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Brexit and VAT- what do UK based Etsy sellers have to consider?

Britain ceased to be part of the European Union on 1 Jan 2021 - leaving a number of Etsy sellers with European customers - with more questions than answers.



After months of speculation - there was a collective sigh of relief that - under the new trade agreement - custom duties aren't payable when goods move between Britain and the EU (and vice-versa).


However, there have been some real changes which will impact UK Etsy sellers on the VAT front and I outline these in brief below.


Note: This applies to UK Etsy sellers who are not VAT-registered in the UK.


Shipping direct to Europe from the UK


Previously - you didn't really have to think about VAT. When Britain was in the EU, it could take advantage of distance selling thresholds.


This meant - provided your sales to a EU country were below that country's distance selling threshold (the lofty number of 35,000EUR or 100,000EUR) you did not have to charge VAT on sales.


This threshold no longer applies and - currently - import VAT is something Etsy sellers now need to think about.


What does this mean? This means that - when your goods enter an EU country - import VAT will become chargeable. The customer will then be required to pay the import VAT for the goods to be released to them. Some carriers also will add a charge on top for collecting VAT from your customers to pay to relevant tax authorities.


To avoid this happening - you can register for VAT in the country you sell to and settle the import VAT bill - resulting in less disruption for your customer and no additional VAT for your customer to pay.

However - this seems unrealistic for many small businesses. Issues arise such as language barriers, unfamiliarity with registration systems and ongoing costs for monthly and quarterly VAT returns.


So what steps can you take?


I suggest - communication with customers is key. A lot of your EU customers would have heard about Brexit (who hasn't!) and are likely to have seen recent press around disruptions, additional paper work and additional charges. Though additional charges from UK shipments aren't unexpected - you don't want them to come as a surprise.


Some sellers put a note on their website that - due to Britain leaving the EU - there may be some delay in delivery and additional VAT charges may be payable as good cross the border.


It may also be worth emailing your customer directly when the order is placed - to explain that there may be some disruption and that you are available to swiftly respond to delivery issues which may arise.


Good news. This situation is likely to change around 1 July 2021 where the EU VAT e-commerce package comes into play. When this package comes into effect, Etsy will effectively deal with the VAT for you by charging and collecting VAT for your EU customers. You should see less disruption in your EU customers as Etsy have dealt with the VAT bill.


Conclusion


As we are only 24 days into the post-brexit landscape - it's not clear what will become standard market practice for Etsy sellers nor what the response will be from EU customers.


It is likely that there will be challenges over the next 6 months for Etsy sellers building their business in the EU. Try and get ahead of the game by keeping the communication channels clear and preparing your customer for any set-backs. This way - you can help to reduce the impact on the customer experience for your EU buyers and allow you to keep growing your market in the EU. Merci et bon chance!

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