How Brexit Will Impact Cross-Border eCommerce Sellers
We’ve been talking about it for what seems like forever, but the time has finally come. Brexit is here, it is really happening and you have but a few days left to get your online store ready for it.
From 1st January, 2021, different rules will apply for businesses in the UK as well as the EU.
These monumental changes couldn’t be happening at a more eventful time. People’s lives the world over have changed because of the COVID pandemic, and so has the business landscape. eCommerce has absolutely boomed in 2020, and will hit never-before-seen heights in 2021. Complying with the new rules is a top priority for eCommerce and DTC businesses.
In this article, we highlight the key points discussed between a 3-member panel consisting of eCommerce experts in the UK. The panel included Kunle Campbell (eCommerce Growth Consultant & Advisor at 2X eCommerce), Richard Asquith (VP Global Indirect Tax at Wix Partner - Avalara), Neil Kuschel (CEO of Global-e Europe) and host, Liat Karpel Gurwicz, Head of eCommerce Marketing at Wix.
Watch the full Wix eCommerce workshop on preparing your business for Brexit:
Impact on International eCommerce
First there was one, now there’ll be 27. That’s the scenario facing UK businesses as they will now have to deal with 27 separate countries instead of 1 EU. In order to handle these changes, eCommerce businesses should be addressing 3 key areas:
How they sell to customers in the EU
Supply chain / warehousing
Operations - staffing / legal / taxation
Businesses are currently facing a lot of confusion. Not only about how the taxes and registration will work but also about how to factor in the extra costs involved.
An estimated 250,000 businesses in the UK will complete custom declarations for the first time. Most eCommerce businesses will definitely be subject to tariffs, despite the rumours stating otherwise. The new tax curtain coming down between the UK and the EU will directly result in more VAT registrations on both sides.
Smaller businesses in the UK are going to lose their distant-selling thresholds and will necessarily have to register with countries in the EU. This is resulting in many brands stopping sales in some of the EU countries, mainly in Eastern Europe.
Marketplaces are proving to be the enforcers of the new regulations. They are insisting sellers comply with the new laws and move inventory to third-party warehouses completing all necessary VAT formalities in advance. While many businesses may feel overwhelmed, do not panic!
New eCommerce Reforms
As if to add another exclamation mark to Brexit’s monumental changes, the HMRC will be rolling out the eCommerce Reform on 1st January, 2021. So businesses selling from and to the UK will have to comply with these changes as well. The major changes are:
Low value consignments (<£15), which previously passed straight through customs will now have duty levied to them.
VAT on goods valued £135 or more being imported into the UK can no longer be paid at customs and must be charged at checkout. You will also have to file declarations with the HMRC.
These new regulations are going to be strictly enforced and businesses should be cautioned from trying to go around them. If a consignment doesn’t have the UK VAT number, it will be stopped at customs.
Also, goods passing through customs will be reconciled with your returns and if you don’t file the requisite declarations you’ll be pulled up. Another scenario is if your declarations aren’t properly filed, customs might charge your customers again. Needless to say, this would be a customer experience disaster.
This is likely to catch out a lot of international sellers as they will now have to be UK VAT registered. It will also complicate the procedure for returns. EU's corresponding package has been delayed till 1st July.
Preparing your Store and Customer Experience
Businesses should focus on factors that will incur an additional cost. Costs like VAT and duties are going to go up, but also other things like duty clearance fees that carriers will now charge. This could be anything between £5 to £16 per shipment.
Many businesses are following a strategy of factoring these additional costs in the price of the product. It is better to be transparent about the cost throughout the customer journey, rather than giving them a shock on the checkout page.
eCommerce businesses should take all the necessary steps for ensuring a seamless customer experience. This could mean using a 3PL and warehousing partner so that you have a centre for shipping and returns for both regions. This would require doing the formalities upfront and moving inventory to these centres. This would ensure quick delivery times and hassle free returns. Businesses should analyse sales volume per region and plan inventory accordingly.
Online merchants should get all their registrations and information in place. This includes your EORI number, VAT registrations and Custom declarations. It is also a good time to get a customs agent. It is important for businesses to be fully informed so they’re ready at the time of shipping.
Check out Avalara's list of 10 actions UK and EU merchants should take before 2021.
People Logistics and Staffing Challenges
The new rules will definitely restrict hiring staff from the other region. But there is no dearth of talent and it won’t be an impediment to growth.
Smaller eCommerce businesses rely more on technology solutions than highly skilled personnel. But at the same time, SaaS companies could face challenges with their staffing. If you have EU nationals in your company, then they should apply for an EU settlement scheme. You must also be prepared to potentially have to sponsor EU employees from next year.
Impact on UK Shoppers
Marketplaces are driving compliance with sellers, and since they account for a big chunk of business, customer experience won’t be compromised.
The changes might reduce inclination to purchase from international sellers, and marketplaces will grow.
Marketplaces are driving compliance. This will definitely boost their market share as many smaller businesses might fall behind due to the complexities involved. There will be big winners and big losers in the market.
Final Advice
Don’t wait until 1st January to implement changes in your business. Orders placed 3-4 days before the end of the year will be in shipping when the rules change. But most of all, view these changes as an opportunity to grow!
Optimise your operations for your core products to start with, and expand to your full catalogue. You must harness the power of your data!
Do the things that will keep your goods moving. Have your key information (EORI number / declarations) ready and pick your import countries well!
Kunle Campbell
Growth Consultant & Advisor at 2X eCommerce
