Brexit: Armageddon for online shopping

It’s becoming clear that Brexit will have serious implications for online/mail order trade between the UK and the rest of the EU. For the purposes of this article, the author has considered purchasing a pair of Gucci mid-rise tapered leg jeans from a UK-based online retailer. 

If purchased today (pre-Brexit), the jeans would be sold at the advertised price of €590 to an Irish buyer (including postage). The website would take care of the VAT. As it would be an intra-EU supply, no customs duties would apply. The postman would just ring the bell and hand over the goods, together with a smile and a friendly nod. (I have a very friendly postman.)

After Brexit, the UK website ought to be charging a lower retail price to an Irish customer (because UK VAT would not apply as the product will be an export). Prior to posting, the UK website will need to affix a customs declaration to the parcel (usually in a plastic cover). This declaration, for tax purposes, will include details of the product and its price. So, the €590 price reduces to €491, when the UK’s 20% VAT is taken off.

Ah, if only…

When it reaches Ireland, the product will be liable to Irish VAT at 23% and, perhaps (assuming a hard Brexit), customs duties. Let’s look at how that would be calculated:  

Customs duty (on jeans): 12% = €59. 
VAT: 23% = €126 (VAT is calculated on the price plus customs duties.) 
An Post handing fee: €10 (Yes, they charge for their trouble.)

That will bring the total cost of importing the jeans to €686, €96 above the pre-Brexit price. When the jeans arrive in Ireland, An Post will put a customs declaration sticker on the package to tell the postman and the buyer what they owe in taxes. The taxes and duties (€195 in this case) will be collected by a postman who probably prefers his usual job of delivering parcels than that of tax collector. The postman will not deliver the product to the buyer until the buyer pays for the extras. He might not have either the time nor the inclination to smile or nod, under the circumstances.

If the customs declaration form is not completed correctly by the UK seller, the parcel might not be delivered and may, instead, be opened at the postal sorting office so as to ascertain what’s inside and its price so customs duty percentage rate can be calculated and applied. To obtain the price of the goods, An Post may write to the buyer, seeking a copy of the purchase invoice, delaying the delivery a considerable amount.

It is perhaps the case that an Irish buyer would, after such an experience, consider making the purchase from a website in another EU country, so as to save on taxes and charges. Gucci is, after all, an Italian brand. 

Will customs/VAT post-hard Brexit apply to all parcels coming to Ireland from the UK? No. If the parcel is valued at less than €22, there will be no VAT. And once it is valued at less than €150, there will be no customs duty either. Happy days, but there will still be a requirement to have a customs declaration on the postal item. Otherwise, the parcel might have to be opened and the recipient written to, so that the duty/VAT can be calculated just to make sure it is below the threshold and, again, the delivery of your goods has been delayed.

Brexit will disrupt some UK/EU business models based on distance sales. Even if there is no trade deal between the UK and the EU post Brexit, there will still be VAT considerations and associated paperwork. For personal shoppers, it’s perhaps time to look at websites based outside the UK (or even go to a real shop). For UK-based online retailers, it might be time to think of relocating at least part of their business to another EU country. After all, Ireland has some very friendly postmen. 

Eoin O’Shea FCA is a practising barrister, specialising in commercial and tax law.