Mar 24, 2021 . 3 months

How Brexit Affects Ecommerce – What You Need to Know

Brexit has had massive implications on the economy of the United Kingdom, leading owners of e-commerce businesses to wonder how they will be affected. You no longer need to worry! We know how you feel. To make things a bit clearer for you, we have put together an essential guide for what you need to know about how Brexit affects e-commerce businesses.

To find out just how much your e-commerce business will be affected by Brexit, you may have to consider how your customers and supply chain will be affected. As we move into 2021, and with Brexit repercussions becoming more pronounced, we recommend following the 80/20 rule.

What to do when under 20% of your customers reside in the European Union:

If less than one in five of your customers resides in the EU, you could place more focus on customers outside of the EU for now. For instance, focus your ads on the UK or US markets. The exception to this would be if you are fully set up within the EU, such as when you have EU VAT registration, along with all of your stock being held in the EU.

What to do when over 20% of your supply chain exists within the European Union:

When a significant portion of your supply chain is already in the EU, you should probably focus your marketing efforts on advertising products that don’t come from the EU. The key is to make sure life simpler, not more complicated.

That’s simple enough, right. Now that we’ve gone over the helpful 80/20 rule, let’s take a look more closely at how Brexit affects e-commerce businesses. We will also share with you the steps you can take to make sure your business navigates the changes with ease.

The British Pound Could Weaken

Exiting the EU means trade between the UK and the EU may become a bit more costly for e-commerce businesses. At the least, you should expect the value of the British Pound to be a bit volatile in 2021.

If you are like most e-commerce businesses in the UK, you are probably sourcing your products from other countries, and probably paying for them with USD. Let’s say the GBP was to weaken against the USD. That means the products you purchase to sell will become more expensive. You may also need to cough up money for import duties and VAT taxes that will newly appear. This is why you should plan for spending around 10% extra on the costs of getting products for your e-commerce business. Buying from the EU could leave you paying even more than this.

How to Remove Currency Risk

Given so much change due to Brexit, we suggest that you remove currency risks whenever you can. Thankfully, it’s simpler than you may think! Here is an equation you can use:

Cost Currency = Revenue Currency

Let’s explain what this equation means. If you were to have costs priced in US dollars, you would have to generate revenue in US dollars so that you offset the value. By doing so, you get rid of currency risk. To bring it into more specific terms, let’s say you are importing $100,000 in products annually. You would want to bring in $100,000 annually, at the very least. Thankfully, Shopify makes this a breeze with its multi-currency feature. This lets any of your non-UK customers pay in whatever foreign currency they desire.

How to Manage Currency Risk

While the ideal is to get rid of currency risk completely, that isn’t always possible. At the very least, you can manage it. A helpful way to do this involves taking these three steps:

  1. Lower supply costs.
  2. Review your prices and increase them when necessary.
  3. Talk to a foreign currency broker and get a contract for a fixed currency cost.

When you take these measures, you will get away with minimal currency risk.

Supply Chains Will Be Affected

The supply chains e-commerce businesses use will be affected in primarily two different ways. For one, products are going to take longer to reach the United Kingdom. This is a result of more stringent border controls, and that is on top of the existing pandemic-related supply chain slowdowns.

Another way that supply chains are affected involves increased import duties and possibly VAT. As of the beginning of 2021, customs declarations need to be done whenever you export a product to the EU. This would follow the same process that is required when exporting a product to any other part of the world. You will be required to have an EORI number that will be tracking and registering customs information within the European Union.

Understanding VAT in the Post-Brexit UK

We wish it wasn’t so, but VAT will slightly complicate things compared with what you were used to. That’s because the European Union isn’t allowing UK businesses to use EU selling rules if you ship products from the UK to them. VAT didn’t have to get paid until a higher threshold (usually €35,000) was reached.

That’s all changed now, and the current VAT rules for shipping from the UK to the EU are the following:

  • Under €22 – No VAT
  • €22 – €150 – VAT likely, as well as clearance and handling
  • Over €150 – VAT likely, as well as duties, clearance, and handling

Additionally, you will have to get licenses or certificates to ship out certain products, just like you would to countries in the rest of the world. This is usually needed for food and chemicals.

The extra VAT costs, and others associated with them, mean you should factor them into the cost of your e-commerce products.

How to Simplify VAT

If this is making your head spin, don’t worry! There is a way to simplify the whole VAT and duties side of things. Your three main options are:

  1. Continue shipping to the EU but have your customers pay the extra charges.
  2. Register for VAT within every EU nation you will be shipping to.
  3. Have your goods get shipped out from a single warehouse located in one EU country, while just registering for VAT there.

The last option is the one we recommend. That way, you only have to charge VAT on products sold in the EU country your warehouse is located in, while not charging any VAT to any other EN country.

But wait, there’s more! As of July 1st, 2021, there will be a new One Stop Shop (OSS) system in place. Once this happens, you will be registering for VAT in any EU nation of your choosing and then manage sales all over the EU.

Conclusion

Now that we know Brexit is definitely happening, the more prepared you are for it, the better your business will thrive. Ebiz Experts makes e-commerce simple enough for anyone to become successful with it. Everything from Shopify web design to marketing solutions can be taken care of by Ebiz Experts, taking much of the hassle out of becoming an e-commerce entrepreneur. If you’ve been worried about your cash flow dropping due to Brexit, then we’d be more than happy to advise you. Simply reach out to us!

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