Its apparent the Brexit deal doesn’t translate into ‘business as usual’ for brands shipping across the pond. What are your options? What are the differences for B2B vs B2C shipments? Are there any products exempt from customs duties and VAT? Tax expert Shaun King, from Kings VAT LTD, breaks down everything you need to know to successfully ship into the EU and UK.
Brian Weinstein: Welcome, everybody, to Sippin’ and Shippin’. I’m your host, Brian Weinstein. We’ll be kicking it here every other Thursday, quenching your thirst for an insider’s take to enhance your customer’s experience. Grab your drink of choice, kick back, it’s Sippin’ and Shippin’ time.
Hey, everybody. Welcome back to another episode of Sippin’ and Shippin’. I’m your host, Brian Weinstein. And I’m here, as always, with my trusted companion, Caitlin Postel.
Caitlin Postel: Hey, Brian.
Brian Weinstein: How are you?
Caitlin Postel: I’m well today, thanks. How are you?
Brian Weinstein: Excellent. Excellent. Another Thursday here in Jersey. Loving it. We have with us today Sean King from Kings VAT Limited on the other side of the pond, as they say, who is here to kind of impart some tax wisdom on us. How you doing today, Sean?
Sean King: I’m good. Thank you.
Brian Weinstein: All right. So, it was once upon a time that tax was sort of like the nerdy kid at school who suddenly became wealthy and everybody wanted to be their best friend and be with them. Right?
Caitlin Postel: That’s you, Sean.
Brian Weinstein: That’s you.
Sean King: Well, the trouble is, guys, I’ve been doing this for 40 years, so I’ve sort of grown up with it. I started in VAT five years after it was introduced in the UK.
Brian Weinstein: Okay.
Sean King: 1973, so we’ve gone a long way since then.
Brian Weinstein: Yeah, yeah. Now, so did you see Brexit coming? Was this something that had been kind of gaining traction?
Sean King: Yeah. Yeah. There had been a general… Brexit really was just the UK leaving all of the EU behind it, the European Union behind it.
Brian Weinstein: Yeah.
Sean King: UK’s an island. We have an island mentality here.
Brian Weinstein: Okay.
Sean King: Europe is mainland, one big land mass, but over the years, there’s been general disenchantment with things going on in Europe. And when it came to it about four years ago and we had the referendum vote, it was touch and go. And I think everybody was surprised that we were to go. The problem was, when we decided we were going to go, that’s when the problems occurred because nobody was quite sure how we were going to go.
Brian Weinstein: Right.
Caitlin Postel: Right.
Sean King: The best part of four years for us to decide how we’re all going to leave and we’re all supposed to be leaving and patting each other on the back, but unfortunately that’s not the case.
Brian Weinstein: Well, right. The victory was there, and then you had that fear of what was in front of you after that. Right? This big untangled mess.
Sean King: Yeah. And let’s be honest. It is a massive mess and it still hasn’t been untangled. Every day that goes by throws up a new problem somewhere. In my business, we probably have now 70, 80% of what we deal with is Brexit or VAT-related in Europe issues.
Brian Weinstein: Yes.
Caitlin Postel: Wow.
Brian Weinstein: Yeah. Yeah.
Sean King: So it’s big changes. It’s big changes.
Brian Weinstein: And so, correct me if I’m wrong, but Brexit really covered the withdrawal, right? And not the terms of future trade.
Sean King: Yeah. It’s just a name that people gave to it. It was just the exit of effectively Great Britain, so it was narrowed down to Brexit, but yeah, Brexit, as far as everybody’s concerned, is just the UK leaving the EU. Most people don’t understand the mechanics one little bit. Unless you’re an importer or an exporter, it doesn’t really bother you every day. The man, as we say, in the street doesn’t really see any difference.
Brian Weinstein: Right. Right. So if you’ve got this, the withdrawals, covered, but future trade is not, is there the possibility as this continues to unwind that hard feelings develop and then there becomes a pissing match and their whole… and the trade agreements between the EU and the UK?
