Carlie: Hey there, it’s Carlie with another episode of the Expat Focus podcast.
If you live in the UK or in the EU, you’ve no doubt noticed an unwelcome trend in added fees and charges when receiving parcels from online shopping. Even parcels sent from family and friends abroad are turning up with added fees to pay.
There’s a lot of confusion about what these fees are for, when they should be applied, and why they’ve even come into play. And if you’re an expat business owner, you might be wondering what you can do to try to minimise the pain of these fees for your customers so that they keep coming back and ordering from you.
My guest today is Matt Harrison, a Sales Director at tax compliance firm, Avalara. He’s going to explain where these fees and charges have come from, when we have to pay them and why, if customs forms are filled out correctly, it should still be ok to send parcels to your friends and family overseas for Christmas.
Matt, I want to start with a quick recap. Can you tell me about the law changes that came in on the 1st of July, 2021 that relate to selling in and out of the EU?
Matt: Yeah, of course. Like I think firstly, I know there might be many expats out there that know what some of the acronyms are going to be, but it’s pretty worth me explaining some of these acronyms first. So you’ve got the import one-stop shop. You’ve got the one stop shop and then you’ve got the marketplace facilitate deemed facilitation. So, those are the three kind of areas we’re going to cover.
Carlie: And that’s OSS, IOSS and…is the other one an acronym?
Matt: It’s not really an acronym. It’s the deemed supplier, it’s yeah. It’s mainly aimed at marketplaces, but yeah, it’s a deemed supplier element of it.
Carlie: And when we say marketplaces were talking about websites like Etsy, Amazon, eBay.
Matt: Yep. Yeah, yeah.
Carlie: OK.
Matt: And not your typical e-com platforms. So not the likes of Shopify, Magento…
Carlie: Your own online store.
Matt: Yeah, not your own online store. Just the marketplaces.
Carlie: Okay, I’m ready.
Matt: Yeah. So strap yourself in. So, input one-stop shop, this is a brand new concept, so this is an introduction. So this is a simplification, but it’s an introduction of something completely brand new to the EU. And so what this relates to is when a business ships goods from outside of the EU directly to a consumer inside the EU with a consignment value below 150 euros. So when I say consignment, that is either one good or a collection of goods-
Carlie: Like a parcel value?
Matt: Yeah, that is below that 150 euros. And that is not including any shipping charges because the shipping charges sit different. So it’s the value of the consolidated goods need to be below that 150. And so part of the introduction of IOS which many people might have already felt this change is the abolishment of the low value consumer threshold of 22 euros.
And so previously, prior to the 1st of July, businesses were able to send goods into the EU and when they were below 22 euros, the consumer would pay no VAT. Now, when you receive those goods, the VAT is applicable which means that potentially you are paying that extra between 20, 25% potentially depending on where you’re located. But that extra charge is going to be relevant to you when you’re receiving those goods. So that’s one really, really important change from a consumer perspective. So like some of the businesses that have been hardest hit are things like books or like low value electronics and stuff like that. Those are the ones that are kind of having to reconsider, obviously their pricing. And then obviously we’ve got a really competitive market already.
But part of IOSS, like there’s some elements that are good for all parties. So it’s good for the consumer, it’s good for the business and it’s good for the carrier. So one of these is a green shipping channel. And so it’s, I say green, I need to put the, I’m-
Carlie: Not talking about a green ocean.
Matt: No, it’s basically the quickest shipping of parcels. So at the moment, any parcel or price (inaudible) 1st of July, any parcel that went through that would need to be paid before it can be released by customs. And so depending on the Inco terms that the business has used will dictate whether who necessarily pays the VAT. So they say on a DAP basis then the consumer is going to have to pay, which is the one that everyone’s worried about. Like as a person, maybe an expat that’s located inside Spain, you’re going to make sure that those goods are, don’t want to come with any extra charges, they need to watch out for anything that’s kind of shipped on that model.
But IOS basically means that the business that you’re buying from has to charge you the VAT upfront. And that means that when it goes through customs, there’s no VAT to be paid to the customs office. The VAT is actually paid by the business either through an intermediary or not through an intermediary a month after the transaction has happened before the July transactions it’s reported it’s sometime in August. The benefit for that is the consumer knows, if they’re an IOSS business, they know they’re not going to get charged any extra. For the carrier, it’s better because there’s less likely that the goods are going to be held up at customs and they may be sent back, or for any reason there’s less likely of that happening. And then for the seller, they’re not gonna receive any additional charges. So it’s great for business, carrier and consumer.
