Brexit Update: July 1st Vat Changes and IOSS

This new Brexit update on July 1st deals mostly with Vat Changes and the new IOSS system. However, we will also be discussing distance selling thresholds, customs changes, and the low-consignment fee eradication.

 

Table of contents

1) Brexit update July 1st: Do you know what they are?

2) Brexit update for distance selling thresholds in EU to single uniform threshold

3) Introduction of the OSS (One-Stop-Shop) Filing

4) Removing the low-value import VAT exemption

5)  Brexit update for OSS and IOSS

6) Online marketplaces deemed the seller for collecting and reporting VAT

7) Customs declarations are now required for all consignments

8) What is the overall impact on eCommerce with the new July 1st Brexit update?

9) Brexit update checklist for July 1st

 

Earlier this year we published an article highlighting the Brexit changes named understanding the Brexit consequences for UK eCommerce. These changes happened on January 1st of 2021 confirming the end of the Brexit transition period. In the article, we pointed out some of the key changes such as customs declarations, EORI numbers, Brexit vat changes, and VAT MOSS changes. That was the first stage of the Brexit changes. However, there is another stage of the agreed-upon Brexit Deal that will again affect these changes. Changes on changes, not confusing at all, right? I will do my best to outline them as clear as possible for you to understand the July 1st Brexit update.

Though the UK is no longer a part of the European Union, business to and from the EU remains fluid, so knowing the new rules matters. The July 1st Brexit changes will affect retailers, marketplaces, and courier companies in the UK, EU, and abroad.

The changes also offer a good variety of VAT reforms and changes to the governance of distance selling goods for B2C services. If you’re an eCommerce business, the changes are a positive benefit for streamlining VAT transactions across borders. I will explain to you the step-by-step process for registering for the new OSS system.

You want to make sure you’re staying up to do date with these changes and decide how they will affect your business. You must consider the VAT rates, the One-Stop-Shop, as well as how and what you will be charging.

 

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There are five major changes that I will be discussing. Those are

1) Removing distance selling thresholds for multiple EU countries for a single blanket threshold

2) Introduction of the OSS (One-Stop-Shop) Filing

3) Removing the low-value import VAT exemption and introducing the new IOSS

4) Online marketplaces deemed the seller for collecting and reporting VAT

5) Customs declarations are now required for all consignments

 

Brexit update for distance selling thresholds in EU to a single uniform threshold

The term distance selling as it applies to eCommerce means selling across borders. With the implementation of Brexit changes to selling online, we discuss some of those distance selling requirements in our article distance selling regulations and UK online selling.

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When Brexit happened, and as it currently is, VAT selling thresholds vary for each European country. Now, moving forward, after July 1st, individual EU country thresholds will be removed.

Now, a single threshold will apply for the entire 27 EU member states.

The single unified threshold will remain uniform across EU member states and is €10,000 (£8,818 approximately). This accounts for all sales cross borders in the EU.

 

This threshold also applies to Northern Ireland, which is still a part of the European Union under the Northern Ireland Protocol.

The VAT thresholds set by each country previously have caused some administrative burdens for sellers and governmental organisations. This new unified VAT threshold will simplify the process of VAT reporting.

Along with this simplification is the implementation of the One-Stop-Shop (OSS) and IOSS (Import One-Stop-Shop) for EU and UK sellers.

 

Brexit Update for OSS & IOSS

Selling to multiple countries in the EU can make any business easily prone to accounting errors. Some of the most common mistakes include not applying the correct VAT rate to the right country, or not even registering for VAT in the first place. To simplify the declaration and payment of VAT for goods sold from a distance by sellers, the EU is introducing two new measures.

1) One Stop Shop (OSS)

2) Import One Stop Shop (IOSS)

The one-stop-shop is an electronic portal that UK and EU businesses can access as of July 1st to comply with VAT eCommerce obligations on the sales of exported goods. This system is a return of the EU Moss System that was used previously before Brexit. EU based merchants will use an OSS system different from UK based merchants.

To be specific about OSS systems, they specifically facilitate the process of collecting and declaring VAT to tax authorities for suppliers and eCommerce businesses.

