The accountant’s view
Currently a financial consultant and a specialist in arranging finance, Victor Flynn worked as a chartered accountant in financial services in both the UK and overseas for more than 30 years. We asked him to answer some of the most common questions in our postbag.
Q. We were promised tariff-free trade, why are we getting bills for customs clearance? “There may be some confusion here between ‘tariff free’ and ‘tax free’. Both involve paying money to the Government, but there are differences.
“Tariffs are added to the cost of goods and services by the Government for a number of reasons. This could be for health reasons (alcohol or tobacco), environmental concerns (petrol and certain chemicals) or to discourage imports (to protect domestic industries from unfair overseas competition). They are charged in addition to taxes such as Value Added Tax (VAT). The Brexit trade deal means there are generally no tariffs on goods moving between the UK and the EU. Although goods may be tariff free, very few things in life are tax free. The bills people are receiving on imports are probably for VAT, which is still payable to the British Government, and for additional administrative charges associated with a more complex customs clearance process.”
Q. We’ve never paid VAT on imports before, why now?
“That’s not strictly true. Most governments in the world have some sort of ‘purchase tax’ payable by citizens on goods consumed in their own territory. We call it VAT, other countries have different names, but the principle is the same. There are exceptions, but this is usually around 20% on top of the retail price. Countries in the EU have agreed that VAT paid in one nation counts as VAT paid in all member states. On January 1 the UK left that arrangement so now the British Government is collecting its tax at the border.
“It’s important to say that goods from countries outside the EU, such as the US, have been subject to these arrangements for decades.”
Q. Does that mean I pay VAT both in Europe and in the UK?
“No. The tax is payable once the goods are in the country where they’ll be ‘consumed’. Goods imported from the EU are now VAT free at the point of sale but VAT will be applied when they arrive in the UK. It’s the buyer’s legal responsibility to make sure this VAT is paid. This is the opposite of before Brexit when purchasing from the EU meant the VAT was charged at the point of sale and it was the EU seller’s responsibility to pay that VAT to the correct EU tax authority.”
Q. I’ve had a bill for VAT which adds up to more than 20% of the purchase price, why is that?
“VAT is payable on the total transaction price; this includes the price of the product plus the shipping costs and any administrative charges made by the shipping agent. Once in the UK, additional charges may also be levied for internal postage. This can result in VAT equal to more than 20% compared to the product price alone.”
Q. How do I know what price I should be paying when looking at a European website? “The website should display prices that are both inclusive and exclusive of VAT. The VAT exclusive price is what you should pay. It’s then necessary to factor in the price of any shipping and administrative costs and then add the VAT to work out the total amount you will pay.”
Q. I think I’ve paid VAT to both the EU and UK on an order, how do I claim it back?
“If you’ve ordered from the EU on or after January 1, VAT should not be payable on the order. If the EU seller has incorrectly charged EU VAT the easiest way is to contact them and ask for a refund. Remember that many EU businesses may not yet have updated their websites to calculate the correct tax amounts for shipments to the UK. If VAT has been incorrectly applied in the UK, you’ll need to apply for a refund. This can only be done through the HMRC website. I’ve heard of some cases where products ordered from the EU before January 1 that entered the UK after that date have been charged two lots of VAT as the arrangements changed while the shipment was in transit. In this case the UK VAT should be reclaimed as above. The same process should also be followed if you’ve paid VAT in the UK on an item that needs to be returned to a seller based in the EU.”
Q. Do I pay VAT on all imports?
“No. There are certain allowances and some products are zero rated for VAT purposes. If you’re struggling to sleep or need to know how much VAT you should be paying on imports, the government guidance can be found at: www.gov.uk/goods-sent-fromabroad
However, as I answer this question, the page is still being updated. I think it’s important to mention that VAT is a complex tax and its scope is wide ranging. If the amount of VAT on an individual or series of transactions is substantial, it may pay to consult a tax specialist. Sometimes, knowing the VAT rules can save a lot of money.”
Q. If VAT has always been paid, why are some companies now charging an administration fee?
“When the UK was part of the EU, the bureaucracy involved in cross-border trade was handled at a government level, so there were no direct costs to retailers. That bureaucracy’s now handled by the seller and it’s a matter for them whether they can afford to absorb that cost or need to pass it on to the customer. Many companies have chosen to delegate the responsibility of clearing customs to a shipping agent and that comes at a cost, usually to the buyer.”
Q. Will this mean a permanent rise in prices?
“That’s a very difficult question to answer. Prices of goods from abroad aren’t only affected by changes in the basic price. They can also be influenced by a number of other factors including tariffs and changes in currency exchange rates. In terms of the simple application of VAT, the answer is yes. That’s because postage and administration charges are now included in the calculation. Also, if clearing customs means additional administration, or a lorry driver has to spend extra time on the road, these costs must be paid by someone. Quite honestly, it will be some time before we understand what costs retailers will need to pass on to buyers. On a positive note the UK is now in charge of its own trade policies. There is the future possibility of lower or zero-rate tariffs being charged on certain goods and services imported from the rest of the world.”
Q. Have you any advice for individuals importing goods from the EU?
“My first piece of advice is to consider buying in Britain whenever you can.
The import/export system is primarily designed for companies to trade with other companies. If the same goods are available at home, it’s often much easier for individuals to buy them from a British retailer. The purchase process is easier to understand and the end cost more certain. I appreciate that’s not always possible but unless you’re spending a significant amount or making regular purchases, buying British may prove to be a lot less hassle… particularly when goods have to be returned. If you do need to import goods from the EU, make sure you deal with reputable companies and, when necessary, engage a reliable shipping agent.”