And then what’s great about this from a business perspective as well is that there’s simplified reporting and simplified payment, so you can sell to all those 27 different countries and you only have to make one monthly return at one monthly payment. So, great ability that if you’re not already selling to the EU, great chance to be able to expand your sales with low compliance costs and obviously grow your selling capacity in that market.
Carlie: I mean, you said before that these changes are great for the seller and the consumer, but I think from the consumer’s perspective, a lot of what expats in the EU have felt since the 1st of July has been more pain on the fees and charges front for receiving parcels. Is that very true as well?
Matt: Absolutely. And that’s the thing, like where we’ve introduced that hard border-
Carlie: Because of Brexit?
Matt: Because of Brexit, it’s then brought a whole range of complexities into play. Many consumers won’t consider this, but originally, if you were able to ship from the UK directly to a consumer without having to deal with customs, it means that there’s no extra charges on the business. Now that business has to pay the carrier to potentially clear the VAT. They have to pay the carrier or someone else, some (inaudible) that party to fill out customs declarations. So the cost of getting those goods to the consumer has exponentially gone up for those guys.
Carlie: And by carrier you mean DHL, DPD, FedEx?
Matt: Yeah.
Carlie: Right.
Matt: And so what that potentially means is that those businesses have got to consider raising their price, losing profit margin or changing their shipping models. So it might be that originally they were sending those goods and they’ve decided, actually we don’t want to be involved in any customs and VAT charges, we want to put that on the customer. So then they’ve decided to put that model to the test to see how their customers would get on. And that’s why the extra charges have potentially happened because they’ve decided that it was too difficult to set up either DDP or IOSS, because they’ve just gone down the route of the consumer swallowing the costs.
Carlie: Customer feels the pain, yeah.
Matt: Yeah, the customer feels the pain, and it might be that they’ve got a plan to not have that charge in the future but obviously in an issue instance, the customer is going to feel the pain. July 1st, you order some goods and they come, there’s going to be VAT on them because of the low value consignment (inaudible) And now they’re kind of and they, and depending on whether those goods and how those goods could be sent and the income terms they’ve been sent on. But yeah, that’s why people have been feeling it more than before.
It’s important to look when you are buying a product about whether there’s going to be extra charges. The difficulty is some businesses don’t let you know. So, we see it on a regular basis. So we help loads of businesses that want to have that kind of display, that at checkout. So if they want to inform their customers of the VAT amount, the duty amount, we have the ability to be able to help them educate their customers and let them have a good buying experience. Because that’s what buying goods is about now, it’s having that good buying experience. You don’t want to have a horrible refund experience or a horrible experience where you received those extra charges. You want to be able to create a better customer experience so they come back to your website again and again, in order for the remainder of time they want your products.
Carlie: Oh, Absolutely. You know, sadly, some of my favorite UK stores are now on my blacklist. I know I cannot order to France from these stores because the charges are insane and it’s just not worth it.
Matt: Exactly. And that’s where it becomes really, really difficult because people are either having to look even harder to find the companies that are going to be able to supply them without those extra charges. And it’s also the comparison element of it. So if you’re comparing two websites and you’re going, oh well theirs is cheaper than this one, theirs is like 20% cheaper. If it’s 20% cheaper, it could be that they aren’t paying the VAT on your behalf. And then you might have to have those extra charges.
Carlie: So it evens out in the end anyway, really.
Matt: That’s what I mean, yeah. So you could be buying a product cheaper and just having to pay those charges at a different point. So, yeah-
Carlie: Compared to the business that’s choosing to absorb the charges, but then just raise their prices to compensate for the fact.
Matt: Exactly.
Carlie: Yeah. Matt, I want to ask you some common questions from Expat Focus listeners because especially in the lead up to Christmas, the time of recording, we’re in November, the fees to receive parcels from friends and family abroad may end up just not being worth the trouble. So I’ve got a few questions here.
One type of post in our Facebook groups that we see a lot is for example, I’m being asked to pay 10 euros in duty and fees for a gift worth £20 sent for my birthday from the UK, but aren’t gifts under £45 in value supposed to be free of charges? This probably touches on what you mentioned before about the exemption no longer being there.