1) One Stop Shop

The implementation of the one-stop-shop is for selling goods and services to EU customers from EU sellers. Merchants will file a single tax return quarterly. Though EU businesses will use this, UK businesses may as well. If you’re a UK business with operations in the EU, you may need to also register, depending on your individual circumstances.

There are two versions of the OSS. Union and non-union.

Union OSS

The Union OSS is for EU online sellers doing business in the EU. They will register with the OSS in their own member state for all intra-EU distance sales. OSS registration for EU businesses has been available since April 1st.

Non-Union OSS

The Non-Union OSS is exclusively for online sellers not established in the EU. If you are a UK seller of “services”, this is the category you fall under. You can register for Non-Union OSS here.

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2) Import One Stop Shop (IOSS)

The implementation of the import one-stop shop (also non-union) is for non-EU and UK businesses selling “imported goods” from outside the EU to private consumers in the EU. If you have a UK eCommerce business that sells goods to the EU, this is your category.

If the goods are less than €150, you can register for IOSS. You will be given an IOSS identification number that is unique and should be listed on all packages sent to the EU. This will ensure a quicker customs clearance process as it will show that VAT has been properly declared.

From July 1st, 2021, UK sellers will be able to use the EU IOSS.

Important note:

Non-EU businesses and marketplaces without a ‘mutual assistance’ EU agreement using IOSS must appoint an EU-resident intermediary. This is some form of a VAT agent who can represent them to use IOSS. They will share in the accounting process of VAT filings and VAT payments.

How do I register for IOSS?

If you’re a UK seller or sell abroad, and you would like to register with IOSS, this can be accomplished by going to the website of any EU member state. Registration has already begun, and the system will be online and available on July 1st in the UK. By registering with one EU member state, you are automatically enrolled throughout the entire EU.

These new OSS systems are one of the major benefits of the new changes for online sellers. It is more streamlined and involves a lot less paperwork rather than enrolling in 27 member states!

Important note

Neither OSS nor IOSS is required. Your eCommerce business can register in the individual EU member states that you do business in.

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What are the benefits of the OSS & IOSS?

1) Single unified system for all EU countries – no separate filing

2) Save time on VAT reporting

2) Potential to save money on compliance costs when exporting goods

3) Reduces the likelihood of errors when reporting with automatic systems

What goods do the OSS and IOSS cover?

The table below outlines which system should be used for which type of supply and/or taxable person.

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How does the OSS & IOSS work for VAT?

After you register with IOSS, you will do the following.

  1. Apply VAT rate of the member state you’re sending goods to for every transaction.
  2. Collect VAT from the customer for all EU distance sales of goods.
  3. Complete and submit an electronic quarterly tax return via the OSS/IOSS portal.
  4. Make a quarterly VAT payment which you declare in the EU member state you decided to register with.
  5. Keep accurate records of all the sales you have made for the next ten years minimum.

 

Low-Value import VAT exemption removal

The low-value import VAT exemption was enacted on January 1st 2021. This means that goods imported into the EU under €22 (£15) in value are exempt from both import VAT and customs duty. Anything between €22 and €150 (£135) will be subject to VAT and customs duty. Sellers with low-value consignments have benefited from this since January 1st. However, that is no longer the case.

From July 1st, all commercial goods sent to the EU will be subject to VAT, no matter their value.

VAT must now be charged at the time of sale (at the VAT rate in the customers country) for consignments not exceeding €150 (£135). This can then be reported via the IOSS.

 

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Why was this exemption removed?

This scheme has been seen as abusive economically to the EU as many sellers mistakenly or deliberately under-declared the values of the goods to avoid VAT. This new system will ensure a fairer and balanced scheme, benefiting improved trade relationships & economic impact. Sellers that repeat offend will have longer clearance times at custom checks due to poor track records. In a service-first environment speed cross-border is essential.

Special Arrangements

Not everyone will opt-in for the IOSS system. Therefore, they may instead use “special arrangements” with their postal and customs agents instead to collect the import VAT on consignments not exceeding €150 (£135).

How does this Brexit update impact UK sellers?

Any eCommerce business that exports low-value goods to the EU will be affected by this. It is advised that you understand the ramifications of this as costs will increase. You must decide how you will handle the charges and reporting of VAT.

