Post-Brexit B2B eCommerce: Changes, Challenges, and Solutions

Having waited four years to gauge the full ramifications of Brexit, B2B eCommerce businesses in the UK and EU are now facing an unprecedented period of transition, following the changes that came into effect as of January 1, 2021. What has and has not changed? What challenges do businesses now face? Are there any immediate solutions?

As B2B companies navigate uncharted waters of transition following the UK Brexit Referendum and a subsequent 1200-page post-Brexit trade agreement, many still find it difficult to understand the full implications of the impending and effective changes. Although there are currently many bridging arrangements and provisional agreements to help businesses smoothly transition, companies still need to grapple with the Brexit developments sooner rather than later.

Whether a business is in the UK, EU, or anywhere else in the world, Brexit will affect a lot of business operations following the changes in regulations, custom arrangements, duties, recruitment, data handling, and so on.

Understanding the compliance requirements, adopting cost-effective solutions, and streamlining existing processes will help B2B ecommerce companies avoid operational disruptions and remain competitive as they navigate the new post-Brexit era.

In this article, we’ll address such questions as what has and has not changed as the result of the UK leaving the EU, what challenges companies currently face, and if there are any solutions to the Brexit developments. We’ll also explain why, in times like these, a B2B marketplace might be an ideal solution for many B2B ecommerce companies.

Context: Brexit

The post-Brexit trade deal was secured in a 1,200-page document in December 2020 with changes coming into effect in January 2021. Thankfully, the parties have settled on a “zero tariff” arrangement, meaning that with very few exceptions, there are no duties or taxes levied on goods moving between the UK and EU. However, there’s certainly additional paperwork to attend to, but luckily, it’s not terribly onerous. With that said, there are still quite a few things that have changed.

What Has Not Changed

The order fulfillment under the Brexit deal has not changed for the following scenarios:

  • If the company and the goods sold are located in the UK, then the movement of goods within the UK is “business as usual,” without any changes.
  • If the company ships goods from the UK to non-UK destinations outside the EU, no immediate changes are expected.
  • There are no changes for goods sold and shipped from Northern Ireland to the EU destinations.

What Has Changed

There are changes when:

  • The company fulfills orders to the EU from GB (Great Britain doesn’t include the territory of Northern Ireland) as of January 1, 2021. Customs forms have changed.
  • Some of the courier companies have changed their parcel terms of service, including those between GB and Northern Ireland.

Let’s look at the rules for customs declarations for GB goods that are shipped to the EU. Although all goods shipped this way require declarations, it’s a relatively easy process if the merchandise value is less than 1,000 EUR. The declaration forms, CN22 or CN33, are available at the post office or can be downloaded from the Post Office website. Typically, the third-party software for the sales flow or dispatch management will generate postal labels automatically, so there’s nothing to worry about except ensuring that the software is regularly updated for any current developments.

For larger export consignments, companies need to have an EORI, or Economic Operators Registration and Identification number, which can be applied for and obtained here. For importing goods from the EU and other countries, besides EORI, the company needs to have a Commodity Code and an accurate valuation of the imported goods. There might also be tariffs payable on imports for countries outside the EU.

An important aspect of the Brexit business are the new rules of origin, which determine whether the merchandise qualifies for the tariff-free arrangement. Companies should not worry about the rules of origin if the items they sell and ship to buyers in the EU have been manufactured wholly in the UK, or if they are made from imported components that have been sufficiently processed within the UK. The tariffs might be incurred in case the company imports goods for sale from countries outside the EU or sells those goods without changing them significantly. It’s important to understand those nuances because, in case the company fails to pay the tariffs on its end, the shoppers might be subject to a duty payment upon delivery, which might result in returns with DDU (delivery duty unpaid) and, above all, customer dissatisfaction. Thankfully, there’s still some permitted leeway as the businesses adjust to the new rules; however, it’s best to avoid the unpleasantries and adhere to the new regulations as soon as possible.

While the dust was settling in the first weeks of 2021, some courier services suspended their shipments to the EU, causing some significant disruptions in the supply chains. Although the majority of shipment and fulfillment companies are now operating more or less without any suspensions and have returned to “business as usual,” it’s worth reviewing the courier services for any changes on a regular basis to avoid unpleasant surprises.

The most significant developments, however, apply to the VAT rules, which require a more detailed foray into the changes.

Since the UK is now out of the European Economic Area (EEA), cross-border sales are no longer VAT exempt. New levies have come into force since January 2021, with more duties being imposed as of July 2021.

Here’s the rundown of changes:

  • The UK left the EU Customs Union and VAT regime, meaning that the UK or foreign sellers now incur import VAT on imports into the UK or from the UK to the EU (up to 20%)
  • The tax exemption for small consignments of 22 EUR (15 GBP) or less is abolished. Sellers now have to charge VAT at the checkout on imported sales equal to or less than £135. Sales above this number are subject to the UK import VAT as previously mentioned.
  • HMRC requires marketplaces to become the deemed supplier for some imported sales not exceeding £135, meaning that it’s the marketplace’s responsibility to account for VAT and bill customers on checkout. Moreover, marketplaces are VAT liable for facilitated sales of any value by their non-UK sellers.

