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How Brexit Can Impact E-commerce and How Your Business Can Brace For It

  • March 2, 2021
  • by Emma Parkar
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Estimated reading time: 5 minutes, 45 seconds

Four years after Brexit, almost all of the UK is still adjusting to all of the changes brought about by them leaving the EU. Most of these changes, if not all, are directly related to the economy and how businesses work. Businesses under the automotive industry, along with the airline, financial services, and pharmaceutical sector, are the top industries most affected by Brexit. However, the effects are not just particularly felt in these sectors; it’s also greatly felt by the e-commerce industry.

The UK has been ever since seen as the e-commerce powerhouse in the EU. This is supported by the fact that the UK leads all of the EU in e-commerce usage and purchases and even projected 222.5 billion sales made through e-commerce last year. That is, in fact, very big numbers of people shopping online in the UK. With that said, it is no surprise that the Brits will still continue to use e-commerce as their platform of choice to shop.

With the rise in demand in this industry, it’s also expected that there’s a rise in the supply of businesses offering online shopping options. However, the e-commerce industry is very much affected by the new rules and regulations.

Here are some of the things you need to know about how Brexit can impact your business and what you can do to adjust to these changes.

1. Stricter rules and additional steps for customs

The UK is now considered to exist outside of the European Union’s market. This basically means that the UK will no longer benefit from any open borders or unimpeded trade between other existing nations in the EU. This results in stricter regulations concerning parcel entry and exit to and from the UK and EU. There are also additional regulations, restrictions, and prohibitions regarding some British products, making it all the harder for some UK businesses.

If you’re shipping parcels from the UK to the EU, you will have to complete a customs declaration form (CN22 or CN23). This form will clearly state the parcel’s contents, along with a 6-digit HS code (commodity code or tariff code).

2. Different tariffs

Aside from the stringent rules in customs, Brexit also affected the tariffs of some products. Last May 2020, it was announced that the UK Global Tariff (UKGT) will replace the standing EU’s Common External Tariff after the transition period has ended. With UKGT, it will be a lot easier and cheaper for businesses to import goods from other countries. The biggest change would be removing “nuisance” tariffs” that are below 2% while rounding tariffs down to their standardized percentages.

However, some import tariffs will remain to protect local industries. This includes products in the agriculture, automotive, and fishing industry. Zero tariffs will be imposed on over 13,000 tariff variations on products such as those used for pizzas, spreads, and biscuits among the few.

3. Changes in VAT

The way Value Added TAX or VAT is charged is also affected. The VAT rules are now simple: no VAT will be charged for products sent, sold, or transferred out of the UK..This means zero rates for most exports from Great Britain to anywhere outside the UK and Northern Ireland to anywhere outside the UK and the EU.

It should be clear that products shipped from the UK to EU will have no VAT. However, products from the UK to other countries, say Spain, will still have the added import duty and VAT.

UK sellers will have an option to either include VAT in their pricing or advertise the price of the goods as is without any VATs and inform their customers that added fees should be shouldered.

To clarify, here’s how you can price your products if you’re shipping out of the UK and EU (for this example, the product will be shipped to Spain).

  • A necklace costs £200. You can advertise this as £200 and inform the customer of the additional £21 Spanish VAT that they’d have to pay for once the product reaches customs.
  • A necklace costs £200, but you advertise it to be sold at £221, which will be inclusive of the import duty and VAT.

When choosing between these two pricing options, consider the customer experience, the attractiveness of the price, and the rate at which your competitors advertise their products.

4. Longer shipping times

Longer shipping and transit times are expected due to stricter rules and regulations for customs, along with the additional step of accomplishing a customs declaration form on all of your packages.

Aside from these two, other factors such as the incomplete declaration of items shipped, unclear or incorrect HS/commodity code, and inaccurate or incomplete contact information can delay shipping time. Longer shipping and transit times cannot be fully avoided, but its duration can definitely be shortened by taking extra careful steps when shipping out packages to your customers.

How Your Business Can Prepare For These Changes

1. Check on your imports and exports

Identify which of your suppliers will have the most effect on your time and costs, especially if you have suppliers from the EU. Due to the stricter rules on customs and longer time spent during shipping, these instances may significantly affect your business’ operations. If you’re selling or shipping items to the EU, then you might want to take note of all the factors that may affect your shipping times.

2. Update policies

Any changes in shipping, tariff, and VAT should clearly be updated with your website’s policies. Some regulations are still pretty much fluid at this point, and some things are left to be imposed and clarified by the government. It helps to stay updated regarding any of these changes. See to it that your policies are regularly updated to avoid any confusion with your customers.

3. Explore possible expansions

It may have a significant impact on businesses with a large customer base in the EU. If you find your business to be in this scenario, it’s recommended that you expand your target market. It’s still possible to sell and ship to EU customers, but you can expect delays in shipping due to all the new stringent rules.

In order to keep your business alive, you can either optimize a better workflow to address these delays, and you can always consider expanding your customer base. Strengthen your market locally in the UK or be open to possibly selling overseas.

Brexit has indeed changed the game between the EU and the UK. Some of these changes may be drastic, but it doesn’t mean that e-commerce businesses cannot do something to address these.

As a business owner, you must stay informed of any developments and other further changes that may impact how you operate your business. Be open to exploring options that can help your business continuously grow amidst Brexit. All of these are expected to come as new rules come to effect and can be addressed as time goes on.