Matt: No, so this is actually different.
Carlie: OK.
Matt: So this, so the exemption for gifts. So, what we were talking about there is for a business to consumer related transactions.
Carlie: So when you’re buying something from a shop?
Matt: Yeah. When you’re buying a gift or sending a gift, it’s completely different and there’s different rules. So they are right that sending a gift does have a 45 Euro exemption. What tends to happen is that when you’re buying a gift from a business to send to a consumer in another location, you need to make sure, there’s like certain elements need to be, so the gift part needs to be ticked when the goods are shipped. So if that’s not ticked, it’s then treated as a normal business related transaction which then means that they’re going to want to receive the VAT on the other side, when the goods go to that arrival country. So-
Carlie: Step one, mark your parcel as a gift.
Matt: Yeah. Because you have, the problem is if you’re buying from a UK website, so you’re buying from a UK website to send to your friend in France or Germany or Spain, yeah. And you don’t necessarily, you’re not going to be the one filling out the customs declaration forms. So you need to be incredibly clear to the business you’re buying off, look, this is not for me, this is a gift so this needs to be tagged as a gift when you’re filling out the customs declaration. So that’s the thing. So where that person’s probably receiving those extra charges, that’s probably because someone’s bought a gift for them from a website, it’s been treated as a business to consumer transaction and not someone actually sending a gift.
Carlie: But we’ve actually also had situations where somebody’s grandmother has sent their child a gift and they’re being asked to pay fees worth, you know, half or more of the value of the gift inside the parcel. It’s been marked as a gift. The value is 20 quid or something not overly huge. Where is that fee coming from?
Matt: That’s interesting because if it’s marked as a gift and it’s below the exemption threshold of 45 euros, there should be no extra charges,
Carlie: Nothing from the carrier, nothing from customs, nothing from VAT?
Matt: Yeah. The only thing that could be on there is any carrier charges. Because if you nominate that the person receiving the goods has to pay the carrier charges, which is very unlikely. I mean, it’s very unlucky. Usually those are paid in advance.
Carlie: Grandma would have to be a little bit mean to want to do that.
Matt: Yeah. Generally it comes down to the customs declaration form, either not being filled out correctly or not being maybe processed correctly or something along those sorts of lines.
Carlie: Okay.
Matt: So, if it’s below that value, you contest, that’s something where you would then contest it and say, look, you’re asking me to pay for something and it’s a gift, it’s been ticked as a gift.
Carlie? So it is worth challenging it in that situation?
Matt: Absolutely.
Carlie: OK.
Matt: If you know it’s a gift and you know, the declaration has been filled out correctly. Because I think nine times out of ten people think it’s filled out correctly and it’s not ticked as a gift. And that then becomes the problem because if it’s not, then they won’t consider it for that exemption threshold.
Carlie: Now Matt, my mom’s been sending me care packages from Australia for the last eight years. And we got into a good rhythm, you know, always gifts and they were gifts. Our gifts. Always marks the value of the parcel, possibly a bit lower than it is.
Matt: Yeah.
Carlie: And you know, 90% of the time I’ve received my parcel and haven’t been asked to pay anything. But just the other day, I was asked to pay on a parcel valued at 25 Australian dollars. And I thought, ah something in the water has changed here.
Matt: Well, it might be. So what they do is, they can’t check every parcel. Like it is just impossible for them to check every parcel. So what they do is they do a spot check on each of them.
Carlie: Right.
Matt: And so it might be to this point in time you’ve not been spot checked. And so if they deem the value of the goods, so you may deem, the value may have been purchased 25 euros, but-
Carlie: She’s not sending me hundreds worth of stuff.
Matt: But if they deemed the value above the 45 euros-
Carlie: Right.
Matt: Cause it’s then, what is the market value? So if they’ve given it an intrinsic value, but if they need the market value to be higher than they may be wanting to charge you those extra fees. So that’s where that potentially could come in.
Carlie: And another point that comes up is some people have simply marked their parcels of having zero value because, well, it’s a gift.
Matt: Yeah.
Carlie: It’s not worth anything. Is that a thing though? Can you mark it as zero euros or pounds or dollars?
Matt: No, because everything has a value.
Carlie: Okay.
