New VAT rules for overseas firms selling goods into the UK are leading some EU businesses to stop trade with the UK. 

VAT is now collected by HMRC at the point of sale rather than the point of importation, requiring overseas sellers to register with HMRC and account for VAT themselves, when the sale is lower than a value of £135. 

The government published updated advice about the new rules on 3 December 2020.

'Not worth it'

With VAT registrations taking up to two months, some companies have decided that the administrative burden makes it not worth continuing with UK trade. 

Dutch bicycle parts company Dutch Bike Bits told the FT it was “ludicrous for one country” to insist on these onerous conditions and it would, in future, “ship to every country in the world… except the UK”.

Didriksons, a Swedish coat maker, and Belgian-based Beer on Web have also suspended orders to the UK.

UK companies have also been affected. West Midlands manufacturer of leather bicycle saddles, Brooks, was unable to supply UK customers on Monday because it distributes goods sourced from Italy.

Fraud risk

HMRC has to check more than a million additional parcels a day for VAT compliance following the UK’s exit from the EU single market at 11pm on 31 December.

However, compliant retailers are worried they will be at a competitive disadvantage to firms that dodge the system.

Richard Allen, who runs the campaign group Retailers Against VAT Abuse Schemes, said: “If you don’t plug the loopholes, it distorts competition in no time”.

Increased costs

International shipping companies – including FedEx and TNT – are also levying additional charges on shipments between the UK and EU to cover new administrative charges as a result of the end of the transition period, according to the BBC. 

TNT is now imposing a surcharge of £4.31 on all shipments between the UK and the EU. The company is owned by Federal Express, which has also updated its charges.

Rivals DHL and UPS have taken similar measures.