Sean King: Well, we’ve already got that. We’ve already got that. If I can tell you now that we’ve got… I’ll give you a couple of ridiculous situations that have arisen. Up until 31st December, everybody was fishing in UK waters, so the French people, French fishermen could fish in UK waters, land the fish back in France and sell it. On 1st January, the British trawler men were landing the same fish from the same waters, but Europe then told us that the waters were dirty and that we couldn’t use the same waters to land the fish in the same way as before and we had to wash them.
Brian Weinstein: Right.
Sean King: So that was a part of it. If we want to export cream cakes to Europe, we have to get a veterinary certificate because they’ve got cream in the cake.
Caitlin Postel: Oh, boy.
Sean King: So they have to have a vet to issue a certificate. No, we’re getting the most strange things. We’ve had truck drivers turning up in Belgium and having their sandwiches confiscated because they’ve got meat in them.
Brian Weinstein: Oh, my God. Okay. Okay. So-
Sean King: Idea of where we are.
Brian Weinstein: Right. Right. So clearly this went from, “Hey, we’ve gotten this, the Brexit’s through, we’re moving forward,” and now it’s like everybody’s feeling their way through the dark on this. Is there a possibility, Sean, that with all this, because right now again, correct me if I’m wrong, shipping from the EU into the UK, shipping from the US into the UK, is basically the same?
Sean King: Well, I’d love to say that. Shipping from the US into the UK really hasn’t changed much. Shipping between the UK and the EU and vice versa has changed because up until December when we exited, then free moving of goods, free moving of people, that stopped. So now if you want to move goods between the UK and the EU and vice versa, you have to start doing customs declarations to move those goods. And when you do customs declarations, then customers’ duty comes into play, VAT comes into play, and all the compliance costs that go with it as well.
Brian Weinstein: Right. So are those basically the same, customs and duty? So if I’m located in the EU and I’m shipping into the UK or I’m located in the United States, shipping into the UK, each one of those is now paying customs and duty that are fairly similar?
Sean King: Yeah. The problem we have is that if you were shipping from the US into the UK, you would pay customs duty on the goods. If those same goods will then ship from the UK into the EU, then customs duty would be paid again on the same goods. There are ways of avoiding it, but that’s the gist of what happens. So of course you then say, “Well, why not ship direct from the US into the EU?” But sometimes that isn’t feasible because you’re consolidating consignments coming over.
Brian Weinstein: I’m glad you mentioned that because one of the questions that we get asked a lot, because some of our brands that we’re fulfilling for have obviously, they’re with us and have fulfillment centers either with us or in the US, and they’re looking to establish one either in the UK or the EU. Would you tell people at this point to just wait till the dust settles here a little bit before picking a location to put a fulfillment center?
Sean King: Yeah. To be honest with you, no, just go ahead and do it now. What I will say is that one of the problems we have is that with consolidation, you have consolidators obviously in the US who will act for a number of people. Those consolidators in certain instances thought that they could just have one registration to cover all the businesses they act for, for VAT purposes. Unfortunately you can’t. VAT looks individual businesses, so every individual business that has goods that it sends from the US into the UK, or into the EU, has to look at it. If they own the goods when they turn up on our shores or on the EU shores, then they will have to be registered most likely for VAT as an individual entity rather than using a consolidator and using one entity.
Brian Weinstein: Got it. So let’s talk a little bit about that, the VAT. So do you refer to it as the importer of record?
Sean King: Yeah.
Brian Weinstein: Every importer of record has to have a VAT number?
Sean King: If the importer of record is bringing the goods into the UK with a view to selling them from the UK, then yes, they would.z
Brian Weinstein: Okay. How does someone go about getting a VAT number?
Sean King: Well, there’s two ways really. You can try and do it yourself but, I’ll be honest with you, most American companies find it impossible to understand the terminologies that we use over here, or you can get businesses like ours that will actually register companies for VAT, get them an EORI number, and I’ll explain the EORI number in a minute, and then do their VAT returns for them as well. So we just hold their hand and make sure they do all the compliance.
Brian Weinstein: Okay. Okay.
Caitlin Postel: Yeah. And now, Sean, for our audience, for those listening that don’t really know too much about V-A-T, VAT, or the EORI that you just referred to, can you give us a little context around that E-O-R-I number?
