Tuesday, 5 January 2021

VAT clusterf**k

From the BBC:

EU firms refuse UK deliveries over Brexit tax changes

Good start. The articles mentions a few small businesses who can't be bothered at the moment, due to the extra hassle. And it's not a "Brexit tax change", it's a "UK continues to use a tax system imposed on it by the EU decades ago".

In their infinite stupidity, the UK government is continuing with VAT (the worst tax of all) and is just mirroring the EU system. EU Member States have to charge VAT on imports into their country, wherever they are from. Businesses in a Member State can have one master-registration, but have to split up turnover by country and pay VAT at the appropriate rate on sales to non-business customers to each country (the so-called One Stop Shop); the UK is just reciprocating.

Bicycle part firm Dutch Bike Bits said from now on, it would ship to every country in the world except the UK. "We are forced by British policy to stop dealing with British customers," it said on its website.

So, not "forced"? They have made the commercial decision not to bother because of the extra hassle and expense, which of course won't affect large players who can cope with this. VAT is a barrier to entry and hurts small businesses more than large ones. EU corporatism at its best.

Campaigner Richard Allen, founder of Retailers Against VAT Abuse Schemes, told the BBC that the massive increase in international online shopping had led to VAT evasion on a huge scale.

He said the new HMRC rules were aimed at tackling that, but it was unclear how firms who failed to register for UK VAT would be dealt with. "Why should a phonograph spares manufacturer in Idaho bother to register for VAT in the UK and how are you going to make them do it?" he said. "And if they send the package anyway, what are you going to do?"

The system - as shit as it might be in principle - seems to work. I ordered some car parts from the USA last year*, price about £60 and I had to pay about £20 in import duty (i.e. VAT plus bits) before the Post Office would deliver it.

* Rather infuriatingly, I later found out that I could have bought them cheaper from the UK. Order in haste, repent at leisure.


Dinero said...

BBC grammar fail again. The word they want is Dispatch.

Mark Wadsworth said...

D, I did control + F but couldn't find either spelling.

mombers said...

Boris promised no tariffs, but it's clearly 20%. Or is VAT just not considered a tariff because is ostensibly screws everyone equally? Just screws small businesses more in practice.

Mark Wadsworth said...

M, yes, that is the beauty of VAT. It's a tariff that nobody is allowed to call a tariff. Screwing the little guys is a bonus.

Dr Evil said...

Why wasn't VAT abolished on 1st January and replaced by a simple sales tax?

Mark Wadsworth said...

a) laziness
b) because a 'simple sales tax' would be even worse than VAT.

Blissex2 said...

I think that our blogger does not understand the situation here:

* VAT usually is due by the *domestic buyer* on importation, as in “ordered some car parts from the USA last year*, price about £60 and I had to pay about £20 in import duty (i.e. VAT plus bits)”; which in practice means that only "custom agents" (shippers) have to register for UK VAT, and then they handle VAT for all domestic buyers who are not VAT registered themselves.

* The HMRC new policy is that VAT is now due by the *foreign seller*, that is it must be collected by the foreign seller by charging the buyer and then by remitting the amount to HMRC, with which each foreign seller must be individually registered.

There are two big problems with the new HMRC policy:

* There are many, many more foreign sellers than "customs agents".
* Since foreign sellers are abroad, but custom agents are in the same country as HMRC, it is much more of an issue for a foreign seller to register for VAT with what is to them a foreign tax office, than for a customs agent to register with the tax office in their same country.

Blissex2 said...

From an article that I have read on this, the new policy that VAT is due by the seller is due to a transitional problem: there are around £330m of EU goods in the UK that were imported without VAT checks before January 1st. Since they are already in the UK the related VAT cannot be due on importation, so HMRC decided that VAT is due in every case by the seller, so in the special case of EU goods already imported in the UK it is due by the *domestic seller*.

Bayard said...

B2, so HMRC have decided to f*ck the system up long term, simply to deal with a short-term problem? How very like Brexit itself.

Mark Wadsworth said...

B2, there speaks the Europhile. Allow me to sum up:

"EU policy is that VAT is due by every seller, that is it must be collected by the seller by charging the buyer and then by remitting the amount to their country's tax office, with which each seller must be individually registered."

So yes, VAT compliance is a pain in the arse, but once you are used to it, you just have a separate account code for "sales to the UK" which are zero-rated in [the other EU Member State] and VAT-able in the UK.

So they deduct UK sales from sales for their own country's VAT return and then do a simple UK VAT return (no input tax to be reclaimed) and send a large payment to their country's tax office and a smaller payment to HMRC.

Total VAT payment largely unchanged. It's just an extra hour's hassle every three months (UK allows quarterly VAT returns - most other countries do monthly).

Mark Wadsworth said...

B2, what you also must remember is that pre-1/1/2021, a European seller had to pay their domestic VAT on goods sold to private individuals in the UK. This is now a sale to outside the EU, so is now zero-rated. So their total VAT bill doesn't change (much), it is just they have two forms to fill in and two payments to make.

Bayard said...

Mark, that's just the EU, what about the rest of the world?

Mark Wadsworth said...

B, do you mean sales from an EU Member state to ROW or imports into an EU Member State from ROW?

Sales from a business in a Member State to a private individual in another MS are VAT-able in the home country.

Sales from a business in an MS to a private individual outside the EU are not VAT-able in the MS.

So if a German sells to a UK private individual, until 31/12/2020 the seller has to pay German VAT. From 1/1/2021 onwards, the seller has to pay UK VAT instead. More paperwork and faff, but no significant change in tax bill.

Bayard said...

"B, do you mean sales from an EU Member state to ROW or imports into an EU Member State from ROW?"

Neither, I mean imports into the UK from ROW.

Mark Wadsworth said...

B, imports by businesses or private individuals?

Graeme said...


Looks like a bunch of admin hassle

Bayard said...

M, the latter.