Brexit – an e-commerce business guide. The four things you need to know

How does an e-commerce business deal with Brexit?  

That’s a question I asked Carl Marsh, founder of ICEGRIPPER, a successful e-commerce business which sells products to help people ‘walk, work, run and play on winter ice and snow’  stop people falling over on ICE. 

This is not a political post about Brexit.  It’s a practical post to explain the new rules that small businesses in the now have to deal with when dealing with Europe – and vice versa. 

The post lists the key points of a conversation I had with Carl, about the challenges he’s faced and the knowledge he’s gathered so far dealing with the new rules and processes. 

I’ve known Carl for a long time, so I’m not surprised he’s found a way to deal with the new way of dealing with Europe. Dealing with suppliers, B2C customers and B2B customers.  

Delighted to say that Carl has been a Websand customer for a long time, and that he’s allowed me to document the content of our conversation.

The four things UK e-commerce businesses need to know after Brexit.

Carl has listed four key areas you need to understand and be able to deal with as part of continuing to trade with our friends and partners in Europe.  

1. Your new VAT liabilities
2. Dealing with duty payments
3. Your new shipping documentation and responsibilities.
4. The new process of buying from European suppliers.

Step 1 – Understanding and Managing your country specific VAT liabilities. 

You can continue to provide goods / services to B2C customers up to a certain level of export value.  For example in France it’s €70,000.  Once that limit has been hit, you need to register for VAT to continue trading in that country. 

And the revenue level is different for each county, so you need to know that, and manage it accordingly. 

Registering for the VAT in each country. 

The process is different in each country.  So again in France you need to go through a specialised French accountant.  That’s how the process works in France.  So that’s an extra element, responsibility and cost you need to deal with. 

And you need to know that for each territory you deal with.  

Step 2 – Dealing with the new Duty Payments 

If a package is above a certain value threshold, it will be held by local customs until the duty has been paid by the customer.   

Typically the level is approx €130.00 but it seems to be slightly different. 

The duty payment also depends on the commodity code for the product and the country of origin for the product you are shipping. 

And the commodity codes are vast.  For shoes, expect to deal with over 500 commodity codes.  Each one is slightly different, has different rules to deal with and a different duty.  

The customer at the other end is likely to have to pay an unexpected duty charge before they can collect the parcel.  But it’s very difficult to understand what that duty charge might be, so managing customers expectations has become incredibly difficult. 

A simple way to manage their expectation is to mail all EU customer orders received and explain they will be liable for duty and VAT, with a typical value of around 20% of the order value. Then ask them to confirm their order. This is reducing returns and the possibility of goods being held up in customs, getting lost and then the time consuming process of making postage compensation claims.

Step 3 – Shipping the orders to European Customers. 

What is an EORI number

You are going to need one of these.  The reasons why are best explained by the description of an Economic Operators Registration and Identification number (EORI) on the Gov.uk website. 

You need an EORI number if you move goods:

• between Great Britain (England, Scotland and Wales) or the Isle of Man and any other country (including the EU)
• between Great Britain and Northern Ireland
• between Great Britain and the Channel Islands
• between Northern Ireland and countries outside the EU

OK another thing to need to have in place to send orders to customers in Europe.  You can get one from the same website (click here).

However…, the website also states.

Which type of EORI number you need and where you get it from depends on where you’re moving goods to and from. You may need more than one.

Don’t get caught out on that, please read the small print.  

This is especially important because…

If you do not have the right EORI number, you may have delays at customs and increased costs, for example your goods may have to be stored until you get an EORI.

We’ll come to that….

The new shipping process

All packages from the UK to Europe now need to use a CN22 form is a document that allows customs to take control of a package shipped internationally.  

The information needs to be on the outside of the package and the CN22 label needs to include the following: 

• The shipper information, 
• the customer information, 
• the value of the order,
• Country of origin information, 
• the description and commodity code of the product within the order, 
• and your EORI number.  

The information also needs to be electronically provided to the courier / shipper used to deliver the package – e.g. Royal Mail.   

That information is used as a checkpoint against the information on the package during the shipping process.   

You also need to include the invoice information, which should also match the CN22 form data. 

If any of the information doesn’t match and customs spot it.  The parcel is likely to be opened, seized, or rejected. 

So to reduce your costs and get the orders to your customers as efficiently as possible  – it’s incredibly important to understand the new rules and get this information right.

Selling online to European customers  

Before we deal with step 4 which is B2B and import focused, let’s review an example Carl provided as an to show the process of selling online to e-commerce customers in Europe.  

In this example, consider yourself an e-commerce business that sells shoes to customers in Europe.  

My shoes are made in China – so that is the ‘country of origin’, and in this case, I’m selling to an Italian customer. 

Selling to a customer in Europe.  Before Brexit

The product has already been shipped into the UK – and therefore Europe.  So the country of origin issue has been taken care of. 

The italian customer places an order, including any shipping fees.  

The order is processed by my ecommerce store.  I  take the money and ship the product. 

