The following is a guest post by hellotax.
The year 2021 was characterized by many changes in VAT regulation across the European Union. This means that 2022 is a relatively quiet year when it comes to tax law directives for sellers active across the EU. However, a variety of VAT rates were already and will continue to be changed throughout the year – both in the EU and abroad. Furthermore, UK VAT regulations continue to be adjusted to ease the bureaucratic burden for online sellers after Brexit.
VAT Rate Changes in the EU and UK in 2022
As a measure to support certain businesses during the Covid-19 pandemic, the corresponding VAT rate was lowered in July 2020. This applied to Catering supplies, Hotel accommodation, attraction admission, and certain other goods and services. The initial 20% VAT rate was lowered to only 5% in 2020 and then raised back to 12,5% in October 2021. On the 1st of April 2022, it will revert to the initial 20%.
Similar steps were taken in Austria for the hospitality sector. In Austria, the reduced rate of 5% was reverted to 10% on the 1st of January 2022.
2022 VAT Rate Changes Worldwide
Maybe less impactful for EU eCommerce entrepreneurs but nonetheless important are other VAT rate changes worldwide.
On January 1st, 2022, the standard VAT rate of the Bahamas was lowered from 12% to 10%. On the same day, the standard VAT rate of Bahrain was increased from 5% to 10%, while the reduced VAT rate for Services in New Caledonia was also raised from 6% to 11%. In the same month on the 15th, the standard VAT rate for consumer goods in Angola was reduced from 14% to 7%.
More upcoming VAT rate changes in the year 2022 include the increase of the standard VAT rate in Indonesia from 10% to 11% on the 1st of April and the new standard VAT rates of 20% and 13% in Bhutan and Anguilla respectively introduced on July 1st.
UK VAT Regulation Changes in 2022
Not enough changes? Don’t worry – there is more. First of all, the UK government aims at becoming the most digitally advanced tax administration by implementing the new Making Tax Digital procedure. As part of this new scheme, some businesses will be required to follow Making Tax digital rules starting in April 2022.
Businesses with a turnover above the UK VAT threshold of £85,000 are required to register for VAT in the UK and are also required to follow the Making Tax Digital rules. This means that they have to keep digital records of everything, ensure their data is digitally linked, and have to use the new software to submit their VAT returns. Businesses with a turnover below the UK VAT threshold of £85,000 in general don’t have to register for VAT in the UK. If they are not registered, they can join the Making Tax Digital service on a voluntary basis. However, starting in April 2022, those that are registered on a voluntary basis will be required to follow Making Tax digital rules.
Furthermore, the UK VAT regulations are continuing to be adjusted after Brexit. First of all, the Postponed Customs Declarations scheme ended on January 1st, 2022. This scheme allowed online sellers to delay customs declarations for goods imported from Europe to the United Kingdom, with the exception of Northern Ireland which continues to be part of the European Customs Union.
However, the Postponed VAT Accounting scheme continues to apply. This scheme was introduced in January 2021 and allows businesses to declare and immediately recover import VAT in their regular VAT returns, instead of paying it upon arrival in the UK and reclaiming it later. The Postponed VAT Accounting scheme was conceived to prevent businesses from suffering negative cash flows by suddenly having to pay import VAT before using or reselling products in absence of the EU Reverse Charge Mechanism.
Tipp: Not only the UK government but also private companies like Amazon are searching for ways to enable easy UK EU cross-border selling once again. Amazon recently adapted one of their FBA-Programs, the European Fulfillment Network. With the new EFN you can sell from storage facilities in one chosen European country to the UK and vice versa with Amazon adding the import VAT to the customer's bill at checkout.
Why It Matters
The importance of observing VAT rate changes in western countries for eCommerce sellers is evident. The changes will greatly impact VAT duties as well as profit margins. However, VAT rate changes in countries farther away might also be important. If the VAT rates change in countries in which you source your products, that might greatly impact your wholesale prices and, again, expected profits. Lastly, changes in UK VAT regulations should be observed by all online sellers whose customers are located in the UK. While the EU regulation structure was partly unified in 2021 with the introduction of the One-Stop-Shop, the UK now follows its own rules, though it continues to be one of the most important marketplaces in Europe.
hellotax is a tech company that builds automated solutions for VAT compliance. Companies of every size use our software to ensure their VAT compliance while selling online in Europe.