Sean King: Yes. Yeah. Well, people get confused. When goods are imported into the country, there is two elements to it. There is one which is a customs duty element, which by its name is a duty. The other one is value added tax, VAT. And they’re two separate things. And in order to be able to import goods into the UK, if you are selling them to a business, not to a private individual but to a business, you need what is called an EORI number. I won’t bore you with what it means, but what an EORI number is, you need it, it’s basically an element of security and also really a statistical number. Now, since 1st January, if you send goods into Europe you need a separate EORI number to send them into Europe. That didn’t used to be the case up until 31st December. But for now, it is. You need two separate EORI numbers.
You’ve got an EORI number of that number, it’s an identification number for value added tax. Now, VAT is a self assessing tax, which basically it works on a chain that everybody that sells something counts for VAT, everybody that buys it, recovers it. The only person who pays VAT is the last person in the chain. Now there’s an audit trail in there. But in the case of an import, when you import the goods, if you have a UK VAT number, you do not have to pay VAT anymore. There is a way that it is accounted for from VAT return. That is if you are selling business to business or if you’re importing your own goods. The EORI number just allows you to do the import. And when the goods come in then, it depends then on the type of goods, where they originate from, as to whether they attract customs duty as well.
Brian Weinstein: Got it. And so for this purposes… Well, first I want to clarify: there’s no grace period anymore, right? That is over in the UK? That has ended?
Sean King: Sorry. The grace period?
Brian Weinstein: Yes.
Sean King: I think people in the US were under the impression there was a grace period. There’s never been a grace period.
Brian Weinstein: Right.
Caitlin Postel: Impossible.
Sean King: The fact is, on 1st January, the rules changed. That was it. Unfortunately, the way the rules changed is that nobody thought in the UK should bother telling businesses in the US that it had changed, or anywhere else in the world. So we weren’t just picking on you guys over the pond. We were picking on our friends in Australia and New Zealand. But the UK authorities just never bothered thinking, they just relied on people like me. They thought they could spread the word throughout all the states in America and all the rest of the world as well.
Brian Weinstein: Right.
Sean King: That all changed.
Brian Weinstein: Here you are, doing podcasts, so maybe you are spreading the word.
Sean King: Let’s hope so.
Brian Weinstein: Right. And you saved the UK some advertising and marketing dollars by doing so, so they didn’t have to put it out there.
Sean King: Well, that’s it.
Brian Weinstein: Okay, so now, VAT’s a self-reporting tax, right?
Sean King: Yes, it is.
Brian Weinstein: Now, if you’re a B2B company-
Sean King: That’s a different scenario. B2C, now then, what happened was up until 31st December, when you send your goods over to the UK, VAT was charged to import so you would have had a UK agent who would’ve made the entry for you, paid the VAT and the customs duty to the tax authority, they would’ve then billed that VAT customs duty back to probably the US shipper, who in turn, would’ve gone back to the vendor and said, “You owe us this amount of money.” They would’ve all been paid for.
Brian Weinstein: And to clarify, that would’ve been a UPS or a FedEx or a DHL or one of those?
Sean King: Yeah.
Brian Weinstein: Got it.
Sean King: Yeah, yeah.
Brian Weinstein: Okay. Yeah.
Sean King: They’ll have come back and said, “Look, you’ve got to pay this VAT and this customs duty,” and that would’ve been it. However, 1st January, we changed the rules in the UK. And what we did was we said that if goods are valued at less than £135 sterling, then what would happen is VAT would no longer be charged to import, but that the company that was selling the goods would have to register for VAT purposes in the UK, with a big exception to that. The exception to that is that if you sell goods through what we call an online marketplace, which is going to be Amazon, eBay, Alibaba, and a number of other different marketplaces, if you do it through them, they account for the VAT for you. But if you are selling off your own website or even off Shopify or somewhere else like that, you will have to register for UK VAT, and you will have to pay UK VAT for the UK authorities every three months.
Now there’s a big issue there because up until 31st December, the value that you accounted the VAT on when you were sending it through UPS or FedEx was probably a lot less than the VAT value that you have to account for now. But from 1st January, VAT becomes due on the total price that you receive from your customer. So that is for the cost of the goods, postage, packing, delivery, everything. So if you sell for £20 sterling and you charge £10 for delivery, you have to account for VAT on £30, not just on the £20, but you are making a charge for the goods.
