Brexit has been a long time coming and now it is finally here. Negotiations were down to the wire so we didn’t really know what Brexit would look like until it happened. One of the biggest worries about leaving the European Union (EU) was the effect it would have on business. What would an e-commerce directive look like after Brexit?
If you are worried about the impact Brexit might make on your e-commerce business, this article includes everything that has changed as well as a guideline on how you will have to adapt your business.
Now, business and trade relations are complicated things. There are a lot of factors that impact how the new rules will affect businesses. I will be signposting you towards the key areas of change but I cannot detail every clause in the new agreement. If you have any concerns or specialised questions, check the government website.
The important thing to remember is that the UK is now seen by the EU as a third-party state. This means that the UK now operates outside of the EU Customs Union and VAT regime. The privileges that the UK once had when they were in the EU no longer apply. That means businesses importing goods can expect more checks, more paperwork and different charges. Online shopping Brexit-style does look a bit different, but adaptability is part of what allowed the digital age to develop so quickly.
Prepare for a rocky start
Brexit is a massive change. The UK first entered the EU in 1973. E-commerce didn’t even exist then. The world was so different and so was the nature of trade. Our special relationship with Europe has been the norm for a long time, so operating outside of the EU is going to take some getting used to.
Brexit is a curveball for online sellers. We are very familiar with not having to pay any tariffs and being able to move goods between the UK and Europe easily. With that gone, there are new processes we will need to factor into our business life.
The impact of Brexit on shipping has already been seen. There are currently delays in exports and imports. The supply chain needs time to adjust to the new rules. Your business needs a plan B in case you have problems with your own supply chain. To prepare for this backlog, Amazon has advised businesses to keep a backlog of four weeks of inventory. If your e-commerce business uses dropshipping, many of the Brexit changes are the responsibility of your supplier. Check-in with them to see if they are having any problems.
However, don’t despair! Just because things are probably going to be a bit rough at the beginning doesn’t mean that British e-commerce is doomed. Things will stabilise as we get used to the new processes involved in business operations. The UK is one of the biggest e-commerce hubs in Europe, so it is not disappearing any time soon! You might even find that your business picks up. We might even find that people will be more inclined to order from places more local to them so they don’t have to worry about border tariffs and delays.
Who will be affected?
Brexit won't necessarily have a big impact on your business. It depends on where your business’s center of operation is located in relation to your suppliers and your customers. If you are moving goods across the British border in some way or another, then you will need to pay attention to the new rules. However, buying and selling within the UK and within the EU hasn't really changed.
If you use a third-party marketplace like Amazon or Shopify, a lot of Brexit changes will be automatic. They have a responsibility to make sure they are working within the new rules.Using the Brexit checker on the government website, just be sure to double check that everything on your end looks right.
Your main concern is delays in shipping and possible cost changes due to the new tariffs. Using a third-party marketplace is probably the easiest way to adapt to the business changes, but you should do what is right for your business and your customers.
New rules for exporting
If your business is based in the UK and you are selling to customers in the EU, the rules have changed. The first thing that has changed is VAT. You no longer need to charge VAT on sales with customers outside of the UK and in the EU. It's only if your product is being sold in Britain that you need to continue adding VAT. International sales are outside of the VAT policies because they are not being used within the UK.
How you go about exporting goods has changed too. There are a few extra steps you need to take. You now need an Economic Operator Registration Identification (EORI) number to move goods across the UK and EU border. This applies to imports and exports. When you are sending products out of Britain, you need a certificate of posting. Couriers should supply dispatch paperwork.
The important thing to note is that you now need proof that you have sold the goods to someone outside of the UK in order to show that you are justified in not charging them VAT. Not being able to prove that your product has been sent outside of the UK could mean you are charged VAT for the sale.
If you are in a situation where someone is collecting the product from you physically, you still need proof from them that they have taken the product outside of the UK. If you are feeling uncertainty about either the process or a customer’s exit from the UK, you can ask for a deposit for the VAT and then refund it to them once they have given you their certificate of posting. You need to have the evidence within three months of exporting.
Keep your paperwork! HMRC expects you to keep records of the past six years so don't get caught out. I know this sounds like a lot of paperwork, but an electronic system for sending documents to HMRC has been created. It's called the National Export System.
New rules for importing
The rules have also changed for moving goods into the UK. As I said, you need an EORI number. This has been already sent to VAT-registered businesses, but if you don't have one yet, you need to contact HMRC and get an EORI number.
This exact process depends on the country you are importing from. Depending on the country, there might be paperwork that needs to be completed in order for those goods to be exported from that country to the UK. In addition, paperwork, including licenses, is still needed for certain restricted products.
Between you and your supplier, you will need to decide who is going to deal with the required paperwork to ensure that the goods cross the border smoothly. Whoever takes on these duties is called the Importer of Record.
On the import declaration form, there are several things you will need to include, including the commodity code. This is how any duty charges are calculated. To help with this process, you will also need to include the value of the goods. The amount of duty fees and VAT is completely dependent on the trade agreement between the UK and the country you are exporting from.
Once again, hang onto all of your paperwork so that you can prove that you have paid the right amount of charges. Your import VAT certificate is part of the selection of paperwork that needs to be kept. It is also useful if you are a VAT registered business. You can use your VAT registration to claim back any VAT you were charged on imported products on your taxes.
