On December 31, 2020, the eleven-month Brexit “transition” time period will end, and the United Kingdom will officially leave the European Union. This means that the UK will no longer be part of the free flow of goods and services across most parts of the European Continent.
What does this mean for online sellers when it comes to collecting tax at the point of sale?
Now, online sellers will be required to register for UK Value Added Tax (VAT) and start charging VAT (usually 20%) to customers in the UK starting January 1, 2021. You can read more about registering for UK VAT as an online seller at the UK VAT Registration website.
But what about collecting the right amount of VAT now that the UK is no longer part of the EU?
The TaxJar API Supports both EU and UK VAT
TaxJar customers who sell into both the UK and the EU will continue to be supported after the Brexit transition. The TaxJar API supports sales tax (or VAT, or GRT) tax calculations in 31 countries, including the US, Canada, Australia, the European Union, and now, the United Kingdom.
This means that, starting January 1, 2021, the TaxJar API will collect UK VAT on transactions to buyers in the UK and continue to collect EU VAT on transactions to buyers located in the European Union.
What is VAT?
VAT is the preferred transactional tax model in the EU (and now the UK) and is equivalent of sales tax here in the US. VAT differs from sales tax in one crucial way, though. It is applied every time value is added– from the raw material supplier, to the manufacturer to the wholesaler and retailer and finally to the end consumer.
Over 140 countries world-wide have adopted the VAT model, likely because governments get revenue every step of the supply chain. It is not, however, supposed to be a burden on businesses, who, once VAT registered, can offset any VAT collected on sales against any VAT incurred on expenditure – including import VAT. (In other words, if you are charged VAT by your supplier you can then offset that by charging VAT to your buyer.)
The VAT collected on the final sales to the consumer is kept by the tax authority. This is why the EU tax authorities have become more focused in looking to collect revenue from the explosion of online sales.
You can read more about collecting VAT in your online store here.
Do you have questions or something to say about using TaxJar to collect UK VAT post-Brexit? Start the conversation in the comments!
Ready to automate sales tax? To learn more about TaxJar and get started, visit TaxJar.com/how-it-works.