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HMRC propose scrapping UK VAT free imports and force marketplaces to collect VAT

By Chris Dawson June 4, 2020 - 11:22 am

HMRC plan to scrap UK VAT free imports and force marketplaces to collect VAT on sales for overseas sellers by the end of the year, according to consultation document seen by the FT. Although an informal consultation documents, “key design features” of the plans were not up for negotiation and there is a strong intent to bring the rules in from the 1st of January 2021.

This will send a shock wave through the ranks of Chinese sellers who are accustomed to UK VAT free imports. Over the past years we’ve seen everything from marking items as gifts, under-declaring the value to be below the £15 level where no customs duty or Import VAT is due, moving goods to UK warehouses but not paying VAT, being clobbered for VAT and moving fulfilment back to China and a whole raft of other measures to dodge expenses which UK sellers have to pay.

UK VAT free imports on goods under £15

Scrapping UK VAT free imports for low value goods would bring relief to many within the UK who also face higher postage costs than overseas sellers. It can be significantly cheaper in many countries, even with the cost of air transportation, to post an item from outside the UK than within the UK. Seeing VAT free imports scrapped would at least mean the 20% VAT UK retails pay on each sale would be equal to the costs for overseas sellers.

Current limits for customs duty and import VAT on commercial consignments

Imports valued of £15 or less are free from Customs Duty and import VAT with the exception of alcohol, tobacco products, perfume or toilet waters

Goods Value

Customs Charges applicable

£0.01 to £15 No customs duty
No Import VAT
£15.01 to £135 No customs duty
Import VAT due
£135.01 and greater Customs duty due
Import VAT due

Marketplaces to collect VAT

If UK online marketplaces, which would include eBay and Amazon, are forced to collect VAT on sales from overseas sellers from the 1st of January 2021 this wouldn’t be a huge surprise – we’ve seen it happen in other countries around the world and would mean HMRC would only have to deal with a few marketplaces rather than thousands of individual overseas sellers who can shut down and emerge as a different entity on a regular basis. It would also be easier for the marketplaces to collect VAT at the point of purchase rather then Customs to hold millions of packages flooding into the country to try and determine if they are personal gifts (gifts sent from overseas with a value of under £39 have no UK VAT due) or commercial packages when each individually might only generate pennies of VAT.

However there is a massive downside and that is currently there appears no exemption for smaller marketplaces and this would be a huge barrier to entry for growth of newcomers to the arena if they had to collect VAT on sales from overseas sellers. The other hole in the proposals is what would happen to the millions of small businesses selling on platforms which aren’t marketplaces such as Shopify, BigCommerce, WooCommerce and the likes. Would overseas sellers set up their own .co.uk webshops and try to attract traffic that way and indeed if they did would consumers seeing higher prices on marketplaces be willing to scour the web for lower priced goods from sellers avoiding VAT or would they simply pay the true value of goods?

The final question is does the government, HMRC and the marketplaces themselves have the time to implement VAT collection solutions to start in just under 7 months’ time? With the current disruption from the pandemic and the Brexit transition agreement also coming to an end, the 1st of January 2021 is going to be a deadline like no other if the plan becomes reality.

  • SAM
    4 months ago

    “Scrapping UK VAT free imports for low value goods would bring relief to many within the UK who also face higher postage costs than overseas sellers”.
    Plus those overseas sellers do not pay any postal costs anyway another abuse.

    Although the China thing does not always effect myself (although it kills accessories), we have to compete in the budget market for years with those who used the loophole first from the Channel Islands and Switzerland.
    The UK is going to face a huge invoice for Covid 19 and it is time the playing field was levelled out it is long overdue.
    If people have to pay a few more bob so be it. The race the bottom can no longer be sustained.
    In the end UK business can grow and create more jobs and more important “better paid” ones as we are going to now have massive unemployment and the Tories won’t survive long with that.

    We might have not even had Brexit if people had not been squeezed for so long and the inequality gap had got so big.
    I would also start looking now at 4 day weeks to improve productivity but that will be a stretch.

    All these products being sold on US owned marketplaces themselves massive tax avoiders by companies from China avoiding tax I have always found this strange how this has even been allowed to go on for so long in the first place always has seemed self destructive to our own country.

  • ifellow
    4 months ago

    Biggest tax fraud in UK history, and still only proposals, makes you laugh doesnt it.