Brian Weinstein: You’re actually paying that VAT on the shipping cost too.
Sean King: You are, yeah. Because what they’re doing is they’re putting you as a US business on an equal footing with a UK business, should we say, because if a UK business charges for postage and packing like Amazon do and such, they have to account for VAT on that as well.
Brian Weinstein: And I can’t say for sure what the US law is. I don’t know if we’re… I don’t think we’re paying taxes. I don’t think taxes are due on the shipping fees. I’d have to clarify that, but I don’t know if that’s the case. That’s interesting.
Sean King: Yeah, because VAT is due in legal terms on the total consideration received for the supply of the goods. That’s the legal jargon-ese for you. That just means that VAT is always due on whatever the customer pays for those goods.
Brian Weinstein: Okay. So-
Sean King: Regardless of how you put that price together.
Brian Weinstein: So if I’m selling a higher priced commodity, still B2C so I’m still doing individual items, and let’s just say I buy a… it’s a £200 pair of shoes.
Sean King: Yeah, fine. What happens there is that you don’t declare it on a UK VAT return. It is dealt with in the same way as it was up until 31st December. So the UK agent makes an entry and pays VAT, or gets charged VAT, and potentially customs duty, because important to know that customs duty is only chargeable where the value of the goods is greater than 135. If it’s less than 135, you don’t pay customs duty, but I’ll come back to that in a second because it’s quite important.
Brian Weinstein: Okay.
Sean King: But anyway, just going back to this £200 pair of shoes, the £200, we’ll just say it’s got 10% customs duty on it. It becomes £210. VAT is charged at 20% because that’s the usual rate in the UK. On that £210 which will be £42. The £42 is paid by the UK agent, charged back to FedEx, FedEx then charge it back to the vendor.
And that’s for anything over 135. Now, I just mentioned that 135 is quite important because if you are selling three items and each item is valued at 100, but obviously it’s less than £135 and no duties payable, but if you put those three items into one consignment, the one consignment becomes 300. That exceeds 135 limit, that brings it within the customs duty net.
Brian Weinstein: Wow.
Sean King: So that becomes an issue that you need to be aware of. I spoke to somebody yesterday, again, looking at a fulfillment house, and when I explained that to them, their goods they’re bringing in are about 11% duty, and the guy hadn’t factored it in. So if he sells it from the US, fulfills it from the US, less than 135, he pays no duty on it. If he brings it into the UK into a fulfillment house, he pays duty on the full value of those goods coming in. He pays 11%, so immediately his costs are higher by 11% bringing the goods into the fulfillment house in the UK than they would be selling them in a single consignment of less than £135 from the US.
Brian Weinstein: That’s extremely interesting. And so what you’re also saying though too is if I… as a brand, I would need to take a look at… again, I’m just going to use a consumer orders three pairs of shoes, each one valued at £200, right? Which may be subject-
Sean King: Brian, you need to bring it down to less than 135 a pair. So less than 135, so let’s just say each pair of shoes is 100. That’s the easiest way.
Brian Weinstein: Yes. So then what you’d have to do there is weigh whether or not it pays to send it in as three different individual items to that consumer to avoid the 11% duty. Obviously you have to balance that off of what the shipping cost is to send it in the individual packages.
Sean King: Yeah, yeah. Yeah.
Brian Weinstein: Interesting.
Sean King: But if you’ll pay 11% duty on £100, that’s an extra £11 you’ve got to pay duty. So you then say, “Well, okay, fine.” Sorry, you’d pay on 300, you’d have 300 times 11%. That would be £33 extra duty.
Caitlin Postel: And now is there any products or commodities that are exempt from VAT?
Sean King: Yeah, there are. The most important ones you’ll come across are children’s clothing. Now, what I will say is, your idea of a child and the tax authority in the UK’s idea of a child differs dramatically. The sizings, I think they were worked out in the 1970s and have never, ever been increased, so you find out that a child maybe as somebody, could be an 11 year old, might be in clothing that doesn’t actually qualify to be treated as children’s clothing. But children’s clothing per se is zero. Food stuffs are zero and also books and magazines are zero as well.
Caitlin Postel: Understood.
Brian Weinstein: Interesting. Well, so, I’m going to ask you one that’s specific to us. It’s food and magazines. Does that include vinyl? For example, vinyl albums and things like that? Is it those types of-?