Matt: Everything has a value. So you can never mark it as zero. So that’s even more reason why they might flag that up and be looking at that gift in a bit more detail if you’ve flagged it at zero. And it’s incredibly important as a business to not do this, because potentially that can be considered as tax evasion, because VAT is due. Even though you’re giving a gift to a consumer, the VAT is still relevant and still needs to be paid.
Carlie: This was actually going to be my next question, because it’s not uncommon, especially when you’re buying or selling products on marketplaces, such as Etsy, for the seller or the customer to be like, hey, do you mind marking my parcel at a lower value so I don’t cop any charges? As a business owner you might want to do that to maintain a good relationship with your customer, but is it a good idea to do that?
Matt: Absolutely not. So like, the problem is that if that happens and you get caught, then your EORI number will be then, potentially not blacklisted, but you will then be under very much scrutiny going past. So if you then continue to send parcels, you’ll be looked upon more than any other business. So like, once they catch you and they find out you’re doing that, like, it’s all fine until you get caught. And it’s the same as all of those things
Carlie: All well and good until someone notices.
Matt: Exactly. But realistically, it can be damaging to your business, because if you decide to do that, and then you get caught, then obviously not only is it a reputation thing, but your parcel’s gonna probably take longer to get through customs. They’re going to be checked more. You may not then be able to meet the delivery times you’ve said to the customer. And so it can have that knock on effect throughout the business. Like it’s trying to sell those goods and sell future goods. So you want to make sure that you’re declaring those the right value, because nothing ever has a zero value. It’s what’s that intrinsic value, what’s that market value that you’re giving to those goods.
Carlie: So what if you have a situation, for example, mum sends me a box of Christmas presents. Customs decides that I need to pay an exorbitant amount of money for them to release that parcel to me. And I’m just like, this is not worth it. And I decided to refuse the parcel. In those situations who cops the fees? Cause I assume they don’t just disappear.
Matt: Yeah. So who cops the fees is then (inaudible) on a business side, it’s then the seller.
Carlie: Okay. So if it’s written to sender and you bought from a business, the seller has to pay the re-return import charge?
Matt: Yeah. So what they have to do is they have to pay the carrier to obviously ship the goods back to where they originally came from. And whoever was filling out their customs declarations, again, they have to fill for a second customs declaration. So, from a seller perspective-
Carlie: It’s a pain in the ass.
Matt: They want to avoid that as much as possible. Yeah. Cause realistically, anytime someone returns that product, it’s money out of their back pocket. Because if they don’t reorder, then that’s money lost. So reducing the amount of returns is really critical to a business. But on the consumer side, grandma’s going to be picking up those fees. Because if they want the goods back, because obviously what can happen is if you say you don’t want them and grandma says, I don’t want them either-
Carlie: So is it like a lost property for, like parcels that nobody wants?
Matt: Yes, they potentially, they get destroyed at customs.
Carlie: Oh, that’s really sad.
Matt: Yeah. So it’s quite regular for businesses to do this because if you imagine, if you’re shipping an item that’s cost you five pounds and you’re selling it for say 20 and the customs charges-
Carlie: Are 18.
Matt: The customs charges the customer, they said, no, I don’t want to pay it. But, you shipping that back and filling out the customs declaration form, like, you’re going to say, nah, I don’t want this. So, they’ll probably not likely actually want that good shipped back to them and maybe ask for customs to destroy that goods on their behalf. So you’ve always, things come into play when returned goods happen.
Carlie: Matt, I just want to end with your best advice as we head into Christmas season for people selling goods into the EU and for families wanting to send parcels and expats in the EU wanting to receive festive parcels. What is your best advice? First of all, for sellers to minimize the pain and the headache for themselves and their customers when it comes to these charges.
Matt: Okay. So there’s a couple of different things. So firstly, let’s talk about it from the consumer side, because I know we’ve got loads of people on here that’d be incredibly interested about how they get those goods over and make sure that everything’s filled out correctly. That’s the key element. If you’re going to buy from a business and you’re going to make sure those goods are going to a consumer, let’s say in the EU, you need to make sure that the company you’re contracting with knows that it is a gift.
Carlie: This is where I’m, say, buying from M&S and sending the gift to my sister in Spain.
Matt: Yeah. You need to make sure that M&S know that when they fill out the form, that is classified as a gift and there’s no extra charges on top. Now it could be that M&S are registered for IOSS and they’ve already incorporated the charges.