 

Online marketplaces deemed the seller for collecting and reporting VAT

Online marketplaces include companies such as eBay, Etsy, Alibaba, and Amazon. If you use these marketplaces to sell and ship products to a customer, this change will affect you.

The new change is that you will no longer be considered the “deemed seller” for transactions. The marketplace you use will be the “deemed seller” for transactions. What this means is that they are now required to account for VAT on your behalf.

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Is this a good benefit?

Yes, it seems it is. This saves time for you the seller and adds an extra layer of compliance for reporting with these major companies handling all the VAT details for your business.

This has been implemented to help simplify VAT compliance and eliminate fraud.

There are also new record-keeping requirements for online marketplaces facilitating supplies of goods and services

Another update for July 1st requires more record keeping for marketplaces.

What this means is that the marketplaces (eBay, Etsy, Alibaba) are now required to keep definitive VAT records of all transactions for a minimum of 10 years.

 

Customs declarations are now required for all consignments

Currently, at the border, consignments less than €22 (£15) or lower do not require customs declarations.

These products actually make up almost 90% of all goods entering Europe

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This new change could be challenging for logistics companies as the number of declarations are going to increase substantially in July. The number of declarations at the EU border is estimated to grow from 2 billion to 8 billion.

This potentially means slower processes at the border, late shipments, and packages being piled up in border warehouses due to missing or incomplete declarations. For maintaining smooth operations both logistics companies and sellers should implement automated platforms.

Selazar makes this easy for all our customers via our online portal. Clients can update all product information from anywhere as well as the necessary information for customs clearance.

The information required for our couriers to ensure smooth processing include the products commodity code, EORI numbers, and SKU numbers. We also have to include the exact value of goods as well as the weight or size and country of origin.

Until July 1st, postal consignments not exceeding a value of €150 can be declared for free circulation without a formal customs declaration. The same facility applies to non-postal consignments with a value not exceeding €22 (£15).

If you’d like to get more guidance for low-value consignments, the European Commission has prepared a guidance document on the importation and exportation of low-value consignments.

What is the overall impact on eCommerce with the new July 1st Brexit update?

If you are a UK business that sells goods to customers in the EU, you need to decide the best system for controlling your sales.

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Here is a checklist of items you should consider with these new July 1st Brexit changes.

• Speak with VAT advisers to understand the exact VAT implications for your business

•Decide whether you want OSS/IOSS or if you prefer to file VAT returns in EU member states individually

•Display localised VAT on products

• Integrate total landed cost calculations into checkout

• Calculate your estimated costs for VAT if you typically sell goods to the EU below €150.

•Look into ways for automating customs declarations if you sell a lot of goods

 

Selazar is happy to answer any questions you may have concerning the new Brexit update. If you’d like assistance in automating your product fulfilment and all necessary documentation for customs clearance, we can get that set up for you. Just schedule a completely free discovery call with us.

 

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Understanding the Brexit Consequences for UK eCommerce

Since 2016, the build-up to Brexit has been a figural thorn in the side of most UK and EU eCommerce businesses, brands, and retailers. If you’re like most people in the UK or EU, you may need some more help and clarification with the Brexit trade deal changes that took place on January 1st, 2021. We want to give you a Brexit deal summary so that you can understand the ins and outs of the latest Brexit news, the Brexit consequences, and the new Brexit rules. What are they exactly? What do they mean? How are they going to affect my business? When can I stop pulling my hair out?

As if Covid hadn’t complicated things enough, now Brexit is here to stay and complicating business just a little bit more. Covid fatigue is real, and so is Brexit fatigue. Many feel unprepared for the changes. In fact, a new report reveals that 76% of small businesses feel unsupported and confused. However, it is important to understand these recent changes to prepare for things like the Brexit VAT changes, EORI numbers, and customs preparation. This includes UK retailers, UK ecommerce platforms and companies, and UK logistics companies. Selazar aims to help businesses understand and adapt to these changes, and we are always available to speak to you personally about this if you’d like to setup a call.

 

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WHAT IS BREXIT?

