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Sales Tax

Brexit Mayhem Exhibit A: The Case of the Leather Bike Seat

Prior to Brexit and the implementation of the U.K. ecommerce package, companies with locations throughout the EU could freely move goods between the U.K. and other EU member states. But now that the U.K. has left the Customs Union and VAT regime, goods...

Gail Cole

Jan. 26, 2021

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Brooks England has been manufacturing leather bicycle saddles (aka, seats) in its West Midlands factory for more than 150 years. But now, thanks to Brexit and the new U.K. ecommerce package, British bicyclists can no longer purchase British-made seats from Brooks England.

Brooks England was purchased by the Italian company Selle Royal in 2002. Today, many of its British-made products are typically shipped from the West Midlands manufacturing facility to a logistics center in Italy. From there, they’re shipped to customers worldwide, including those located back in the U.K.

With Brexit, this has created a perfect storm for tax compliance.

According to a U.K. shipping notice issued by Brooks England, “The ongoing changes in the Brexit situation have made it necessary to temporarily suspend all new orders from brooksengland.com to the UK at this time.” Until further notice, U.K. customers can only purchase Brooks England products through online partners and Brooks Premium Dealers.

That message is echoed by Extra UK, Brooks England’s British distributor: “UK distribution through Extra UK is unchanged.” Extra UK obtains British-made Brooks England products directly from the West Midlands factory.

Prior to Brexit and the implementation of the U.K. ecommerce package, companies with locations throughout the EU could freely move goods between the U.K. and other EU member states. But now that the U.K. has left the Customs Union and VAT regime, goods shipped from the EU into the United Kingdom are subject to new value-added tax (VAT) and customs obligations.

Effective January 1, 2021, goods shipped to the U.K. with a sale price at or below £135 are subject to sales (supply) VAT at checkout, for which a regular U.K. VAT return must be filed. Import tax applies to shipments exceeding the £135 threshold.

Register to collect VAT at the point of sale or stop selling in the U.K.

As Avalara Vice President of Global Indirect Tax Richard Asquith notes, “For ecommerce sellers, this means extra VAT registrations or having to stop selling.” He notes that this applies to U.S. sellers too: They must now register in the U.K. or stop selling ≤£135.

Brooks England isn’t the only company that’s opted to stop selling. Among bicycle businesses alone, Netherlands-based Dutch Bike Bits, German Canyon Bicycles and Rose Bikes, and Italian Campagnolo all suspended shipments into the U.K. while learning to navigate the stormy seas of Brexit. Most plan to resume normal business as soon as possible.

Campagnolo’s Nicolo Ildos explains, “We stopped direct sales since the deal wasn’t clear and everything was happening over Christmas time, so we took the safest choice [so our online customers wouldn’t have to] pay duties or face customs trouble. We are working to re-list the UK among our e-store countries.”

Yet Dutch Bike Bits isn’t planning to resume its U.K. sales any time soon. The company has blasted the British government for “deciding to impose a unique taxation regime.” To wit, “If every country decided to behave in the same way then we would have to pay 195 fees every year, keep up with the changes in taxation law for 195 different countries, keep accounts on behalf of 195 different countries and submit payments to 195 tax offices in 195 different countries, and jump through whatever hoops were required to prove that we were doing all of this honestly and without any error. Therefore from mid December 2020 onward we ship to every country in the world… except the UK.”

Companies that do business in Britain are understandably frustrated. Though it’s long been known the U.K. would exit the EU VAT regime on January 1, 2021, the massive EU-UK Trade and Cooperation Agreement wasn’t signed until December 24, 2020. A lot of questions were left unanswered until the last minute. And tax compliance has become much more burdensome.

Like most storms, this one will likely eventually blow itself out. In the meantime, to learn more about the impact of Brexit on businesses selling to U.K. residents:

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Gail Cole has been researching, writing, and reporting tax news for Avalara since 2012. She’s on a mission to uncover unusual tax facts and make complex laws and legislation more digestible for accounting and business professionals — or anyone interested in learning about tax compliance. Get more sales tax news from the Avalara blog.