We have already seen extensive VAT changes.
Now the UK is officially out of the European Economic Area (EEA) cross border sales are no longer VAT exempt and duty free. Since January 2021, e-retailers have faced new levies which vary depending on the value, nature and direction of goods supplied. From July 2021, all goods imported into the EU will be subject to VAT (at up to 20%), and the current exemption for small consignments up to €22 will be abolished.
Increased complexity has added to administrative burden and costs. Online stores located in the EU now must file a tax return in the UK and need an EORI number before they can ship products to UK customers. Incorrect customs data and paperwork can result in goods being rejected or held at the border and can incur unnecessary duty charges and even fines.
Changes in interchange fees yet to come.
And there’s still more disruption on the horizon. Now outside EU laws, the UK is no longer subject to the cap on intra-European interchange fees.
Card operators Mastercard and Visa have seized on this to raise fees in order to recover recent cross-border transaction losses. Come October 2021, both will quintuple cross-border charges to 1.5% for consumer credit card payments and 1.15% for debit cards. For Visa this is bidirectional, affecting both UK and EU merchants, and for Mastercard the new rate will only apply to UK online purchases from the EEA.
And if UK/EU payments follow the same trend as the US, it’s likely that these and other ‘foreign’ transaction costs will be passed on to the consumer. In which case, we may well see a significant increase in chargebacks as consumers cancel orders or refuse payment due to unexpected charges.
How can e-retailers help safeguard their business?
At Worldline, we support over one million merchants in more than 50 countries and our Digital Commerce division specialises in cross-border e-commerce and payments. As a trusted partner, we work closely with UK and EU e-retailers as they navigate Brexit challenges, helping them to deliver seamless services to their customers wherever they’re located.
Here are our top tips to help mitigate Brexit impact:
- Reduce tax burden with a local presence
EU merchants can avoid fees by setting up a legal entity within the UK, however this may be cost prohibitive for smaller merchants. Another option is to appoint an EU-resident intermediary or VAT agent. From 1 July they can access the new EU Import One-Stop-Shop IOSS return on your behalf, simplifying VAT reporting at the point-of-sale.
- Offer payment methods that don’t carry Interchange Fees
Alternative payments may be cheaper than card payments (by avoiding interchange fees) and more efficient (offering real time confirmation). Popular local methods can also help boost conversion e.g. PayPal or buy now pay later (BNPL) in the UK; iDeal bank transfers in Netherlands; and Cartes Bancaires cards in France.
- Minimise disputes
Prevent unnecessary chargeback claims by openly communicating Brexit-related changes to buyers; provide tracking information and delivery updates and respond quickly to purchase queries. Also make sure that you list T&Cs clearly on your website, including details about the refund process.
- Forward plan compliance
With so much change, it’s important that merchants don’t lose sight of upcoming regulations and deadlines. For example, PSD2, has announced an extended deadline of 14 March 2022 for the implementation of Strong Customer Authentication (SCA) by merchants.
Get help to smooth your path
As COVID continues to drive retail growth online, there’s much at stake for cross-border merchants trying to find their way in the new UK/EU ecosystem. Many will need help to cut through the jungle of requirements and explore new options.
At Worldline Digital Commerce, we have an experienced team of cross-border specialists and local experts to help guide you. Please reach out to your contact at Worldline to know more.