So, what exactly is Brexit again? Well, the literal Brexit (Britain’s exit) definition means that the United Kingdom (UK) officially withdrew from the European Union (EU), a union of 27 member states throughout Europe, adapted in 1950 as a means for Europe to unite and prosper socially, and economically. The EU had its own set of membership costs, tariff regulations, and agreements. Now that the UK has left, new laws apply to selling and shipping between the UK and the EU. That means new regulations, services, import tax, and customs declarations. Whereas before the UK remained within the EU customs and VAT systems, now that it has changed and there are new customs formalities. The new Brexit costs and changes apply to merchants and buyers in the UK, in the EU, and abroad. As this process is ongoing, ensure that your business is staying updated with the latest Brexit news. The Team at Selazar work hard to make sure our clients understand these changes and Brexit consequences to ensure a seamless process for their business.

 

What are some of the most significant Brexit changes for sellers?

Up until 2021 selling online and shipping was relatively easy. When your EU customers made an order, they were fulfilled by a UK warehouse and moved across the border in a timely and efficient manner without too much hassle or worries of extra costs. When UK eCommerce customers placed an order, the same process was also smooth from the EU to the UK.

 

Now, some of the most significant Brexit consequences and changes for sellers based in the UK and EU that could slow this process include:

1) Customs Forms – Sending products from the UK to Europe now requires custom declaration forms CN-22 and CN-23. For items with a value up to £270, use customs form CN22. For items with a value over £270, use customs form CN23. You can access more information about UK customs here. The UK government has advised it would be useful to hire a customs broker, freight forwarder, or similar entity to help with customs relating to importing and exporting.

2) EORI Numbers – Now, because the UK is no longer a part of the European Union, you will have to get an EORI number from HMRC (Economic Operator Registration and Identification Number) to move goods between Great Britain and the EU. It is now necessary for both customs and UK VAT documentation.

Your business needs to make sure to include, if necessary, the EORI numbers on your customs documents or you will face increased delays and potential further costs. Not doing this will cause more kinks in your supply chain, so make sure to take care of this important task ahead of time. Selazar makes this easy because our platform automates all customs paperwork and delivers it electronically to the relevant courier networks. Adding your EORI numbers is easily done on the Selazar platform, as shown below.

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3) Special UK Export License – After December 31st, 2020, the Export Joint Unit (ECJU) has new requirements of controlled items. There are goods that may require a UK export licence and/or certificate. Some of these items include: Chemicals, goods, excise goods, livestock, and foodstuffs. See the list here.

4) Northern Ireland: Northern Ireland has a dual position in the EU Customs union. According to the Northern Ireland Protocol, this means that UK authorities apply EU customs rules to goods entering Northern Ireland. The

aim of the protocol was to avoid a hard border on the island of Ireland. This means new systems for traders, electronic administrative processes, declaration requirements, and security information for goods entering Northern

Ireland from the rest of the UK. You will need an EORI number to move goods from Great Britian to Northern Ireland, however at this time it is unlikely you will need an EORI number from Northern Ireland to Ireland.

For Northern Ireland (NI) trade with Great Britian (England, Wales, Scotland), this is treated still as a domestic UK transaction. UK VAT is also still applied. Goods moving between Ireland and Northern Ireland are unchanged and will be considered as movements across internal EU borders. Check your EORI validation, EORI number format, and EORI checker here.

 

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BREXIT VAT CHANGES

Now that we have a Brexit trade deal, and the UK is no longer a part of the EU, things aren’t as simple as they were with the previous EU Customs Union. Now sellers will need to consider paying custom tariffs, identifying HS and commodity codes, completing customers declarations, and managing increased UK VAT changes and liabilities. The way VAT is accounted for has changed, and the UK VAT changes affect trade with both EU and non-EU countries.

As many of us know, the value-added tax (VAT) charge is a tax on the UK’s goods and services, reported to HMRC. The UK is continuing to levy VAT after Brexit, as the same rules apply for domestic transactions. Prior to Brexit consequences, the UK was part of the EU VAT regime which was an

EU added tax on goods and services with the European Union.

