April 2023 / United Kingdom

HMRC has published new simplified VAT guidance for overseas sellers sending goods to the UK.

HM Revenue and Customs (HMRC) has published simplified VAT guidance for overseas sellers, with a new translation aimed at Chinese retailers that sell goods online into the United Kingdom.

The guidance, Selling goods using an online marketplace or direct to customers in the UK has been translated into simplified Mandarin to support sellers exporting goods from China to comply with UK import and VAT regulations.

In 2022, the UK imported £83.3 billion in goods and services from China and Hong Kong. Online shopping accounted for 26.5% of all UK retail sales in 2022, with a substantial number of goods being bought from international sellers via online marketplaces.

HMRC is encouraging UK agents and shipping companies to share the simplified guidance with their customers.

The information explains when and how VAT and import duties must be charged to customers by international sellers. It explains the different processes for direct to customer sales, and for sellers using online marketplaces.

Marc Gill, HMRC’s Director for Individuals and Small Business Compliance, said:

We have been working closely with international partners to better understand what information overseas sellers need in order to comply with their UK tax obligations. We have acted on feedback from businesses to simplify and compile this online guidance into one, easily accessible place on GOV.UK. We have also recently published a simplified Mandarin translation of our guidance following research conducted with Chinese businesses.

By making our VAT and import duty rules easier to understand, we will be able to increase tax compliance levels for online sellers. We are asking UK freight, customs and shipping agents to help us reduce the tax gap by sharing this simplified guidance with their customers. By working together, we can help everyone pay the right amount of tax at the right time.

HMRC’s updated guidance has been published following detailed consultation and research with overseas sellers and brings together all relevant guidance in one place on GOV.UK. By making the process clearer and easier to follow, it will support overseas sellers to comply with their tax obligations and help HMRC to reduce the tax gap.

In 2018, HMRC signed an updated Memorandum of Understanding (MOU) with the General Administration of Customs China (GACC). During the 10th UK-China Economic and Financial Dialogue in 2019, HMRC agreed to provide Chinese businesses with appropriate tax and customs guidance.

In 2020, HMRC commissioned research with Chinese online sellers. The report, Knowledge and attitudes of online sellers in China to UK tax compliance, was published in 2021. Recommendations from that research led to the development of new guidance and its translation into simplified Mandarin.

Further information

International sellers sending goods to customers in the UK have different VAT and import obligations depending on whether the goods are sold directly through their own website, or via an online marketplace. There are also different tax rules for goods under the rateable value of £135 and goods exceeding that value.

In 2015, a MOU and Operational protocol between HMRC and the GACC was signed during the Chinese state visit to the UK. This was in the presence of former Prime Minister, David Cameron and President Xi Jinping during talks at No.10. The updated MOU was signed in 2018 by HMRC’s Director General for Customer Compliance Group, Penny Ciniewicz, and Customs Minister YU Guangzhou in the Great Hall of the People, Beijing.

In 2020, HMRC commissioned research with Chinese businesses who sell goods online to the UK. The research sought to gain a greater understanding of their knowledge, attitudes and behaviours in relation to their UK tax and customs obligations. The report, Knowledge and attitudes of online sellers in China to UK tax compliance, was published in 2021.

In 2022, the value of goods and service imports from the USA was £101.2 billion, from China and Hong Kong was £83.3 billion, and from Germany was £79.1 billion UK trade in numbers (updated 17 March 2023).

HMRC launches the Advance Valuation Ruling Service to give importers legal certainty that their chosen customs valuation method is correct.

Hundreds of thousands of UK traders are set to benefit from a new service that makes it easier to import goods.

HM Revenue and Customs (HMRC) has launched on 27 April 2023 the Advance Valuation Ruling Service (AVRS), a new service that gives importers legal certainty that their chosen customs valuation method is correct.

When importing goods into the UK, traders must work out the value of their goods to calculate their Customs Duty and import VAT.

Traders will apply online for an Advanced Valuation Ruling where HMRC will confirm the method used to calculate the value is correct. It is legally-binding for 3 years and the trader will use this information to calculate the value of their goods on their import declaration.

The system is part of the government’s vision to deliver a modern, digital customs service, providing traders with peace of mind and making it simpler to work out costings ahead of shipments.

Aidan Reilly, HMRC’s Director of Customs Policy and Strategy, said:

AVRS will make a real difference to UK importers by stripping away uncertainty and reducing their administrative burden. The new service legally guarantees the trader’s valuation method is correct making it quicker and easier to manage customs.

It will complement our existing tariff and origin services to give traders more certainty on the cost of importing their goods, making it easier for them to budget.

The AVRS brings the UK in line with other countries, including some Free Trade Agreement (FTA) partner countries, who already offer such a service.

The UK currently offers legally-binding decisions for:

• Advance Tariff Rulings – these provide legal certainty on the correct commodity code, which can then be used to determine the correct duty and taxes.
• Advance Origin Rulings – these provide certainty on the economic nationality of goods, when importing and exporting. For imports, this provides legal protection against any UK customs authority challenging the country of origin of the product. There are two types of origin: preferential (which feature in the UK’s trade agreements) and non-preferential.
• Binding Tariff Rulings – these provide legal certainty on the correct commodity code for importing into the EU or Northern Ireland.
• Binding Origin Rulings – these provide legal certainty on the economic nationality of goods when importing or exporting from Northern Ireland.

Using AVRS is not mandatory. After an application is made for AVRS, HMRC will confirm the application has been accepted within 30 days and the correct valuation method within 90 days.

The Financial Reporting Council (FRC) has issued a financial reporting exposure draft (FRED) on the reporting of deferred tax. The FRC approach in the proposal mirrors the suggestion of the International Accounting Standards Board (IASB) to amend IAS 12. This introduces a temporary exception from the requirement to account for deferred taxes arising from the Pillar Two rules.

Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland – International tax reform – Pillar Two model rules sets out the text of the proposed accounting standard. The FRC proposals are to amend Section 29 Income Tax of FRS 102, The Financial Reporting Standard, applicable in the UK and Republic of Ireland with a temporary exception from the requirement to account for deferred taxes arising from the Pillar Two rules. A decision will be made in future whether to remove this exception or make it permanent. The FRED follows the publication by the Organisation for Economic Co-operation and Development (OECD) of its Pillar Two model rules which aim to ensure that large multinational groups pay a minimum amount of tax on income arising in each jurisdiction in which they operate.

The proposals are subject to consultation which ends on 24 May 2023 with the intention of finalizing any resulting amendments in summer 2023.