IOSS, EU Shipping and z80kits

March 12, 2024 By Spencer Off

What is IOSS

In June 2021 the European Union introduced Import One Stop Shop (IOSS). The IOSS moved the burden of collecting VAT from the local carriers and made it the responsibility of the external website where the sale took place. The VAT would then be paid by the website to the tax office in whichever EU country where the goods were delivered. The VAT exemption for goods below €22 was also dropped.

Items coming in to the EU would have an IOSS number on the packaging. This can then be matched up with the electronic paperwork so that the value of incoming goods and VAT is known.

Primarily this was aimed at online marketplaces such as eBay and AliExpress, but applied to everybody selling in to the EU from outside.

Marketplaces like eBay and Etsy had the infrastructure that made it easy for small retailers outside the EU to sell there and the appropriate VAT would be charged and paid to the right authority. Large companies that sold directly also had the resources to register with an EU tax office.

As a UK based seller that sold through Tindie, an online marketplace, this would affect me. Around a third of my revenue came from customers in the EU. The last thing I wanted was for any of my customers to get unexpected charges or VAT demands. So for a few months prior to IOSS going live I asked when the changes needed would be implemented. Sadly Tindie were not prepared to go down this route.

The start of Z80kits

With Tindie being unwilling or unable to ensure my customers didn’t get messed around, I looked in to resolving this myself. It would not be possible for me to charge VAT within the Tindie framework, so was born. Most ecommerce software has the ability to charge VAT at the appropriate rate. That is the easy part. Each EU country has a different VAT rate, ranging from 18% to 24%. This can be added to the item cost based on IP address.

VAT Payment

This is where things get tricky. In order to pay the VAT that I have charged my customer, I must pay it to the HMRC equivalent in their country of residence. To do this, I need to register for VAT in at least one European Union country. And to do that, I need an office in at least one European country. (I used to have one. Before Brexit. But that is another rant for another day.) As a company of 1 person, I simply don’t have the resources to do this.

Luckily there are a lot of brokers out there that will act as the middle man. They give me an IOSS number, I charge my customer VAT, I pay the VAT to the broker, they pay it to HMRC Belgium (or wherever) and everybody is happy. Obviously there is a cost for this. There is always a cost. This varies by the amount of items you send, the value of them and the type of carrier you use. I investigated a lot of them, and prices varied between expensive and ridiculous.

DHL To The Rescue

After comparing a lot of options, DHL matched my needs the closest. If I ship via DHL then they can handle all the VAT payments. And as a bonus, my customer gets their kit in 1-2 days! Sure, the shipping cost is quite high, even for the cheapest shipping. And the cost to me for the privilege of paying the VAT due is an extra £16 (Plus VAT!).

So that was who I chose for all my EU customers. The expectation was that after a while, with a good track record, I could negotiate a better rate. Or maybe cheaper options would be made available from Royal Mail or other companies. At the start of September 2021, was launched!

Last Two And A Half Years

Since the launch, sales have dropped right off in the EU compared to my Tindie sales previously. This isn’t totally surprising, but the level of drop is. For customers making a large purchase, paying around £45 for shipping might not be too out of proportion. I do not pass on the £16 DHL fee, but on a large order I make enough profit that I can absorb that.

However, for small orders, it is a different story. On a £20 module the shipping cost is still the same. When the shipping is more than twice the cost of the goods, this is unacceptable to most people. Which is actually a good thing for me. Because it still costs me £16 for the privilege of making the VAT payment. On a £20 module I do not make £16 profit to start with! There have been a few such orders where I am financially worse off for making a sale!

Doing The Right Thing

Despite the grief and stress this has caused, I have taken some comfort in knowing I am doing the Right Thing. This is how things should be. I am playing by the book. I might be losing money on some sales, and I might be losing customers, but VAT is being charged and paid to the appropriate authority just as it should be.

Doing The Other Right Thing

Whilst I had been keen to keep to the regulations, it seems like the rest of the world has just ignored IOSS. Plenty of UK customers are still shipping to the EU via Royal Mail with no IOSS documentation. Sometimes the customer gets a VAT demand from the postman, maybe with a small fee. And they pay it. Sometimes they don’t get a VAT demand. But things carry on. Pretty much as they did before.

It has taken a lot of soul searching to come to this conclusion, with a loss of some customers, loss of money, and wasted time. But, from April 2024, I will no longer be charging VAT on my products. This means that I can ship to the EU via Royal Mail for around £6. Sure, it will take a little bit longer to arrive. It may also be accompanied with a VAT demand. Possibly with a handling fee too.

For EU customers this will represent a saving on all of my products, from the cheapest components right up to the biggest kits. DHL shipping will still be offered for those that want their kits quickly, although it will be without the VAT being paid.

I hope you understand my reasoning behind this. I am not against the EU having their rules and regulations (even if they don’t cater to businesses like mine). And I am not trying to circumvent the law or advocate tax fraud. Collecting VAT on behalf of the EU is still the job of the mail delivery companies in each country.