Italian customer has the shoes delivered.  Is delighted and posts a positive review. 

Selling to a customer in Europe. After Brexit

If I am selling that to an Italian customer, I need to know the EU commodity code for the product I am selling.   

Italy has a strong shoe industry, so they have specific rules in place.  

The Italian customs will want to know the value of the items, the country of origin of the item and the commodity code of the item.  Based on that they will enforce the correct duty.

The customer can only get the parcel when they pay that duty. They would normally be contacted by the local postage partner of the postage company you use  e.g. Royal Mail don’t deliver end to end, usually they pass it on to a local partner, typically in this case Poste Italiene

It’s very difficult to advise the customer exactly how much duty they will need to pay, so we are using an average figure based upon experience to date – hence 20%

A huge new barrier to entry.  

Step 4 – Importing from Europe

The Brexit changes are not just about businesses selling to European customers, the rules of buying from European providers have also changed.  

As a result of Brexit, the process of placing an order and getting the goods from your European suppliers is now a bit more complicated. 

No more picking up the phone, placing the order, and then the goods appear a few days later.  

You now have a more complicated process to deal with.  

What are Incoterms

Orders are now subject to INCOterms, that’s the international chamber of commerce rules.  If you are a freight forwarding company or used to negotiating decent sized trade deals you might have already been aware of these terms.  

Now it’s another suite of terminology for you to understand and adhere to, see this excerpt from their website

The Incoterms® rules feature abbreviations for terms, like FOB (“Free on Board”), DAP (“Delivered at Place”) EXW (“Ex Works”), CIP (“Carriage and Insurance Paid To”), which all have very precise meanings for the sale of goods around the world.

Find out more by visiting the Incoterms website. 

Re-establishing existing European business relationships

In Carl’s case, the new structure has meant he’s had to reset a long standing business relationships, with established suppliers and partners.  

He’s had to re-establish or introduce the following steps with his French provider in order to comply with the new rules.  Extra hassle for Carl, and for his supplier. 

• Confirming new terms for the order under Incoterms. 
• Agreed new payment terms for doing business.
• Defined a new shipping arrangement – Carl decided to arrange delivery himself from the French provider, adding extra fees to his typical costs. 

Carl also needed to get more information from his French supplier.  He needed their EORI number, their French VAT number, the commodity code for the products being provided

He also needed to share the information back to them about ICEGRIPPER so the goods would clear customs as part of delivery.  

Plan for new costs.  Import and VAT Duties to pay

Carl also had to pay VAT and Duty on the UK side as the product was imported into the country.  Shipments are no longer InterEuropean they are cross territory, so are now subject to VAT and Duty.  

In Carl’s case that meant an additional cost of £1200 on a €5000 order. 

Although some of that is the VAT element which can be (reclaimed/offset as an expense against income)That’s another unexpected hurdle that needed to be cleared and a potential cashflow killer for a small business. 

Which rules apply to your ecommerce business?   Check the current UK import rules

That’s been Carl’s experience, but depending upon what your e-commerce business sells, different rules probably apply. 

For full details on for the current rules on the UK importing process see https://www.gov.uk/import-customs-declaration

Dealing with the run up to Brexit.

Carl had to deal with all of this whilst waiting for the deal to be agreed.  If you recall businesses had very little time to react over Christmas to handle any of this. 

This was chaos when Brexit first happened as the new rules came in overnight and everyone struggled to understand what did and did not apply .  Resulting in a huge backlog of packages and huge shipments moving back and forth.   

To deal with this Carl stopped shipping to Europe. Shutting down all his Amazon channels for European shipments, to avoid unnecessary delays, additional costs and of course potentially disappointing customers. 

ICEGrippers process for dealing with Brexit. How they handle European customers in 2021 

For Carl, he wants to continue to sell to his European customers.  They are an important part of his business.   But he doesn’t want to have to deal with a load of rejected orders from unhappy customers.  So he’s developed his own process, which involves

 Carl is sending a message to the customer to inform them that they are likely to be charged duty.  If he doesn’t get agreement from the customer within 48 hours he will cancel the order.   

It might seem a bit extreme but Carl feels he has no option. 

Now applies to all orders of all values

Dealing with the new terms of business after Brexit

Based on Carl’s experience, those are the four steps your ecommerce business (or any business really) needs to follow to be able to safely trade with Europe after Brexit. 

Remember, the same apply if you are a European business looking to trade with the UK.  Brexit means the barriers are up on both sides. 

It’s still early stages and we are in Brexit transition, so the rules are likely to move further in the coming months.  As they do, we’ll check in with Carl and update this post accordingly. 

In the meantime, to help you further, have a listen to the audio below.   

And if you are experiencing any of the Brexit related issues raised in this post, Carl is the ideal person to talk to. You can reach him through the contact page on icegripper.co.uk

Finally, please share this post with any relevant members of your community or network, the information contained in here might really help them safe some money or make some better business decisions.