Since later in the article we’ll be talking about the viability of the B2B marketplace in the new post-Brexit reality, it’s worth paying particular attention to the VAT regulations with regard to marketplaces.

While, previously, responsibility for VAT accounting on sales through an online marketplace fell on the seller, now it’s the marketplace that ensures compliance with the VAT regulation. The rules potentially apply to any business that facilitates the sale and delivery of goods between third parties. The new treatment applies to scenarios where an overseas business sells to UK customers via an online marketplace using stock that’s already in the UK, with no monetary limits existing on such sales, and to situations where a business sells goods worth 135 GBP or less via a marketplace with goods being moved into the UK. In both scenarios, the VAT burden falls on the online marketplace rather than the seller or customer.

The following are other developments that require special attention:

  • VAT-registered overseas sellers need to change the way they account for VAT, which is likely to be covered by a zero rate when the goods are in the UK at the point of sale.
  • Sellers holding goods in the UK shall register for VAT (if they have not already) to enable the recovery of VAT on imports over 135 GBP.
  • If goods sold are not exceeding 135 GBP, then overseas businesses do not need to register for the UK VAT, since the VAT responsibility has shifted to marketplaces.
  • Online stores in the EU must now file a tax return and obtain an EORI number before they ship goods to the UK.

To ensure compliance with the above regulations, businesses should check if the new rules have been applied by either party in an online marketplace and if anything should be done to ensure they have.

On top of it all, starting October 2021, Visa and Mastercard will increase cross-border charges that will affect both the UK and EU merchants. (Mastercard, however, announced that the new rates will only apply to UK online purchases from the EEA.) More than likely, these costs will be passed on to the customer.

Common Challenges

Failing to comply with the new regulations may lead to the following consequences, to name just a few:

  • Considerable import tax costs and fines;
  • Goods held-up at ports, delivery delays, returns; and
  • Customer dissatisfaction.

The first obvious challenge is the added complexity of moving goods to and from the UK. As expected, supply chains will continue to readjust until all developments are evident. Thus, sellers, courier companies, marketplaces, and border agents are still adapting to new protocols, custom clearances, and tax changes. There are still fears of serious border delays akin to those that happened in the first weeks following the transition. While those fears are not groundless, six months in, things are looking more or less stable.

The second challenge comes with the mounting costs that have partly resulted from the increased administrative fees. Some of those costs are falling onto the end customer, who might now prefer to shop locally.

The new VAT rules are adding additional complexity and will probably require a few more months to completely adjust to. However, along with cross-border administration, taxes are best addressed with automation whenever possible, which should not be a problem, provided the business software is updated to reflect new developments.

Solutions to Common Challenges

Before we move on to the advantages that the B2B marketplace model offers in the new post-Brexit reality, it’s worth outlining a few general tips for e-companies to safeguard their business:

  • EU companies can reduce the tax burden by setting up an entity in the UK (unless it’s a small business with little funds to spare). Otherwise, it’s worth considering the appointment of an EU-resident intermediary or VAT agent, who can access the new EU Import One-Stop-Shop IOSS return, thus simplifying VAT reporting at the point-of-sale.
  • Offer payments with no interchange fees.
  • Openly communicate Brexit changes to buyers to avoid unexpected charges resulting in returns or complaints.
  • Stay up-to-date with further developments and upcoming changes.
  • Work along with cross-border specialists and a quality technology vendor to automate compliance.

B2B Marketplace as a Viable Alternative Business Model

We believe that the marketplace model is the most adequate solution to the common challenges outlined above. And here’s why.

Firstly, a B2B marketplace reduces the risk of supply chain disruption by engaging more suppliers and diversifying the range of sellers. Apart from adding flexibility, such practice safeguards the business from situations where there’s a problem with the original seller and guarantees that the ordered items are always in stock. Such a warranty secures a constant flow of goods through a B2B marketplace and ensures that the customer never faces a problem of out-of-stock inventory.

Moreover, engaging more suppliers brings other benefits, such as that of choice – to meet the increasing demands of sophisticated buyers.

Onboarding more sellers adds price competition into the bargain, which, in turn, drives cost-effectiveness for all parties across the whole supply chain. Without the marketplace model, it would be close to impossible to provide an abundance of “always available” choice to the customer without incurring monumental costs.

Since B2B marketplaces typically require a sophisticated ecosystem with a B2B ecommerce platform at its heart, marketplace operators will have all the necessary configurations to manage the new rules or, otherwise, can request the necessary updates from their technology vendor. With that said, it’s important to ensure the flexibility of the B2B marketplace solution, in particular, the B2B ecommerce platform, and its ability to integrate with third-party services and extend whenever necessary.

Virto Commerce is among such platforms. Moreover, Virto provides the expertise that ensures the B2B marketplace complies with whatever developments come forward.

Request a 30-minute demo

Marina Vorontsova
Technical author and eCommerce advocate