January 2021 was the first month the UK was not part of the EU, according to the UK National Statistics Office, exports to the EU fell by 40.7% in January compared to December 2020. Since then, UK exports to the EU have slowly picked up, but have not recovered to pre-Brexit levels.
Exports are much more than huge shipments between multinational corporations. They also include the sale of goods from e-commerce sites based in the UK.
Selling and shipping to EU consumers was easy before Brexit. It’s much tougher now, especially as EU customs and VAT rules are tightened on July 1st.
Changes in EU VAT
Before July 1st, the price displayed on a UK website included UK VAT. The customer paid for that. There were no additional fees. The price should now no longer include UK VAT. Instead, the EU customer has to pay the VAT and import duties set by the destination country. A UK seller has two options for addressing EU VAT. The first is not to be disturbed and the EU customer pays the delivery company upon receipt. This could easily result in a $ 40 item costing an additional $ 30, for example.
The second option for non-EU sellers is to calculate and calculate VAT at the checkout, then register and transfer to the appropriate country. However, this could lead to a serious administrative headache as the EU has 27 Member States.
An alternative after July 1st is the “Import One-Stop Shop” of the EU or IOSS. Non-EU sellers can register in an EU country and then pay the monthly VAT for all EU sales in all countries to this portal. This makes it easier for EU customers to pay VAT at the checkout and avoids an unexpected invoice.
There are several catches, however. For one, merchants need to calculate the correct VAT based on the destination country. Second, the e-commerce software must be integrated into the portal of the selected country. And most importantly, you cannot use IOSS if the order exceeds € 150.
In short, it is a lot of work for non-EU traders to sell to EU consumers. Many traders may not care.
To date, most EU consumers are confused by the new rules. They either refuse to deliver and leave the return shipping costs and reimbursement of the original purchase cost to the customer to the e-commerce company, or they pay and complain. You can even initiate chargebacks.
Many UK e-commerce companies have stopped shipping to the EU, hence the drop in exports. And it’s not just small businesses that have stopped. John Lewis, the major bulk retailer, has temporarily suspended sales to the EU pending the new regulations. However, smaller traders may choose to hire on a permanent basis due to the additional administrative burden.
An alternative to paying monthly VAT in 27 countries is to open a warehouse or use a fulfillment center in the EU. When placing goods in one country, you only have to deal with one VAT. Then send orders within the EU from this warehouse and avoid further VAT.
Ireland is the obvious choice for UK and other English speaking sellers, but its geography gets in the way – shipping rates are not ideal. A European mainland can be better. The best location depends on what you are shipping, how you get your inventory to the warehouse, and where your customers are.
Given that Covid-19 has changed the way consumers shop – from brick-and-mortar to online – many UK-based e-commerce retailers have tried to increase domestic sales to offset the loss in the EU.
Thus, the pandemic has softened the effects of Brexit on UK e-commerce sellers. Exports are declining, but domestic business and sales remain good. The split between the UK and the EU has changed e-commerce. It didn’t necessarily damage it.