Published by Jessica Weisman-Pitts
Posted on September 8, 2021
4 min readLast updated: February 12, 2026
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By Anh Carter, Senior Director, VAT Compliance at Avalara
Introduced on 1st July, the latest EU VAT reforms impact retailers with “third country” status, which crucially now includes the UK following Brexit. Already, this has caused a huge shake-up in the way British businesses trade with the bloc.
An estimated 26,000 ecommerce sellers have had to register to pay VAT for the first time via the new Import One Stop Shop (IOSS) system, a new VAT scheme which will create a fast-track for quick customs clearance following the new mandate to charge VAT at point-of-sale for consignments not exceeding €150. Many of those 26,000 businesses will have been feeling the pain of compliance already, as the first IOSS filing happened at the end of August.
The reforms have been implemented to boost cross border online trade and promote trade across the EU’s single market by reducing the number and overall complexity of compliance regulations. The changes also aim to tackle the huge €5 billion ecommerce VAT fraud gap, with member states seeking to close import loopholes and co-opt online marketplaces into collecting VAT instead of sellers.
Although the reforms will give rise to long-term benefits, above all simplifying the tax process for sellers, the post-brexit era has heralded a wave of legislation that has left many businesses feeling overwhelmed by the practicalities and logistics of selling internationally online. Even after the filing deadline on 31st August, businesses are still getting to grips with the changes. And this comes at a time when online shopping is more popular than ever, with many businesses making their ecommerce debut.
Small and medium sized businesses will be facing the toughest challenges, given they can’t tap on tax consultants and lawyers the way the ecommerce giants can, to understand the impact of the change on their businesses. They will also be the most affected by the removal of VAT exemptions for SMEs and shipments not exceeding €22, which covered the sale of low cost items.
These businesses will have had to quickly get their house in order and develop an understanding of the upfront admin involved in the changes – from understanding the classification of products sold, to labelling VAT charges on products at the point of sale, and overhauling reporting systems. It’s an ongoing shift that won’t be easy – or cheap; The average business will likely take a £8,000 hit to build the necessary record keeping ahead of implementing IOSS and to upgrade their web stores to calculate the VAT due on the sales of their products at the rate applicable to the country where the customer is located.
This will be particularly difficult in the volatile post-pandemic economic climate, when many sellers have been operating at a reduced revenue for some time. What’s more, companies may not have had core competencies to adjust to these reforms, which will have required investment of time and resources to train staff. The risks of compliance failure include fines, double import tax/duties and the possibility of shipments being blocked at the border – consequences that will also impact customer experience and seller reputation.
But despite the initial uncomfortable adjustment period, businesses that manage to successfully adapt will be sowing seeds for expansion going forward. The introduction of the IOSS system means that businesses can now make one single VAT return instead of a possible 27 separate filings in as many as 6 different currencies, which will open doors to huge growth opportunities with the world’s largest trading bloc.
The next few months will be crucial for businesses now that the first major filing deadline has passed and the true effect of the changes have become apparent. There will inevitably still be adjustments to be made along the way, but businesses that have set up processes successfully will have a crucial headstart and will be positioned to take advantage of the opportunity for British businesses to lead the world in ecommerce and become major exporters, despite the UK’s third country status post-Brexit.
The EU VAT reforms, effective from July 1st, impact retailers with 'third country' status, now including the UK post-Brexit. They aim to simplify compliance regulations and boost cross-border online trade.
An estimated 26,000 ecommerce sellers have had to register for VAT for the first time under the new Import One Stop Shop (IOSS) system.
Small and medium-sized businesses face significant challenges as they lack the resources to hire tax consultants and lawyers, making it difficult to navigate the new compliance requirements.
The reforms are expected to simplify the tax process for sellers, ultimately benefiting businesses by making compliance easier and promoting trade across the EU's single market.
Businesses need to adapt quickly to the new regulations, as the first major filing deadline has passed, and they must now understand the true effects of these changes on their operations.
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