At the end of 31.12.2020 the transition phase will end, during which the familiar Value Added Tax rules will continue to apply for deliveries to and in Great Britain.

What will change from a sales tax perspective from 1.1.2021?

The most important thing first of all: In future, you must always look at the German and the British point of view at the same time for deliveries to British customers.

Depending on which distribution channel you use and/or the value of the goods, it will continue to be necessary to register for tax in Great Britain from 1.1.2021 onwards or not.

Let's start with the German or EU perspective.

The German or EU view

From a German or EU perspective, two relevant cases (transaction types) are conceivable. In the following, we will explain how to evaluate and display these two transaction types from a sales tax and accounting perspective.

Case 1: You deliver directly to Great Britain

From a VAT point of view, this case is to be assessed as a so-called export delivery. Export deliveries are always tax-exempt, regardless of whether the customer is a consumer or an entrepreneur.

From 2021: If you are shipping goods from Germany to Great Britain, these are tax-free export deliveries.

It is important, however, that you have to document and substantiate export deliveries comprehensively. We have explained what this means in this blog post.

Case 2: Your or a logistics company brings the goods to a fulfillment center in Great Britain

From a VAT point of view - at least from a German or EU point of view - this case is a non-taxable transaction and therefore not to be recorded for VAT purposes.

From 2021: If you are moving goods from Germany to Great Britain, this transaction is not relevant for sales tax purposes - at least in Germany.
Important: Even if there is no VATable transaction from the German point of view when bringing the goods to Great Britain, you should make sure that you keep the so-called exit notes, which document the export to Great Britain, and link them to the transaction. In this webinar we have explained this in detail.

If one considers these two cases, it seems at first glance that the situation will be simpler rather than more complex as of 1 January 2021.

The opposite is the case, however - as was to be expected - because you now have to simultaneously and necessarily consider the British view.

The British view

From the UK perspective, the following case constellations must be considered. These differ in terms of which distribution channel you use - marketplace versus webshop - and whether the value of the deliveries is above 135 pounds or below.

In doing so, we have one principle in front of us.

Principle: Deliveries or imports that do not exceed a value of 135 pounds (net and excluding transport costs) are exempt from import (!)Value Added Tax . However, regardless of the value of the goods in Great Britain, each delivery is ultimately subject to Value Added Tax.

Let's look at the cases one by one.

Case 1: You deliver goods from the EU (e.g. Germany) to Great Britain via your webshop - goods value up to 135 pounds

Direct deliveries from Germany or the EU to Great Britain via the webshop are exempt from customs and import sales tax.

In these cases, Value Added Tax is created at the point of sale in Great Britain.

What does that mean? If you make even one such delivery from 1.1.2021 onwards, you will need to register for tax in the UK and declare and pay your Value Added Tax quarterly, as you make taxable deliveries in the UK.

Case 2: You deliver goods from the EU (e.g. Germany) to Great Britain via your webshop - goods value over 135 pounds

This case is a modification of case 1. Value Added Tax is not created here at the point of sale, but during import.

What does that mean? Also in this case Value Added Tax will be charged for your delivery - only in the form of import sales tax and this will be charged directly with the import in Great Britain. You do not necessarily have to be registered for VAT in this case. However, within the scope of a VAT registration, you can declare and pay the import VAT collectively in the following month - and not directly with the import, as is otherwise the case.

Case 3: Delivery via Amazon and Co. from the EU (e.g. Germany) to Great Britain - value of goods up to 135 pounds

In this case, the goods also come back to Great Britain from Germany or another EU country - however, the mediation and the direct settlement with the customer takes place via a marketplace, e.g. Amazon.

Mediation and settlement of the delivery through a marketplace

In these cases, UK VAT law feigns a - usually - taxable supply of the marketplace to the final consumer, as illustrated in the following diagram.

Fictitious tax liability of the marketplace from 2021
What does that mean? This is one of the few cases where you are not liable to tax in the UK and therefore do not need to register.

Case 4: Delivery via Amazon and Co. from the EU (e.g. Germany) to Great Britain - value of goods over 135 pounds

This case is illustrated ascase 2. This also means that the fiction mentioned in case 3 does not apply in these cases.

Case 5: Sale from a fulfillment center in Great Britain - value of goods does not matter

If you want to continue to use the Fulfillment by Amazon (FbA) in Great Britain from 1.1.2021, you will have to bring your products to the island yourself in future. Amazon had already announced that Great Britain will be dropped from the Pan EU program. A customs expert will explain how you can do this in this webinar.

From the German point of view, there is then no taxable transaction, since the delivery takes place in Great Britain.

In Great Britain, the following system, which you are already familiar with, applies again - with one important exception/supplement

From 2021: If you sell products from a Amazon warehouse in the UK to end users in the UK, Amazon will take over from Value Added Tax .

... Amazon owes Value Added Tax and also carries it off. In addition, the new British sales tax law feigns that you make a tax-free delivery to Amazon at the time of delivery from Amazon to the end consumer.

What does that mean? Many people have certainly recognized that this case is very relevant if you want to continue the Pan EU program including Great Britain from 2021 under the new circumstances. Due to the above mentioned tax free delivery to Amazon you will still be taxable on the island and will still have to submit quarterly Value Added Tax returns.

What about B2B deliveries?

We will publish a separate blog post on this question. Put simply, the reverse charge procedure will apply to B2B transactions taxable in the UK.

Northern Ireland

According to the current state of negotiations, Northern Ireland will continue to be part of the EU from a VAT perspective.

Deliveries to Northern Ireland would therefore remain subject to the current arrangements. However, like many other questions, it remains to be seen whether, for example, the British or Irish delivery threshold will apply from 1 January 2021.

Conclusion

The complexity of the new regulations in Great Britain demonstrates what a frictionless EU internal market was and is for a valuable institution.

One cannot imagine that we are falling back into a time when every state in Europe can establish similar or even different rules at its own discretion.

Yes, the European Union is also a huge bureaucratic monster and decisions taken in Brussels or Strasbourg are often a minimum consensus and are often partly influenced by non-transparent lobbying.

But we at Taxdoo are absolutely convinced that this community of now 27 nation states has achieved so much more together in the long and conflict-laden history of Europe than these states would have achieved individually in total.

Disclaimer: Taxdoo will implement these new regulations seamlessly, so that you will still have the opportunity to serve this important foreign market Value Added Tax-compliant.

Taxdoo is the platform for automated and secure compliance processes

... and forms for the leading online retailers in Europe besides the handling of the current EU and GB- Value Added Tax-Compliance, Intrastat and financial accounting also offers numerous other compliance services via a unique platform.

If you want to know more about how you Value Added Taxcan efficiently and securely map compliance, financial accounting and much more via a platform, then book your individual and free initial consultation with the compliance experts from Taxdoo!

You are also welcome to register for our regular demo webinar in which we will introduce Taxdoo and our compliance services and answer your questions personally.