Brexit Impact on Ecommerce – Will ‘No Deal’ Brexit Decline Ecommerce?
Since the latest Brexit news has erupted – when UK Prime Minister Boris Johnson states to leave the European Union on October 31, 2019 – many people have shown their concern over future of ecommerce business in the UK after Brexit.
I have not pondered on this issue until I start receiving concerns from the online sellers on the impending ramifications of Brexit on delayed deliveries and surcharges in tariffs to sell in the UK.
To understand address these issues, I conduct a little research to answers all the concern of ecommerce entrepreneur on Brexit.
What would happen to the UK based seller after Brexit, and what changes would occur in the ecommerce industry.
But, before that let’s understand the history of Brexit
What is Brexit?
The British exit from the EU (European Union)
What is the European Union?
The European Union is the economic and political union of the 28 European countries.
Here is the list of 28 members countries of EU
- Republic of Cyprus
- Czech Republic
- The UK.
It started in 2016, when British Politian conducted a referendum, after having an extended argument in the British parliament, to decide either leave or stay in the EU. The UK votes for the leave as it received 51.9% against 48.1% in favor of staying in EU.
The UK was supposed to exit from EU on March 29, 2019; however, due to the impasse between the British parliament and the UK, it postposed.
The Withdrawal Agreement has to be approved before the UK’s departure so that EU and UK can agree on a trade deal that gives businesses in Europe a time to adjust.
However, that does not seems to happen. By looking at the current situation, it seems that Brexit will happen with no deal or you can say ‘Hard Brexit.’
Brexit Affects on Ecommerce
Now, this situation raises a vortex of concerns to traders such as;
How will Brexit affect domestic e-tailers? How will it affect international sellers? What restrictions would new regulations bring? What would visa requirement cross-border ecommerce entrepreneur face? How much taxes will be applied to EU e-tailers for selling to UK e-shoppers?
These are some major concerns of online retailers who are willing to sell in the UK.
To understand this situation, I went to read some detail on EMOTA (The European Ecommerce and Omni-Channel Trade Association).
EMOTA primary purpose is to promote consistent eCommerce statistics for the European market and make the ecommerce function smooth by removing any trade barriers.
According to the EMOTA report, some issues would erupt after Brexit,
- The delivery in the UK would not be so swift that it would impact the small online business owners.
- It seems complicated to achieve to adjust the impact Brexit. Small and Medium Enterprises (SMEs) may require a lot of adjustment in consumer information, data protection, a local complaint procedure, and all the shipment issues between the UK and EU27.
- The main issue that SMEs face would be the understanding of new customs procedures for ecommerce trade
- The main challenge for businesses involved in the ecommerce sector would relate to the re-introduction of customs procedures for trade between the EU27 and the UK.
The reports further tell about the condition of ecommerce if Hard Brexit happens, it states,
” The challenges will be significant for SMEs. Majority of SMEs will not have the option to establish separate operations (warehouses, delivery collection points, return locations) in the UK and the EU. However, all businesses will be disrupted. In addition to shipping parcels to the UK, many businesses will need to have parcels returned – this aspect strongly influencing their cash flow and stock availability (in some businesses the return rates can be extremely high, higher than 50%).” says EMOTA Report
The UK is a significant market for the online seller as London is the economic hub. After Brexit, if there were not any custom-free cross border trading that would result in substantial loss to the EU27 based online traders.
It all depends on what terms Brexit happens.
Why is the UK so essential for the online sellers?
The UK is spreading in the ecommerce market and maintaining its lead as the primary e-shopping market in Europe.
86% of UK internet user shopped online in 2017. It has the highest average number of purchases online (annually) per buyer.
Exiting the UK from the EU might bring some uncertainties in online retailing.
Let’s understand what would happen if Brexit happens with a Withdrawal Agreement.
Brexit Withdrawal Agreement
The Brexit withdrawal agreement is the legal agreement between the UK and EU that covers the issues including money distribution, dispute resolution, cross-border trading arrangements and summarize the future association of UK and EU.
In case, the UK parliament approved the Brexit withdrawal agreement that means the UK will continually contribute in EU budget via EU VAT till December 31, 2020. It could extend for a further two years if the UK does not agree on free trade agreement within this time.
The sellers of the EU charge VAT to its customers. It is a chain; the business who gets the supplies is supposed to pay the EU VAT. So, indirectly, only end consumer pays VAT.
In the case of Brexit withdrawal agreement, you do not need to change any tax setting in your online store.
The most likely scenario right now is Hard Brexit.
In this case, the UK will immediately exit from the EU. Then UK trading in EU will be done on the World Trade Organization (WTO) terms. Which means
- EU27 will charge VAT on the import of goods from the UK. Whereas, the UK will be exempt from taking VAT.
- The UK based online seller will no longer eligible to charge VAT from the customers. So, you need to make changes in your online store setting.
- The UK’s import and export license will be no longer valid in EU27 and vice versa.
- Customs duties will be charged on UK products in the EU.
What Should Sellers Do?
To learn the change the tax setting in your Shopify store, check out this post.
The international sellers selling in the UK and EU will not require changing the tax setting because of Brexit. The final decision has been yet to make about Brexit. However online seller (especially the UK and EU merchants) should familiarize themselves with tax alteration and tariffs to counter the future effects of Brexit.