The UK is no longer a part of the European Union. And unsurprisingly, this is having a big impact on many aspects of our daily lives. Businesses, contractors, merchants and consumers, as well as changes to laws, taxes, and contracts are affecting everyone on both sides of the English Channel.
Brexit has had an especially large impact on the e-commerce world, often impacting businesses that have already been struggling with issues surrounding the COVID-19 pandemic. So, it’s important to understand exactly what’s changing regarding rules and regulations due to Brexit, in order to keep e-commerce merchants empowered and at the top of their game.
Here’s our take on what online sellers need to know.
Expectations vs. Reality
It was well-understood from early on that Brexit would be (at least initially) difficult for companies. Most e-commerce businesses selling to the UK knew beforehand that a new border between the UK and Europe would end up causing changes in taxes, with additional concerns about decreasing competitiveness and the customs clearance process.
Charging the new VAT is one thing, but marking the imported goods as declared and transferring collected taxes to the UK agents seems like a complicated process for all parties. While the UK has completed its Brexit in name, it’s becoming increasingly clear that there are aspects of the transition that may need to be re-thought and refined as time goes on.
As of January 14, 2021, 47% of people in Great Britain were against leaving the EU, compared with 42% who thought it was the right decision (Source: Statista)
Dealing with Taxes
One of the major changes as a result of Brexit has been changes to tax regulations, especially in regards to import VAT and denial of exemptions for the low-value imported goods. But the changes are different depending on whether you are selling from the UK or selling to the UK.
For businesses selling to the UK, there have been significant changes. The £15 VAT exemption threshold for low-value goods was cancelled, and imported goods became immediately subject to VAT at 20%. Additionally, non-UK sellers who sell to UK customers must be VAT registered in the country and report their earnings quarterly.
The reverse is true for sellers from the UK who want to sell to the EU – exemptions that had previously been in place were cancelled. But that’s not the only policy change in place here. In the post-Brexit world, individual EU countries can set their own rules and regulations regarding VAT and other taxes, making it important for UK sellers to understand the specific regulations in their target selling countries. Talk about complex!
Almost 40% of SMEs in the UK were not prepared for Brexit, according to a survey conducted just over a week before the UK leaves the EU, on January 31, 2020 (Source: Statista)
Who Absorbs These Costs?
Whether you sell from the UK or to the UK, if you fail to comply with new regulatory requirements, you risk having your goods blocked at the border, as well as delivery delays, tax penalties, and customers blaming you for bad service.
With these additional taxes, your business has an important question to answer: who is going to take on these costs? To help you on your selling journey, we’ve come up with three different options to help you decide which is best for your e-commerce business.
Firstly: you can simply have your customers pay the additional charges. This is an easy option for you, but not a great one from a consumer-facing perspective. While you won’t have to tack the extra charges onto your customer’s orders at checkout, shoppers will likely be negatively surprised by the 20% freight delivery fee in order to actually receive the things they bought from you.
The second option is to clear the goods in advance of the purchase, and store them locally. The advantage here is that you’ll avoid delays on delivery, and all VAT will be paid ahead of time. The downside? You have to be VAT registered in the country of import.
Thirdly, you can take on the extra VAT costs yourself by using a freight forwarding service. You can charge the VAT at checkout if you don’t want to front the money, but freight forwarders will take care of clearance fees and other declarations. In exchange, the forwarder will charge you as a seller the amount of the VAT, creating an additional business expense.
Shipping Challenges
Another major Brexit issue for e-commerce merchants is shipping. Competing with local brick and mortar shops and stores, e-commerce businesses have always needed to prioritise fast shipping and great customer service. But naturally, additional delays will occur as a result of new Brexit enforced shipping conditions.
Challenges crossing international borders have been big news in recent weeks. This had to be expected, at least at some level, as adding a new border was bound to create delays. The process of declaration and the workflow were also completely new to both sides of this shipping, creating additional hurdles.
In theory, these new workflows aren’t especially complicated. But in practice, nothing works as perfectly as it does on paper. The losers in this equation? Merchants and their customers with products in limbo, trapped in shipping containers along international borders.
Interestingly, and potentially worryingly, there has been a decreased interest in shipping to the UK since Brexit. In fact, a recent report revealed freight companies are rejecting one in five contracts to take goods to the UK.
Measures businesses in wholesale and retail trade planned to take in their supply chains in preparation for Brexit in the UK (Source: Statista)
Hidden Risks
In a sense, we are only scratching the surface of the challenges that e-commerce businesses will face as a result of Brexit. Yes, there are issues that affect direct selling to customers. But there are also a huge number of other complicating factors. For example, suppliers in different countries may now be more difficult to work with.
Additionally, there is the creeping issue of compliance. The UK directly copied the EU’s General Data Protection Regulation (GDPR) rules, and these currently stand. But if either side begins to deviate from these agreed principles, it could mean an extremely complex series of issues around data protection and cybersecurity.
Not sure what all this means? Here’s how to make sure your Ecwid store complies with GDPR requirements.
Do You Need to Target New Markets?
It may be that sellers both to and from the UK should start investigating the possibility of other marketplaces. For example, it is well reported that the UK is seeking a closer trading agreement with the US, potentially with the opportunity for free trade.
Of course, entering a new market can be a challenge in itself, so a potentially more open US market should not be looked at as a simple replacement for the current markets that you sell in. But as an e-commerce merchant, it is important to always be looking for new opportunities for business expansion, and for doors to open when one seems to close.
Final Thoughts
To make sure you’re ready for life as a seller post-Brexit, visit GOV.UK to use the Brexit checker. It will provide you with a personalised list of actions for your business.
And remember: the world will adapt and so will your business. The e-commerce market is flexible and things will settle into a new version of normal in due time. Consumers and merchants alike will get used to new rules. And solution providers, like Ecwid E-commerce, will do their best to help businesses recover, speed up and find new opportunities for growth, wherever they might appear.