Carlie: They may have, I’m not sure.
Matt: It could be. So, it’s about understanding like, firstly, like when you ship the goods, is there going to be extra charges? Because if there is, I want to make sure that you’re tagging that as a gift rather than-
Carlie: And to be fair, I am noticing some websites now putting a banner on their homepage being like, we cover the VAT charge, there will be no import charge for you if you buy from us. So they’re cottoning on to that being a good idea.
Matt: Yeah. So that’s one thing. And the same with when you’re sending goods. So you might go to your local shop or go and think, oh, actually I want to send a couple of items. I’m going to then put that in a package and send to my friend in France. You want to make sure that that gift box is definitely ticked because if not, they are going to receive those charges. So when you’re working with those carriers, make sure that that gift box-
Carlie: Marked as a gift-
Matt: Is definitely there. And obviously again, don’t play with them. Don’t play. If you don’t know what the market value is, obviously it’s a little bit more difficult, but if you know, you’re trying to send a hundred pound item and you’re going, no it’s not a hundred pounds.
Carlie: Don’t mark it as a fiver.
Matt: Yeah. So, gifts are supposed to be occasional. Like the whole point of the gift is not that you send them a gift every week. Like the whole gift element is it is a gift. It’s for a birthday, it’s for an anniversary, it’s for something else. But it’s that it’s occasional. And you can send multiple packages. So if you’ve got like a dad, a mom, a sister, a brother, you want to send something to, you can send four separate packages for those four different people all under 45.
Because if you’re trying to send that all in one go, you’ve got to think about, well, what’s better? What’s the lesser of two evils? Am I going to pay more in shipping? Or are they going to pay more in VAT? And maybe you want them to pay more in VAT but no, realistically that’s all it. That’s what it comes down to is just making sure that when you’re ordering from business that you make sure that it’s a gift. And then obviously when you’re sending those goods yourself, make sure it’s tagged as a gift.
Carlie: Split your parcels up if the value is getting a bit high.
Matt: Yeah,, exactly. And when you’re buying goods, understand who you’re buying from. So when you’re buying those goods from a website, try and have a look to see if there’s anything in their terms and conditions or anything about customs and duties charges, because generally they will have it somewhere. They might have it buried in their terms of conditions. Some have it straight underneath the checkout to say, look we don’t cover any VAT and duties charges-
Carlie: That’s on you. Yeah.
Matt: Yeah. So the good websites will tell you or include it as part of the price or like do all that sort of stuff. Yeah, so that’s one thing as a consumer look out for, make sure you’re looking at what websites you’re buying from, what those valid duty charges potentially could be.
And the last thing is, as a business, if you are starting to look at trading globally, like IOSS is is a great way to kind of simplify like your compliance, create massive expansion into loads of different countries that you maybe weren’t originally selling to, and do so at a minimal effort. That’s the key thing to get across. Like I think for OSS and stuff like that, I mean, it’s a no brainer to make that decision because you don’t want to be registered in loads of different countries. But for IOSS, like a lot of people are worrying about changing their current shipping model to IOSS because it’s new and they’re not sure how it’s gonna benefit them. But like, I’ve talked about loads of the benefits, there’s even more than that. Like you can check out our pages and our, like, frequently asked questions.
There’s loads of stuff on our website, but realistically it is just gonna be so much better for businesses. They get, like quicker shipping, no charges for the customers so that potentially goods are going through and not getting stopped at customs because of the intrinsic values and stuff like that, people putting the wrong values on. But that’s the thing with IOSS, it’s going to take a while to fish out some of the teething problems. Cause there has been teething problems with it, but on the long-term scale of it, it is really going to be good for businesses around the world and inside the EU to be able to maximize their selling capability to consumers.
Carlie: Matt, thank you so much for coming on the podcast to explain VAT and customs charges and provide a bit of advice in the lead up to Chrissy about how to handle those parcels.
Matt: Well, thank you very much, Carlie. Thanks for inviting me today.
Carlie: That’s it for this episode, if you’re a business owner, you can find out more about Avalara’s services on their website – avalara.com.
Expatfocus.com is our website and you can head there for our free guides and other resources to help you move abroad easily. Don’t forget to subscribe to the podcast, however you like to listen, and I’ll catch you next time!