VAT on low value imports in 2021 and beyond

A frequent grumble on social media is that overseas-based e-commerce websites are now charging significant tax and duty fees to British customers at the checkout process, even on orders costing as little as £3.50. Some members of the public are blaming Brexit, but that isn’t the case. The reason it’s more expensive to import low value goods is because we no longer have Low Value Consignment Relief (LVCR). LVCR was an EU-wide relief that exempted consignments below £15 from import duty and VAT. It was scrapped across the whole of the EU from 1 January 2021, so the fact that we no longer have LVCR is nothing to do with Brexit.

Anyone in Great Britain buying goods from outside the UK is subject to the new rules for imports that came in from 1 January 2021, regardless of whether they are in business or buying in a personal capacity. If the consignment value is over £135, the British customer is required to pay import VAT on the consignment. Business importers may use the postponed accounting system that was covered in our article of 27 October 2020, “Deferred Accounting for VAT on Imports”, but non-business customers are required to pay the import VAT before their parcel is released to them.

When the consignment is valued at £135 or lower, it is subject to the new rules for Low Value Imports, which are the focus of this article. The £135 threshold applies to the value of the consignment, not to each individual item within it. Any taxes and customs charges are excluded from the value, as are transport and insurance costs, unless they are included in the price and not separately indicated on the invoice.

Low Value Imports are no longer subject to import VAT but are subject to UK domestic VAT instead. The UK VAT is charged to the customer at the point of sale, and the method for doing this depends on how the goods are sold. If they are sold via an online marketplace (OMP), such as Amazon or eBay, then it is the responsibility of the OMP to charge VAT to the customer and pay it to HMRC. If the goods are not sold via an OMP, it is the responsibility of the overseas seller to register for VAT here in the UK and charge the customer UK VAT. As a result of this measure, some overseas-based retailers no longer ship to the UK, while others have temporarily suspended UK sales while they wait for a VAT registration.

The rules for low value imports apply regardless of whether the UK customer is in business or not, but there is one easement that could allow the overseas seller who is not selling via an OMP to avoid the need for UK VAT registration if the seller just makes business to business supplies. Where the customer is a UK VAT-registered business and provides the overseas supplier with a valid GB VAT registration number, the UK customer declares the UK VAT due on the import by way of a reverse charge in the VAT return. This will mean that VAT on the low value import is calculated at the appropriate UK rate and entered into Box 1 of the customer’s return.

The cost of this measure to UK traders will be relatively small, as those who are VAT registered are usually able to reclaim the input VAT. It will largely affect the general public, who have become used to getting goods shipped from across the globe. It’s worth checking your favourite overseas retailer’s policy regarding VAT and duties; some declare that they will suffer any costs on behalf of the customer, but some might give the customer a nasty surprise at the checkout.

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