To be clear, you will now pay VAT on goods sent from the EU and non-European Union countries and special territories (e.g. the Canary Islands) if they’re:

  • Gifts more than £39
  • Other goods worth more than £15
  • Alcohol, tobacco products and fragrances (eg perfume, toiletries, and cologne) of any value

You will have to pay VAT on all goods sent by mail order from the Channel Islands no matter what their value.

You’ll be charged at the VAT rate that applies to your goods. VAT is charged on the total value, including:

  • The price paid for the goods
  • Postage, packaging, and insurance
  • Any duty you owe

 

Recognising the potential for slower operations at UK customs post Brexit, the UK has now introduced a deferred import VAT scheme in lieu of VAT payable upon import. This scheme was created so no in person cash VAT payment must be made by business importers to UK customs. This lets you account for the VAT on your VAT return, rather than paying it immediately (e.g., at the port of entry). This is known as Postponed VAT accounting (PVA). However, the postponed VAT accounting scheme is optional. If you wish to pay the VAT upfront when the goods enter the UK (at the port of entry, for example, or after release from a customs warehouse), then you can.

For sellers shipping goods from the UK to the European Union:

UK sellers will have to consider VAT registration in each European country you are selling to. EU VAT is payable on the goods when they enter the EU.

To be clear, if you are a UK seller, you do not want to charge VAT for EU or ROW orders customers at checkout. EU customers will be asked to pay VAT and duty on delivery, so you don’t want to be double charging them.

 

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For sellers shipping goods to the UK from the EU:

Similarly, EU eCommerce sellers now have to consider the Brexit consequences of UK VAT As of January 1st, 2021. If you send goods as an EU seller to the U.K., above £135, you will pay import VAT with HMRC. No customs duty or import VAT will be added below this. Sellers sending goods to the UK will need to apply VAT at the point of sale, rather than applied as import VAT at customs. Some customers have already dealt with very surprising charges of these Brexit consequences.

According to an article published by The Guardian, customers in Europe buying products ranging from furniture to pet food from UK companies are receiving unexpected bills for VAT and customs declarations. One couple said that “we bought a £42 shelf for their bathroom, and on the morning, it was supposed to be delivered, we received an import duty/tax demand for over €30, like a ransom note. It was a complete surprise.” Headaches like this seem to be on the rise with the new Brexit VAT changes, so make sure your business adjusts accordingly. Follow any of the latest Brexit updates around VAT here.

Because the UK abandoned the EU VAT Regime on December 21st, 2020 and then introduced the deferred import VAT scheme (PVA), this will enable importers to account for and recover import VAT as input tax on the same periodic (usually quarterly) VAT return, rather than having to pay it upfront and recover it on a subsequent return using the C79 VAT certificate as evidence of entitlement.

 

VAT MOSS Brexit Changes

The UK left the EU VAT regime on December 31st, 2020. If you sell digital goods in the UK to EU customers, then you can no longer use the Mini One-Stop Shop (MOSS) single VAT return with HMRC to report your sales to your EU customers and pay over EU VAT. You will need a new VAT registration to avoid any fines on taxes due to Brexit changes. Selling across the border to UK and EU consumers include things such as: Software, e-learning, e-books, downloadable media, streaming media, dating & membership websites.

  • For UK sellers that have UK eCommerce websites and sell to the EU, apply now in any EU member state for a MOSS registration number under the Non-Union MOSS scheme. You will be able to use this to report quarterly sales to EU27 states.
  • For EU sellers that have EU eCommerce websites, selling to the UK, you should apply now for a UK VAT number to report on a quarterly basis any sales to UK customers. There is no threshold for this. All UK sales must be immediately reported to the UK’S HMRC.
  • For US sellers with US eCommerce websites, if you are registered in the UK for your pan-EU electronic services, you can no longer be able to use that for EU or UK transaction reporting. You will need a new EU MOSS registration. For the UK, you will need a new UK VAT registration, too.

 

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DEFER DUTY PAYMENTS FOR UK SELLERS

If your business imports goods regularly, you can now apply for a duty deferment account to delay the payment of many customs charges. This applies to

  • Customs Duty
  • Excise duty
  • Import VAT

By creating a duty deferment account, it allows your business to make a one-time payment a month through direct debit instead of constantly paying for individual consignments. Most people who qualify for a duty deferment account are importers or someone who represents them. If your application is successful, you will receive a duty deferment approval number.