  • 4 months ago

    Ow no Does that mean I will have to pay more than £10 with free delivery and free returns for a shirt….What will I do 🙂

  • 4 months ago

    Marketplaces should collect VAT from all sellers at source, not just foreign one, as although obviously there are plenty oversea sellers, doing this there are also plent of UK not paying there VAT bills properly of high selling items, and the fact that marketplaces mean that a simply price drop of 1p goes from winning the buy box zero to 100%, you only need one rogue to seller to clean up against 100 honest sellers. Then people would switch to month VAT returns and your return would be a return, i.e. HMRC repaying VAT back to sellers on input costs.

    Also if they do bring this in, guaranteed headlines will be HMRC receives 5 billion a month more then expected, 100 percent !!!!!

    • Ifellow
      4 months ago

      I wouldn’t even mind tax collected at point of sale via card processors. But in the long run this makes my accounts super easy, profits transparent on a per sale basis and my country able to pay for the services I need.

  • Toby
    4 months ago

    Thank god for this. I so hope it happens. sick to death of fraudsters from China etc taking hard earned money out of the UK while not paying into it, and crippling honest UK sellers at the same time!
    GO GO GO! is what i say.

    • James
      4 months ago

      Agreed, this has been a problem for years now – and fixes the problem of VAT fraud and an unfair advantage on us UK bound sellers

  • 4 months ago

    The only way I see it working is collect VAT at Source and then reclaim it back on tax return for all Business sellers. Ebay should then say all Ebay accounts are Business accounts if you sell over a certain threshold. Maybe 10k per calendar year.

    All private sellers should not be paying VAT on Sales this should be the Business accounts only

  • 4 months ago

    Best news all year and long overdue. It’s a few lines of code to implement on all Marketplaces and will certainly level the field. At this time when exporting to much of the USA and Australia we are hindered by import taxes.

  • Dave Anthony
    4 months ago

    Fair enough if your sales are over £85K, you MUST register anyway. But some of us are well below that and don’t have to be VAT registered so we cannot be forced to pay VAT. These Chinese traders living over here are ripping the system off and they are the cause of the problem. Sooner they are sorted out the better for all of us.

  • lockheed
    4 months ago

    About time!!! However, the article says “overseas sellers” The marketplaces in the USA are already collecting sales tax which applies to all sales.
    These BIG Chinese factory sellers are what keeps eBay and Amazon making huge profits while eBay has lost its plot forgetting how it started with local sellers having meetups to get the platform going, but now they have decided to kick those sellers in the teeth and focus on Chinese sellers under-declaring the value of the goods and not paying VAT. These sellers will find a loophole such as getting their employees to register at Companies House 1000’s of Companies and trade under the 85k threshold. Let’s hope they put legislation in place to avoid this. The next move is to take a leaf out of the Swiss system and charge import duty based on the weight from the AWB depending on the commodity which the tariffs change and also sea or air shipment makes a difference in what you pay and any false invoice would be irrelevant and stops them circumventing the system.

    • 4 months ago

      These Chinese suppliers send false invoices but FEDEX for instance are now calling customers for proof of what they have paid. They want copies of the original invoice so they can charge the correct duty and VAT.

    • Ifellow
      4 months ago

      Not many, if any at all Chinese are using FedEx thou. Load off stuff I’ve ordered comes Royal mail or DHL. Had tons of Chinese parcels

  • Dave Anthony
    4 months ago

    But they get it in from China with low price Invoice and pay next to nothing VAT and duty. You may be getting a bargain but they’ve robbed other sellers of sales and the country of tax, which other sellers are paying. That’s why their prices are lower. They all have contacts in China for best deals and false invoices.

    • ifellow
      4 months ago

      Id says to everyone. ONLY ORDER FROM A CHINESE SELLERS.

      Because its been 7 years and HMRC have done nothing, maybe then they will get past ‘Proposals’ when the situation gets worse than it already is.

      As a seller, I am disgusted at HMRC’s lack of clarity and ability.

  • DAVE
    4 months ago

    How do you know that your item is coming from China? Check NEXT DAY DELIVERY. If it shows £99 then it’s from China as they cannot deliver next day from China.

  • 4 months ago

    @Dave

    Just look at the feedback normally they operate on 96 percent if your lucky and to boot hundreds of comments about item comes from China not Bristol as advertised

  • Dave
    4 months ago

    If you sell on ebay did you read the T&Cs?
    If your buyer asks ebay to step in when a package is late, even though tracking says it’s in the system, ebay will give them their money back. This buyer will not respond to any messages. Ebay will do this for any item up to £750.00 Be warned. I’ve lost hundreds. Took them to small claims court and won before they added their get-out clause. Bastards.

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