Talking about VAT, that is something else you need to consider when importing goods into the UK. I wouldn’t recommend leaving this for the other party. Sudden unplanned costs do not build good working relationships. Instead, you can choose to pay at customs or defer the payment. If you are UK VAT-registered, you can postpone VAT accounting. Have a plan in place so that you have a plan for how you will be covering the import VAT cost and when. As I have already said, keep your paperwork. You don’t want to have to pay charges twice just because you can’t prove you have already paid them.
When it comes to getting through customs, you can fill out the declarations yourself or you can get a third-party to help you, like a fast parcel operator. If the goods you are importing to the UK are from the EU, you don't necessarily have to pay customs duties. Goods covered by the Rules of Origin agreement won't be charged. This agreement ensures that only products from the UK and EU can bypass tariffs, not products from outside countries. If you are importing from outside the EU, you will be subject to tariffs unless the trade agreement with that country specifies otherwise.
For the import to go smoothly, the other party needs all of their paperwork in place too. The EU exporter will need an EU EORI number, an EU export license, a statement of origin, an invoice, a packing list and will need to have submitted export declarations.
It works a bit differently for goods that are valued under £135. For these, VAT should be charged at the point of sale. Include on the customs declaration that VAT has been charged at the point of sale and import VAT will not be added to your import charges.
The rules are different for Northern Ireland
One of the biggest difficulties with implementing Brexit was understanding how the UK could function outside of the EU without putting up a strong border between Northern Ireland and the Republic of Ireland. That problem has been dealt with by making the rules a bit different for Northern Ireland compared with the rest of the UK.
When exporting from Northern Ireland, VAT can only be avoided if the product is being sent outside the UK and the EU. Goods being sent from Northern Ireland to the EU are still subject to VAT. A customs export declaration form does not need to be filled out for this trade.
Trades from Northern Ireland to the rest of the UK have not changed. The changes apply to goods moved from the rest of the UK to Northern Ireland. If the goods are staying in Northern Ireland, then no tariffs need to be paid. However, if the goods are going to be moved from Northern Ireland to the EU, tariffs do apply. There is a UK Trader Scheme where you can declare that your products are not at risk of entering the EU market.
Northern Irish businesses trading with Great Britain and other non-EU countries need an EORI number. British numbers start with GB while numbers for Northern Ireland start with XI. There is a free Trade Support Service if you are struggling with the new Northern Ireland and Great Britain rules.
The wider implications of the new rules
The rules that businesses need to adjust to are one part of the equation, but many businesses are now asking what Brexit means for online retailers as a whole? What I’ve discussed is only a small part of the trading process. These additional steps slow everything down while everyone gets used to the new expectations.
There are a lot more ways that small businesses could make a bureaucratic misstep. Starting independently is never easy but all this extra paperwork definitely doesn't help. I can imagine it does dampen the entrepreneurial spirit. Although it is easier to start selling with a third-party marketplace so you aren’t doing everything yourself, but it is completely possible to go it alone. The new rules will become second nature in time.
There is also an impact on cost. The VAT charge has been taken away for selling products from the UK to EU customers. However, there are more charges for selling products coming from the EU to UK customers. This means that businesses have to put up their prices or lose out on profit. British companies who rely on EU suppliers could struggle.
What do you need to tell customers?
Most people are aware that the end of the Brexit transition period has brought changes. They could be concerned about how easy it will be to purchase from you. It's best to be honest with them so their expectations are in the right place.
If you are struggling to get the supplies you need, let your customers know that your shipments could be delayed. If your customers are from across the UK-EU border, warn them that there are currently delays getting products across. Use this as an opportunity to promote local sales.
Go over your terms and conditions as well as your shipping policy to ensure that it aligns with the changes that have been made. You might have to charge customers more because of the import costs. Have a plan for how your business will handle any extra costs. If that means increasing your price, make sure that the change is clear so loyal customers don’t get caught out.
Are there more changes to come?
As the UK has left the EU, it can make its own rules when it comes to trading with others. That means that further changes are possible. Considering that we are still getting to grips with the most recent changes, more changes are not expected any time soon. In the future, the UK could negotiate new trade deals with countries outside the EU, so keep an eye out for that.
Right now, the government is trying to avoid changing anything that doesn’t need to be changed because of Brexit. They are trying to keep as much consistency as possible to help people keep up with new protocols. As a result, laws like GDPR are still in place. Any radical changes would still be difficult, though, because the EU and other countries need to feel comfortable working with the UK. If the British government got rid of GDPR, the EU might believe that information about their citizens is not safe in the hands of British organisations.
While there is a chance that we could see more changes in how the UK trades with the rest of the world, the focus right now is on the Brexit changes and adjusting to the new requirements they bring.
After giving you a clearer understanding of what an e-commerce directive Brexit looks like, here is my final advice for dealing with the effects of changes.
- Plan how your business will absorb extra trading processes, slower movement and possible extra costs.
- Keep proof of everything you do as the rules around charges have changed. You need evidence of what you have paid and what you don’t need to pay.
- Communicate with your suppliers and your customers so that everyone is aware of possible problems as soon as they come up.
- If you use a third-party marketplace, check with them about how they have changed the platform to integrate the new rules.
- Be clear about how the new rules affect your specific business depending on where you are located, where your customers are located and where your suppliers are located. You will need to make the right declarations.
Remember that everyone is struggling a bit with Brexit. It has turned the processes everyone was used to upside down. These teething problems can be overcome with practice and time.
Don’t let this stand in the way of your e-commerce dreams. The good thing about selling online is that the internet is fairly quick to adapt. You can bounce back from this roadblock with a business that uses efficient processes to reach all their customers and suppliers.
How has Brexit impacted your business? Let us know in the comments below!