Sean King: Basically, if you look at it, it has to be something that you can read that conveys information. So if you had a book which was painting by numbers, that wouldn’t qualify because it’s not conveying information, you can’t read it.
Caitlin Postel: Right.
Brian Weinstein: Got it.
Caitlin Postel: So vinyl would not?
Brian Weinstein: So vinyl and things-
Caitlin Postel: So it’s not like…
Brian Weinstein: Yes. We happen to have a little bit of a niche segment here where we do a lot of vinyl and I was just curious if that would qualify.
Sean King: Yeah. Now when you say vinyl, do you mean records?
Brian Weinstein: Records, yes.
Caitlin Postel: Yes, records.
Sean King: Yeah. No, that wouldn’t qualify.
Brian Weinstein: Yeah. I understand records and albums, but we have some younger listeners who only refer to it as vinyl these days.
Sean King: Oh, that’s it, you see. That’s the trouble with us oldies, isn’t it?
Brian Weinstein: You’re right. Exactly. Exactly.
Sean King: We still remember Frank Sinatra.
Brian Weinstein: Yes. We’re actually not too far from his birthplace.
Sean King: Oh, there we are.
Brian Weinstein: Caitlin and I are just down the road from Hoboken.
Sean King: Oh, okay.
Brian Weinstein: Excellent. Okay. So I don’t even want to touch on the EU because I know that’s a whole other…. that’s probably an entire-
Yeah. Entire other podcast.
Sean King: Ball game. Yeah.
Brian Weinstein: So, and again, and I’ll go back to this fear for me of the UK and the EU getting into a pissing match or continuing this. Is it possible that it gets easier at some point to ship from the US into the UK than the EU into the UK? Could it get to that point?
Sean King: Yeah. I think the thing is generally we are more accommodating at the moment to doing business with the rest of the world than we are with the EU, because I’m speaking as a Brit, of course. The Germans may say differently, although I doubt they would. Europe has put up a lot of barriers that they said they wouldn’t put up to the UK trading with them. So the UK has sort of been forced into putting barriers up itself to trade with the EU as well. So we are looking at markets that are outside of Europe. Obviously we want to do a trade deal with the US, we’ve done a trade deal with recent Australia, we’d do one with Canada, but we’re doing trade deals all over the place. So we’d be looking for you guys over the pond, as we say, to have beneficial or preferential trade deals with the UK. That depends on how quick we could agree a trade deal between the two countries. We would make it easier than it possibly was before to actually trade with the UK from the US.
Brian Weinstein: Interesting.
Sean King: However, as we say, we’ll have a different podcast when we talk about the EU, unfortunately.
Brian Weinstein: Yes. Yes. I’m sure. I’m sure. That’s why I’ve intentionally avoided questions about the EU because, again, I know that’s a whole other tangent that we can go off on.
Sean King: We can spend another hour talking about it.
Brian Weinstein: Exactly, exactly. So just really as we head towards the finish line here, on the VAT side, obviously working with a company like yours to help file those on a quarterly basis, so what happens if I get and I try not to? Who’s really tracking this?
Sean King: Who’s really tracking it? Well, to be quite frank with you, at the moment, people ask me, “What happens if I don’t do it?” Well, the problem you’re going to have is that the UK works on an intelligence basis. So stuff that’s coming through, they are aware of. Now, you run the risk at any given time of them stopping your consignment coming in. Now, when they stop that consignment coming in, what they will then do is ask you to demonstrate that you are paying VAT on those goods. If you haven’t got a number, then they’re going to require you to provide details of your historic trading with your VAT liabilities. Now then, you may say, “Well, we’re in America, you’re in the UK. What does it matter?” Well, the only problem is that they have then the opportunity to seize all your goods coming into the UK. So I’ve had a situation whereby somebody has sent over a couple of pallet loads of high value goods which the UK has seized and said, “Well, that’s okay. We only keep these until you guys pay us some money.”
Now, the thing about that is that those goods were destined for a customer, or customers, in the UK. You’ve then got to go back and explain to those customers why they’re not getting their goods. And secondly, of course, those goods have been seized. You’re not going to get them back unless you pay the money up that you owe. And if you don’t pay it, then the tax authority just auction the goods off and they keep the money. And of course, you’ll find out you won’t be able to import goods under that company’s name in the future. And there’s financial penalties as well, always is. It’s always best to get it right from day one if you possibly can do.
