How Brexit will impact your ecommerce businessScarlett Reeves
It’s no longer a case of Brexit is coming, because Brexit is here.
At the present time, whether there’s a deal, or no deal, hangs in the balance. But if you’re an ecommerce retailer, big changes are coming either way, and you need to prepare for them.
What does Brexit mean?
This question is not as obvious as it sounds, because since the 2016 referendum, what Brexit means has gone through various stages and changes.
In a nutshell, here’s what we definitely know about Brexit so far:
- The UK left the European Union (EU) in January 2020.
- As part of the Withdrawal Agreement, we’re currently in the Brexit transition period, where we remain a member of the single market and customs union, and we’re still subject to EU rules.
- The transition period will END on 31 December 2020, when we will then no longer be part of the single market or customs union.
If there is a trade agreement with the EU, this will apply from 1 January 2021, and any agreement will be different to the Withdrawal Agreement, which is already agreed and in place.
What will happen on 1 January 2021?
This is where things get more complicated. On 1 January, the transition period will end and rules and regulations for trade with the EU will change, one way or another. This will have an impact on ecommerce retailers.
There will be changes even if we reach a trade deal at the eleventh hour.
Here are the possible scenarios on 1 January:
- No Deal – if the transition period ends without us agreeing a trade deal with the EU, then we would have to trade under World Trade Organisation (WTO) rules (see below).
- Deal – the Government’s priority is regulatory freedom for the UK, rather than maintaining a close relationship with the EU, and any deal is likely to reflect this, which means an end to frictionless trade to some extent.
What are WTO rules?
The WTO is where countries negotiate international trade rules. There are 164 members, including the UK. We joined in 1995.
If these members don’t have trade deals with one another, then they must trade on WTO rules.
Each of these members has a list of tariffs, which are import taxes on goods, and quotas, which limit the number of goods coming in. Members apply these tariffs and quotas to countries if they don’t have trade deals with them.
These are known as WTO schedules.
Currently the United States, China, Brazil and Australia trade with the EU on WTO rules.
Therefore, when there are discussions about us having an Australia-style deal with the EU, what this really means is we’ll have no free trade deal and WTO schedules will apply.
This affects any goods we import from the EU, and any goods we export to EU countries.
As things stand, average EU tariffs are quite low, at 2.8%, but some are quite high. A 10% tax applies to cars, and around 35% for dairy products.
If the UK ends up trading with the EU on WTO rules, it can alter or remove some of its own tariffs, to keep prices down for UK consumers.
But if it does this, under WTO rules, this will have to apply to every country we trade with, not just EU members.
What will change for ecommerce?
There are various key areas that ecommerce retailers and agencies need to look at post-Brexit on 1 January 2021.
- Tariff codes
- Customs regulations
- Delivery and shipping.
Tariff or commodity codes
Tariff codes are also known as commodity codes. They aren’t something we’ve had to know about when trading with the EU, but they will apply from 1 January 2021.
If you want to continue to trade cross-border with EU countries, you will need to match your goods with the right codes. If you don’t do this accurately, then you could be paying the wrong duties on them.
You could then face top-up taxes and fines and, critically, delays to your customers.
The UK should be finalising its post-EU tariff code scheme, but if we leave with no deal, then full WTO tariffs will apply.
Tariff codes use a range of digits to identify specific products, and you must include these in your customs declaration.
They have two parts:
- The Harmonised System (HS) code, which is a global standard, which has a minimum of six digits, and
- EU HS codes, which include a further two digits.
The UK Government has an online Trade Tariff Tool for looking up these codes.
VAT on ecommerce imports
At the end of the Brexit transition period, HMRC will introduce a new way of dealing with VAT on goods arriving into the country from outside the UK.
Online UK and overseas businesses that sell goods to UK customers at values under £135 (sales value) will not pay VAT at import, but instead must charge it to the customer via their websites.
They will then need to show this VAT on their tax returns to HMRC. This means UK supply VAT applies rather than import VAT.
Any goods above the £135 value threshold will be subject to VAT and customs duty as they currently apply.
Another change due to come is the abolition of Low Value Consignment relief, where goods of a value of £15 or less aren’t charged import VAT.
Where goods are sold by non-UK suppliers via online marketplaces, these may end up being seen as deemed suppliers, which would make them responsible for charging VAT on these transactions.
HMRC gives full details of changes to VAT for overseas goods sold to UK customers.
Customs regulations after Brexit
Moving goods through customs will involve more complexity after Brexit. This is because once the UK is out of the EU, it is no longer part of the EU’s arrangements with its members for open borders.
This means there will be stricter customs regulations for goods entering and leaving the UK.
If there is no deal, then goods entering or leaving the country will require full customs declarations, giving information about the type of goods, how they are transported, and their customs value.
But whether there is a deal or not, the UK has officially left the EU customs union, so there will be more customs paperwork anyway.
At this stage, it is unclear what sort of simplified customs arrangements a possible deal might put in place.
One possible arrangement is a trusted trader scheme, to fast-track shipments for certain importers, but this would still not completely remove the need for declarations. And not every firm would be eligible to become a trusted trader.
Delivery and shipping
Clearly, one vital area where Brexit changes will have an impact is on the customer experience.
With stricter customs regulations coming into force, the likelihood is that it will take longer for goods to ship, and transit times will be extended too.
There is already a European customer expectation that Brexit will lead to slower online deliveries from the UK.
What steps should you be taking?
The best approach for dealing with changes to ecommerce is to be proactive. It might be difficult to prepare in advance for an exact outcome that remains uncertain but there are certain measures online retailers can take.
- Keep up with developments and stay informed about the news that is likely to affect you.
- Update your shipping and tariff policies to reflect any changes you know are going to happen. And be flexible and agile enough to keep updating these policies as more changes come into force.
- Check your suppliers and consider adding others to your list if you need to increase your options for providing the goods your customers want, when they want them. Consider the impact of tariffs on what you’re currently paying, and whether you need to switch suppliers altogether.
- Consider whether you can sell outside the UK and EU, and explore international markets. With this in mind, optimise your online check out processes to make it easier for international customers to shop at your store.
- Keep your currency options open. Being able to accept multiple international currencies may give you more room to manoeuvre to meet the needs of online shoppers.
It’s far from over…
One of the major benefits of ecommerce is its flexibility and adaptability. Times are changing, but you can change too.
Aero’s approach is all about embracing change and making it work for the benefit of our clients and their customers.
For more information, please get in touch with the Aero team today.
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