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Changes to the EU e-commerce VAT rules

Major changes to EU VAT e-commerce rules come into force on 1st July 2021.

Following the UK’s exit from the European Union, orders with value exceeding €22 sent to the EU from Great Britain are already liable to import VAT charges (and customs duty if applicable) since 1st January however, from 1st July, the VAT exemption for parcels with value up to €22 is no longer applicable.

This means that all goods arriving in the EU from outside the EU, including Great Britain, are now liable to VAT at the local rate of VAT in the customer’s country (and for orders over €150, customs duty may also be applicable) regardless of the value of the order.

At the same time, to simplify VAT reporting and payment of VAT on low value imported goods for retailers selling goods to consumers in the EU, the EU has introduced the Import One Stop Shop (‘IOSS’) a new VAT reporting scheme. Royal Mail have registered for the IOSS meaning that we will pay the EU VAT on customer orders that are eligible for the scheme.

FAQ

What is IOSS?

IOSS is a VAT registration scheme sellers can use to comply with the EU’s new VAT e-commerce obligation on distance sales of imported goods.
The conditions for using the scheme are that the goods must be despatched from outside the EU to consumers in the EU and the value of the order placed by the customer cannot be more than €150 or, if the customer paid in another currency than euro, the equivalent of €150 expressed in that currency.

If the seller is registered for IOSS, the price the customer pays includes the VAT at the rate applicable in the customer’s country. The seller then declares this VAT in monthly EU VAT returns and pays it to the EU tax authorities.

What does this mean to our Stamp and Collectibles customers?

Any customer that resides within an EU member state and orders any product from the RM Web shop or any other channel that we offer, since 1st January 2021 may have had to pay additional VAT and handling charges to the local post or parcel delivery company before their orders got delivered to them.

Royal Mail is registered for the IOSS, so from 1st July 2021 whenever the order placed by our customers meets the conditions for using the scheme, Royal Mail pays the VAT due instead of the customer thus ensuring our customers do not have to pay customs charges (although a few of the national posts / parcel operators may charge a very low fee) and suffer potential delays when receiving their goods.

As these changes occur from the 1st July 2021, orders purchased before this date are not eligible for IOSS, and may result in additional VAT and handling charges being paid to the local post or parcel delivery company by the recipient, even if their value is below the €22 VAT exemption threshold applicable before the 1st July 2021.

Does this mean our EU customers will no longer have to pay import VAT / customs duty?

IOSS is only for orders with value up to €150 or the payment currency equivalent, meaning that if the value of the order exceeds this amount, import VAT / customs duty will continue to apply and local post and delivery companies may collect these, along with a handling fee, from our customers upon delivery. Royal Mail is not responsible for these and we recommend you seek tax advice prior to placing an order for delivery to destinations outside the UK, including the EU.

Additionally, as payments by our customers are made in pound sterling and the threshold for IOSS is determined in euro, a situation can arise where the value of the order is within the threshold when the order is paid for but the GBP/EUR exchange rate changes such that by the time the goods reach the EU border the value expressed in euro exceeds the IOSS threshold and local customs authorities may levy customs charges on the parcel.

The EU’s recommendation to national customs authorities is that they give the opportunity to recipients to prove that VAT has been paid under IOSS when the items were bought so if this happens, and the value of the order suggests that it may have been eligible for IOSS, customers can contact our customer service for assistance by completing this online form.

Is IOSS applicable to business customers?

IOSS is only for sales to non-VAT registered customers. Unless we hold a valid EU VAT number on record for the customer, we will assume that our customer is a consumer and, so long as the value of the order is below the IOSS threshold, will declare the VAT due in our IOSS VAT return. Business customers should place their orders by email, telephone or through the post and include their EU VAT number with the order or, if placing an order through the RM shop, they should contact our customer service team by completing this online form, prior to placing their order in the Shop, to let us know of their VAT number, unless they have already done so.

If the customer thinks they will spend £5,000 or more with us annually, they are advised to contact our Key Account team, instead of completing the above form, on +44 345 078 2000 or philatelic.trade@royalmail.com to consider setting up a key account.

Which countries are covered by the IOSS scheme?

EU VAT on deliveries for orders placed after the 1st July 2021 to all 27 EU Member States will be accounted for in our IOSS VAT return (provided the order meets the conditions for IOSS).

Are the prices shown in the RM web shop VAT inclusive?

Where applicable and unless expressly indicated otherwise, all prices are inclusive of either UK VAT, or VAT at the rate applicable in the relevant destination Member State of the EU.

At what rate do we charge VAT to EU customers?

The VAT charged under IOSS is the rate applicable to the respective good in the EU Member State where the goods are to be delivered.

Can the VAT charged under IOSS be reclaimed by the buyer?

IOSS is to be used for sales to non-business customers only. As it is not applicable on sales to business customers who are registered for VAT in the country of delivery, businesses may not be able to reclaim any VAT charged under the IOSS scheme (depending on local rules).

How do we determine the value of the order for IOSS purposes to ensure it is within the €150 threshold?

It is the VAT exclusive price of the goods the customer pays, excluding delivery costs, converted into euro.

For example, if an order to be delivered to France, where the standard rate of VAT is 20%, and for which the customer paid £125, where £5 was the postage charge, the calculation would be as follows:
Gross order value minus postage: £125 - £5 = £120
VAT exclusive price in GBP: £120 / 1.2 = £100
Exchange rate GBP/EUR: 1.16
Net amount in EUR: €116

What exchange rate does Royal Mail use to convert prices into euro?

It is the exchange rate published by the European Central Bank for the day when the payment from the customer is accepted (this is the earliest of the payment confirmation, the payment authorisation message or a commitment for payment from the customer, regardless of when the actual payment of money is made).

What about orders with value above the €150 threshold?

There has been no change to these orders from 1st July 2021. Since the value of the order exceeds €150, VAT cannot be declared under IOSS and import VAT (and customs duty if applicable), along with a handling charge, may be payable by the customer before delivery.

How will EU customs authorities know that VAT was paid using IOSS when the goods arrive at the border (i.e. no VAT is due on delivery)?

Royal Mail will indicate in the customs data accompanying the parcel that VAT was charged at the point of sale and paid to the EU tax authorities using in the IOSS scheme. In the unlikely event that the customs authority in the destination country refuses to accept that the parcel is not liable to VAT on importation and thus the local post / parcel delivery company wants to collect customs charges from the recipient, but our customer believes that such charges are not due as the order is eligible for IOSS, customers can contact our customer service team for assistance by completing this online form

Our customer is being asked to pay customs charges when they think they shouldn’t. What can they do?

IOSS is for sales to non-business customers only therefore if we hold a valid EU VAT number for the customer on record, the order will not be eligible for IOSS. In addition, only for orders with value up to €150, or the GBP equivalent, placed on or after 1st July 2021 can the VAT be paid under IOSS. If any of these conditions are not met, customs charges may be collected by the local post / parcel delivery company from the recipient.

If our customer is not registered for VAT in the EU and the value of the order, placed on or after 1st July 2021, suggests that Royal Mail may have paid the EU VAT using IOSS, customers can contact our customer service team for assistance by completing this online form