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2021: The Year of Ecommerce Accounting

2021...we’re really holding our breath for you. Set to be another year of tremendous change and transition, many of us will be hoping for better from 2021. The path of eCommerce business is forever winding, and the Brexit journey has certainly been adding more twists and turns. Although the Government warned businesses to prepare for Brexit throughout 2020, the fact is that details were only released about the deal on Boxing Day!

Back in September, it was estimated that only a quarter of British businesses were ready for Brexit, and it’s unlikely that this figure has grown much since. It’s not exactly been a year of roaring trade for most and whilst there are always winners and losers, we’re hopeful that 2021 will see things pick back again for everyone.

Brexit needs no introduction, not anymore; it came, it's happening, and regardless of personal views, it means you’ll have to make changes to your business too, especially if you’re involved in eCommerce.

eCommerce accounting during Brexit will change, but if you remain agile and ahead of the curve whilst making changes gradually, then it’ll feel like very little has changed.

Brexit and eCommerce

Regardless of whether or not your business is based in the UK, sales through UK borders will change and you’ll have to follow new rules and regulations. The process is becoming more bureaucratic and there will likely be more tax to pay as the result of a border between the UK and Europe. This means customs checks will take longer, the documentation you’ll need to attach to parcels will be stricter and VAT will be paid differently.

It is also likely that the UK will be treated as a non-EU country by default when paying tax and adhering to regulations in those countries. This means products and services from the UK will be treated differently across the EU, with no ‘common rulebook’ on trade and financial accounting.

This is because the EU eCommerce Directive that establishes a Europe-wide ‘harmony’ of rules will no longer apply.

It’s worth mentioning that whilst many new rules and regulations have been debated and penciled in so to speak, there is still little enshrined in law, and VAT, in particular, will change in June 2021.

The Import of Good Post-Brexit Prior to June 2021

In June 2021, the rules for customs and VAT will change for eCommerce retailers situated in the UK and we hope that these will simplify the process of shipping goods abroad to be somewhat close to how they were when we were in the EU.

Whilst larger businesses have been readily able to appoint advisors and accountants to recommend and make the required adjustments, small businesses have been faced with an existential crisis of how to adapt pre-Brexit. If new rules and regulations are not followed, e.g. providing commercial invoices in shipments, then this will mean late deliveries or lengthy problems in transit.

  • eCommerce sellers will not be required to collect VAT on products shipped to the EU if they are being imported by the EU buyer
  • The buyer is responsible for paying import VAT and custom duties
  • Documents will be required for every shipment, including commercial invoices
  • Exceptions for items valued £15 or less, barring tobacco, alcohol or perfume *subject to potential change

The key practical change that UK sellers will have to make is no longer charging VAT to the buyer upfront, as they will have to pay this on import instead. If you still charge VAT on your order upfront and then they have to ‘double up’ on this at import, then you’ll end up overcharging your customers.

For import VAT, UK businesses will be able to use postponed VAT accounting whereby UK VAT-registered businesses can account for import VAT or their quarterly VAT Return form. ‘Place of Supply’ rules remain unaltered so far.

Declarations

New declarations apply to eCommerce businesses selling to Europe now that we're post-Brexit.

Every company will need to register for a UK Economic Operator Registration and Identification Number (EORI). This is a requirement for all businesses sending products to Europe. These are required for customs declaration forms (CN22 and CN23).

  • CN22 applies for items with value up to £270
  • CN23 applies for items with value of over £270

You will use your EORI number to append to the customs declaration form.

Registering for VAT in other Countries

Businesses will now have to register for VAT in countries they wish to sell to, unless one-stop-shop or other harmonised rules come into play. Rules may differ between different countries in the EU. This also means that any business with European branches, or bases of operations, will also need to conform to the rules set out for non-EU countries.

There are other more niche rules that may apply to some businesses. For example, when a business does a significant overseas trade with another country exceeding thresholds (which vary between countries, they may need to appoint a VAT Fiscal Representative to manage the payment of VAT in that country.

Changes to Financial Reporting

Accounting for eCommerce business post-Brexit will likely remain broadly the same, aside from VAT.

The key change to financial reporting for eCommerce businesses is when they are importing goods, e.g. stock. Import VAT can be accounted on your VAT Return instead. This is called postponed VAT accounting.

Imported goods up to £135 will instead have VAT collected at the point of sale.

You can find out more on Gov.uk.

Assistance for your Business

At Accountancy Cloud, we've been following Brexit intently and its potential impacts on accountancy and financial reporting. It’s possible that many of these things will change and come June 2021, VAT will certainly change as the government rolls out new VAT rules. It is the responsibility of accountants to keep their finger on the switch here - trained accountants will ensure that your business remains agile ahead of any future changes.

If you're ready to turn accounting chaos into clarity, and have 2021 be your year, we'd love to hear from you. Get in touch today.