Brian Weinstein: Yeah. Well, I guess as the saying goes, crime doesn’t pay.
Sean King: It doesn’t.
Brian Weinstein: But it’s amazing. You said intelligence, which usually isn’t synonymous with politics at all, but when it comes to collecting taxes, somehow or another they get very smart.
Sean King: Yeah. To be honest, the guys that do this are those guys that stand at the airport, in the black shirts and the black trousers, and they watch you as you get your stuff off the conveyor belt. And then you start perspiring because you think, “Oh, my God. I might have an extra bottle of bourbon in my suitcase.” But it’s the same way that the VAT system works, people over here, the moment somebody rings them up and says they’re from the tax authority, there’s a massive gasp into the phone, and I’ve done that because I used to be one of them. So the moment you ring up somebody, even when they’re innocent, there is the fear of getting it wrong in the first place.
Brian Weinstein: Right. Right. Exactly. Exactly. Well, speaking of bourbon, as you know, the name of the show is Sippin’ and Shippin’, and we usually lead with this, but we’ll end with it today. So I know for you it’s a little later in the day. Did you go cocktail or where did you go in terms of drink?
Sean King: Strangely enough, in about an hour’s time I’m out with my wife to a microbrewery to sit down with my first beer of the year.
Caitlin Postel: Oh, very nice.
Brian Weinstein: Oh, fantastic. Excellent.
Sean King: So that’s it. We’re going out for a treat. The thing about it is though, guys, is that we’re going to sit outside, and the temperature is about six degrees, but we’ll do it.
Brian Weinstein: Yes. It’s worth-
Caitlin Postel: Good for you.
Sean King: The first one.
Brian Weinstein: Exactly. Exactly. It’s worth it for the first one of the year. So what are you drinking now? We’re right around tea time. We just passed tea time.
Sean King: Hey, guys. I’m English. I’m drinking a cup of tea.
Brian Weinstein: Fantastic.
Sean King: Cup of tea, that’s all I drink. Cups of tea.
Brian Weinstein: So in honor of you, and I don’t normally do this. As everybody knows, I’m a big Dunkin’ Donuts coffee fan, but I let Caitlin make me a cup of tea for this episode.
Caitlin Postel: That’s right.
So we have a pomegranate green tea.
Brian Weinstein: Pomegranate green tea.
Sean King: Oh, no. No, no, no. Please, no. English tea.
Caitlin Postel: An English tea.
Sean King: Pomegranate?
Brian Weinstein: Well, listen, this was fantastic. We really appreciate having you on and we’re looking forward to at some point talking about the EU. Highly informative. There’s a lot of information for people to digest and a lot of changes that are going on, for us on this side of the pond seemingly at lightning breakneck speed. So really appreciate your bringing clarity onto this for us. And again… Yeah, so thank you, Sean. Sean is from Kings VAT Limited. And it’s fantastic to have you on and to get to speak to you about this.
Sean King: Well, thank you very much for having me. And I’d say to the listeners, if they have got any queries, any questions, obviously you’ve got an email address, but by all means contact and we’ll be happy to try and help people out.
Brian Weinstein: Fantastic. Appreciate it. All right, Caitlin, you want to lead us out?
Caitlin Postel: Thanks for tuning in, everybody. Make sure you check us out every other Thursday and be sure to subscribe on your favorite podcast platform: Apple Podcasts, Spotify, or of course, Sippin’ and Shippin’, dot, com.
Brian Weinstein: Wait. Where?
Caitlin Postel: Sippin’ and Shippin’, dot, com.
Brian Weinstein: 30 Gs at the end of Sippin’ and Shippin’?
Caitlin Postel: No Gs. No Gs here. Leave your Gs at home.
Brian Weinstein: All right. Just a couple of OGs. Thanks for tuning in everybody.
Caitlin Postel: Thank you, Sean.
Sean King: Thank you very much.
Caitlin Postel: And we’ll see you next time.
Brian Weinstein: All right. Take care, everybody. Appreciate you listening.