Zero VAT rate

Depending on the type of goods you deal in, zero rated VAT items are goods that will be classified in VAT categories, but that rate is set to zero. These types of supplies are items such as children’s clothes and footwear, water, basic foods, books, and newspapers. So, check if you qualify for zero VAT rate.

Also keep up to date on Brexit consequences with the UK VAT calculator.

 

COMMODITY CODES

Understanding the classification of goods so the correct tariff and quota can be added must be correct. Commodity codes (CC) consist of eight digits for your goods and 10 digits for goods you import. Luckily, the UK still uses the same codes used in the EU.

These numeric codes can be found in the system with the World Customs Organisation. See here for commodity codes UK.

THE PROCESS

To summarize, here are the steps for submitting customs when exporting goods from the UK to EU countries.

1) Apply for an EORI number

2) Know the commodity codes of your goods

3) Find out about licence or other special requirements

4) Check if you fulfil the conditions for zero VAT rate

 

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What are tariffs again? Well, more tax liability, unfortunately. Tariffs are a type of tax paid on imports, charged by the country to which the import is made, separate from VAT. Tariffs in the UK are payable to HMRC. These tariffs are calculated by the commodity code. The rules that applied before Brexit from non-EU countries now apply to imports from the EU.

Many people assumed a post Brexit tariff-free trade deal; as it seemed from the information we were given; however, it seems there are still tariffs on some goods. Customs duty (tariffs) will apply to some goods and excise duties will continue to apply to tobacco, alcohol, and certain energy products. Also, for some products outside of the UK and EU. For example, if more than 40% of the goods pre-finished value is neither of British or EU Origin, there will also be tariffs.

This specifically means that a tariff will be added if the goods originate from places such as China or Japan (where many goods and drop shipping comes from). The Brexit deal fine print on this issue is not great for companies who choose to source products from those regions. For example, if you want to export clothes from the UK to the EU, it won’t ‘qualify as tariff-free if the items were originally from China. Like many other products, they do not qualify anymore for zero rate tariffs under the Brexit agreement. The cost of this tariff will have a substantial impact on many UK companies.

The good news, however, of these Brexit consequences is that China will benefit from many zero-tariff benefits for many of its products coming into the UK. China is estimated to be the third-largest import partner to the UK, estimated at 10% of the market. See the UK global tariff list here.

Other tariffs will vary depending on the type of product being brought in. Therefore, it’s crucial for exporters to include the correct commodity code for their products. You can look up commodity codes, duty, and VAT rates by using the government’s website look-up-tool.

Tariffs will apply to all goods imported into the UK unless:

 

WHAT DO THE BREXIT CONSEQUENCES MEAN FOR THE FUTURE OF E-COMMERCE?

Rest assured that online shopping in the UK is massive. The UK is the third-largest eCommerce market in the world, accounting for 19% of total retail, making it worth over £200 billion. The momentum is there, and it will not be slowing anytime soon. In a post-COVID-19 world, UK eCommerce will continue its massive growth, and nothing will change that. To ensure the promising future of eCommerce, the customer experience must be the centre of attention.

With increased border delays, this could potentially slow the industry and supply chain’s, negatively impacting a positive customer experience. The way forward from this is to move beyond those hurdles by predicting them, preparing for them, and surpassing them with smarter systems and predictive processes.

Now, the UK government has introduced measures to reduce the impact of Brexit consequences on businesses, but these new changes do mean tough new challenges for businesses of all types. You must do an immediate review of your supply chain and assess potential damages and losses. Look at the EORI number, VAT reporting, payments, etc. You may need to update your IT/software services provider, and if it would be beneficial to switch to a 3pl service provider.

Understanding the Brexit consequences for UK eCommerce is critical. Retailers should reconsider how to optimize their UK order fulfilment by avoiding bottlenecks at customs. Prolonged delivery times from UK online shopping will deepen the impact of Brexit on the UK economy. Outsourcing your order fulfilment for UK online shopping sites can help you successfully navigate the standards and expectations of your customers in this post Brexit era.

 

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