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VAT and Duty on Dispatching Goods Within The EU

Written by Jon Cooper

Dispatching goods within the European Union (“EU”) is relatively straightforward as the EU operates under a single market which guarantees four key freedoms across the twenty-eight members states.  These are the free movement of goods, capital, services and persons.

Whilst the Brexit negotiations are far from concluded, it seems that the UK government is looking for an arrangement that will allow the free movement of goods to continue.  In any event, the current rules are set to remain until the end of the transition period.

In practical terms, this means most shipments can be dispatched to other member states of the EU without special customs documentation. There are exceptions, such as sales to international organisations which would be treated as exports, and exclusions such as goods subject to export licensing controls, such as military hardware, and goods classed as excise products, such alcohol, tobacco and hydrocarbon oils.

Goods in movement within the EU are termed as being dispatched upon leaving the state of origin of the goods, and as arrivals when entering the member state acquiring them rather than exports and imports.

Goods dispatched within the EU between VAT-registered businesses are not subject to VAT. This also applies to goods imported into the EU that have been released for free circulation following payment of import duties.

However, goods dispatched to a customer in another EU country who is not registered for VAT in that country and where the seller is responsible for delivery, are treated as ‘distance sales’.  This is the case for mail order or internet sales to private consumers in another EU country.

For distance sales, VAT is charged UK rates in the normal way.  However, each member state has a ‘distance selling threshold’ and if the value of sales to that country exceeds this limit, the seller must register for VAT in that country, and charge their rate of VAT or the equivalent tax on sales to that country.  The current thresholds can be found here.

Customs declarations are not generally required for goods shipped within the EU but traders must raise VAT invoices and retain evidence of shipment.

Every business trading within the EU must declare these sales on its VAT return. If the sales of goods exceed the applicable exemption threshold during a calendar year, the business must also submit Intrastat returns each month.

The Intrastat thresholds are reviewed annually and are currently £1.5 million for Arrivals and £250,000 for Dispatches.

Whilst the levels remain below these thresholds, the trader is only required to declare the value of Dispatches and Arrivals on the normal VAT return.

Once these thresholds are exceeded, there is a requirement to submit additional monthly declarations to HMRC.

The EU has a trade agreement in place with the European Free Trade Association (EFTA) member states of Iceland, Liechtenstein, Norway and Switzerland which broadly applies the same terms for the free movement of goods.

The EU principle of ‘free circulation’ covers not only goods produced in the EU but also goods imported from outside the EU once all import formalities have been completed and import duty and any other customs charges paid.

Free circulation goods can then move within the EU and EFTA states without duty with the exception of goods that require a licence or carry an excise duty.

If you have any concerns of would like any further information, please contact us at tax@cooperfaure.co.uk

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