in the future?
In addition to the fiscal shipping requirements for e-commerce shipments to the UK, security requirements will also be tightened from 2021. One of the biggest changes in international trade to date!
- Now parcels and packages must be handled electronically.
- Customs data must now be transmitted electronically in advance.
Incidentally, this does not only affect postal service providers such as Royal Mail, but is a legal and official requirement for all delivery service providers.
The Brexit changes for international e-commerce businesses at a glance
But first things first: We have summarized the most important points for you here:
- For so-called low-value items (i.e. those with a low value of goods, previously less than £15), the previous VAT exemption will be abolished.
- A new VAT system will apply to commercial goods worth between £0 and £135. The seller or sales platform is now responsible for paying VAT. The VAT incurred must be paid directly to HMRC (Her Majesty's Revenue and Customs), i.e. to the government agency or the UK tax authorities.
- The value limit of £39 for gifts remains unchanged.
- The green customs label or consignment note - the postal CN22/23 label - will remain or will be used for consignors from the European Union who ship goods to the United Kingdom.
- In addition to the physical customs documents, an electronic data set (the so-called ITMATT data or, in Switzerland EAD data) including all customs-related information is required. These ITMATT/EAD data (electronic customs data obligation) must be registered electronically and transmitted in advance. Data records that are incomplete or incorrect can lead to delays in transit time or returns of the parcels and packages concerned that are subject to charges.
Great Britain has great potential for growth in e-commerce
Perhaps you are now asking yourself: "Should I even be doing this to myself?" You will find the answer in the existing volume of shipments to the UK on the one hand and in what your strategic expansion plans are on the other.
Let's take a look at the situation in the cross-border sector in the UK - it's a very interesting e-commerce market with significant growth potential!
Despite Brexit and the changes, according to the International Postal Corporation (IPC) cross-border e-commerce in the UK continued to grow at a rate of 13% last year, . Promising, isn't it?
Source: IPC Growth between 2016 and 2019, Shopper Survey 2019
Rising figures in British cross-border e-commerce
If we put the growing volume of cross-border e-commerce in relation to the national e-commerce in the UK, it shows that cross-border e-commerce in the UK grew from below 1% in 2011 to 5% in 2019.
In other words: British people bought e-commerce products abroad for 4.1 trillion euros!
Even though the UK has currently a slightly smaller cross-border e-commerce turnover than, for example, France or Germany, the country has enormous growth potential.
The VAT exemption limit is abolished
Let's take a closer look at what Brexit means for Swiss and European Union online retailer sin terms of trade to the UK.
First of all: the so-called VAT exemption for small goods (Low Value Consignment Relief) will be abolished. This means that every e-commerce shipment to the UK will be subject to VAT from the first pound. There are now only two differences:
- Goods value from £0.- to 135.-
- Goods worth over £135
Did you know: This VAT exemption limit will also cease to apply to shipments from Switzerland to Europe as of July 1, 2021. IOSS or MOSS can help you with this. More about the import one stop store and the VAT changes can be found in our blog.
New tax regime for shipments up to £135
For shipments with an intrinsic value of goods up to £135 (value of goods excluding VAT, customs duties, transport costs, insurance etc.) the seller is always responsible for payment of VAT from 1 January 2021 under UK tax legislation.
A seller is considered to be either the online shop itself or a sales platform. Important: For shipments up to £ 135 there is a duty-free limit. Unless, of course, these are goods with excise duties
This means that the online merchant or sales platform is required to submit a monthly or quarterly VAT statement via HMRC. This solution is extremely advantageous for British recipients of the consignment: the parcels are processed quickly at customs and there are no additional costs.
What happens if an online merchant does not register?
However, if the sender does not register, the customs agents (Border Force) will customs clear the shipment for HMRC. They hold the shipment until HMRC has contacted the sender and the VAT has been paid. Conclusion: Not only are there delays in transit time, but there may also be chargeable returns.
Today it is unclear how the UK will proceed a large flood of shipments from unregistered online merchants. Especially when it comes to Chinese platforms ... It is still unclear whether a transitional period will be granted and how long it could last.
Shipments with a value of goods over £135
Now let's look at the situation that applies to orders over £135. These are subject to both VAT and usually customs duties. These customs and tax duties must be paid by the recipient upon receipt of the shipment, unless they have already been taken over by the sender (DDU = Delivered Duty Unpaid or DAP = Delivered at place). A handling fee is also payable.
For items delivered via Royal Mail, the handling charges are £8. For parcels delivered by Parcel Force, these costs range from £12 to £25! This will really spoil the shopping experience for the EU customer. The only advantage for the sender is that he does not have to register and submit any tax declarations in the destination country.
For the sender there is the option of sending DDP (DDP = Delivered Duty Paid). In this case, the sender is invoiced for the duties, i.e. he pays the handling and customs clearance costs.
Carefully weigh up the pros and cons of the various tax and handling charges for your online shop.
A simple solution for e-commerce is needed!
If you don't want to upset or even lose your British customers, you have to face these new circumstances. There are different solutions - the one that suits you is also included!
Do you mainly send parcels with a value of less than £135? Then the new solution is attractive for shipments up to this value. Because it allows you to deliver to your British consumers in the usual courteous manner.
How can Swiss online traders take advantage of this simplified customs clearance and VAT solution?
For shipments up to £135, the online shop or the selling platform has to register for VAT and apply for UK EORI number. After that, the items can be sent by normal mail and with appropriate electronic ITMATT/EAD data on the item.
However, a customs declaration (CN22) on the harmonized label remains necessary. The consignments are transported by Swiss Post to Great Britain, where they pass through customs and the customs authorities carry out a comparison between the sender and an existing EORI number. Items up to £135 from senders with a British EORI number pass through customs duty-free and are handed over directly to the delivery service.
The mail order company or platform reports the relevant VAT charges to HMRC on a monthly or quarterly basis and pays them directly. The recipient receives the shipment without delay or additional charges. In this way you increase the shopping experience and the satisfaction of your customers!
Limitations of the simplified customs and VAT solution
This solution only applies to items up to a maximum value of £135. But please note: it does not apply to parcels containing products subject to excise duty!
Such products include tobacco, cigarettes and alcohol. Such consignments are subject to excise duty irrespective of their value. Customs controls issue the corresponding invoice to the consignee.
Next steps for your e-commerce business?
Swiss online retailers should very quickly familiarise themselves with the new regulations and the solutions mentioned above. Especially the promising growth potential in the UK shows that the UK e-commerce market is growing - this offers interesting opportunities for you as an online retailer!
In order to take advantage of this opportunity and potential, you need to prepare yourself for the upcoming Brexit. We support you in this and help you with further information on the registration process, the ITMATT/EAD data and of course with other valuable tips and tricks.