- Navigating global ecommerce and logistics is complex enough at the best of times. Thanks to Brexit, there are now even more things to consider.
- Failure to comply with new regulations and customs requirements could result in fines, penalties, unhappy customers and halted business operations.
- So, what does Brexit mean for ecommerce businesses that ship to and from the UK?
- Learn all about the impact of Brexit and how to comply with post-Brexit trade rules to navigate through the transition.
It’s official, Harry and Megan have left – what? Oh, the other Brexit? Okay, take two.
It’s official, as of 1 January 2021, ecommerce businesses that ship products to and from the United Kingdom must comply with a slew of new regulations, customs requirements and duties.
Failure to comply could land you with royal consequences like products blocked at customs, surprise fees and fines, and frustrated customers that never got their product or paid unexpected customs fees.
If you can wait until 1 July 2021, they’re changing the trade rules to make it easier for ecommerce businesses to comply with the customs rules.
In this article, we’ll dive into Brexit’s overall effect on your business operations and the four things you need to know when shipping to and from the UK.
Also, be sure to check out the Brexit Checker for a personalized checklist.
What Impact Has Brexit Had on Ecommerce Businesses?
Do you want the good news or the bad news? Let’s start with the good news:
Increase in UK Exports
Experts predict that, like Boris Johnson on a diet, the British pound will drop, causing products from the UK to become more affordable for international consumers, and thereby increase exports of British goods.
Okay, let's move onto the bad news...
Slower Delivery Times
Supply chains are expected to struggle during the transition period as all relevant parties adjust to new protocols and custom clearances. This is expected to cause significantly slower delivery times and increased product loss/damage in transit – the more hands involved, the more likelihood for human error.
And finally, le pièce de résistance…
Increased Shipping Costs
When shipping into or out of the UK, additional tariffs on goods will either eat into your margins, cost your customers or a bit of both. Not to mention, because the customs landscape is complex and varies by state, giving your customers clear custom fees is hardly possible until 1 July 2021.
As a silver lining, customs duties could encourage more local consumerism in the UK.
How to Comply with Post-Brexit Trade Rules
Here are four logistics-related tasks to consider on your journey towards compliance with UK’s new trade rules:
- Register VAT / manage inventory
- Prepare for customs
- Handle shipping costs
- Update policies
1. Register VAT / Manage Inventory
A VAT number is a value-added tax identification number, and you need one to conduct business in the EU and the UK. The only way to get a VAT number is to register with a country’s tax authority.
UK sellers need to register with each country in which they sell. On 1 July 2021, this requirement goes away with the one-stop-shop rules. Due to the added complexity and increased tariffs, some UK sellers are finding it financially beneficial to move a portion of their inventory to EU warehouses.
EU, US and other country sellers that ship orders to the UK below￡135.00 need to register their business for a VAT with HM Revenue and Customs. Similarly to UK sellers storing inventory abroad, international sellers that conduct a large portion of business in the UK should consider moving inventory to UK warehouses to avoid tariffs and fees.
Be sure to contact your country’s tax authority or a local tax professional to understand how VAT rules impact your business.
2. Prepare for Customs
Regardless of where your company is based, clearing customs in the EU requires an Economic Operator Registration and Identification (EORI) number, which uniquely identifies an exporter for customs.
Now you need an additional UK EORI which you can register with HM Revenue and Customs. Customs declarations could include the following information:
- EORI number
- VAT amount
- VAT registration ID
- Harmonized code, country of origin, description of contents, and total value of products/parcel
3. Handle Shipping Costs
Additional tariffs will be implemented between the UK and EU, and there are two choices when deciding who pays the bill:
- Delivered at Place (DAP): The customer pays any import costs, the seller is only responsible for shipping the product
- Delivered Duty Paid (DDP): The seller pays any and all import costs
When making this decision, consider your margins and what your competition offers. You can consider building it into the product price, or even discounting the import cost on orders above a certain threshold (e.g., free shipping/import fees on orders over $50).
In the case of product returns, customs and taxes can be refunded but asking for a refund from custom agencies is complex, so consider that when moving to the final step below.
4. Update Policies
When you have made your shipping decisions, be sure to update your shipping policy and your returns policy to set customer expectations:
Make it very transparent whether your business or the customer is responsible for paying applicable customs fees and import taxes. If you pay (DDP), you can advertise the coverage as a competitive advantage; conversely, if the customer pays (DAP), the customer will not be upset when unexpected fees are assessed after checkout.
If your customer pays the cost of any duties and taxes, clarify whether the collected import taxes and duties can be refunded in the case of a product return. While it is possible to get a refund, you’ll have to go through shipping carriers who paid the custom agencies directly. Headaches ensue.
Navigating global ecommerce is tough, and Brexit has thrown yet another wrench into the machine. But as an entrepreneur, you’re used to solving problems by now, either on your own or leveraging your network.
That’s where a trusted partner in global logistics and order fulfilment should come into play. Find a customs broker with experience in navigating the increasingly complex global logistics landscape to get set up for success.
You might also be interested in learning how to assess your export readiness when entering a foreign market.