Say hello to post-Brexit online shopping: everything is 35% dearer
Fans of Asos.com and Amazon.co.uk should watch out - thanks to duties and VAT, prices will rocket once UK becomes a ‘third country’
Thanks to the common market and the free trade area, when we purchase books on Amazon.co.uk or jeans from Topshop.co.uk the only additional costs we face are those related to getting the goods delivered. Photograph: Getty Images
We love online shopping in Ireland; it’s delivered to our door, is often cheaper, and can be ordered from the comfort of your couch or desk. A Paypal survey last year found that Ireland is among the top three countries for online shopping out of 32 developed markets worldwide.
And much of what we order comes from UK retailers like Asos.com, Amazon.co.uk, Boohoo.com, and Sportsdirect.com
But what will happen to our one-click purchases when the UK finally departs the European Union?
While the final outcome of how and when the UK leaves has become a bit more uncertain following the recent general election, we could nonetheless be looking at paying customs duties when the parcel arrives at our door. And Brexit could also give UK retailers another excuse to keep prices unreasonably high in Ireland.
So far much of the Brexit trade talk has been on the impact it will have on Irish exports to the UK, with fears that the introduction of duties will make Irish goods too expensive and uncompetitive in the UK market. But what about Irish consumer imports of UK goods?
Thanks to the common market and the free trade area, when we purchase books on Amazon.co.uk or jeans from Topshop.co.uk, the only additional costs we face are those related to getting the goods delivered.
Yes, a UK retailer may have paid duties on goods shipped in from China, but these duties will already have been absorbed in the ultimate cost of the goods we purchase.
However, with the UK out of the EU we could be looking at hefty import duties and VAT as the UK becomes a “third country”.
We won’t know just what sort of a trade deal the UK will strike with the EU – if, indeed, it does strike a deal – for some time yet. But John O’Loughlin, global trade and customs leader with PwC Ireland, is clear that customs and duties will likely apply on a host of goods imported into the Republic from the UK.
As O’Loughlin notes, even if a free trade agreement was to be struck between the UK and the EU, it would only apply to goods originating or manufactured in the UK. So clothes or electrical goods manufactured in the far east wouldn’t be covered. As a result, your Samsung tablet or Topshop jeans, bought from a UK retailer, would still be subject to customs duties. “That concept seems to be lost for everybody,” he says.
What kinds of duties can we expect?
One thing is clear: online shopping from the UK is going to get more cumbersome and more expensive once the UK becomes a “third country”.
Last month the chairman of the Revenue Commissioners, Niall Cody, told an Oireachtas committee that Brexit would have such an impact on online shopping from the UK that “the model will not make sense”.
According to Cody, post-Brexit “if an Irish shopper then buys online from a UK-based business it will be exactly the same as if he or she were buying from a US-based business”.
If you’ve ever ordered goods from the US you may be familiar with the process whereby you order your goods and wait for them to be delivered, along with a customs bill for an amount that is frequently unclear.
As e-commerce giant Amazon.com notes on its website for international deliveries, “the recipient of an international shipment may be subject to such import taxes, customs duties and fees which are levied once a shipment reaches the recipient’s country. Additional charges for customs clearance must be fulfilled by the recipient; Amazon has no control over these charges, nor can Amazon predict what they may be.”
How much will duties be?
How much will these extra duties be? That will depend on the type of goods you purchase, and whether they exceed the exemption limits.
Goods delivered by post under the value of €22 won’t incur VAT, for example. And when it comes to customs, goods won’t incur such a charge if the value is under €150.
But goods worth in excess of €22 will incur VAT at 23 per cent, and, as O’Loughlin notes, consumers have no way of offsetting this.
They will also be faced with duties depending on the type of goods they purchase from the UK. Books and tech gadgets coming from the US typically have no import duties on them, but the rate for clothes is 12 per cent. This means that a £40 pair of jeans could suddenly cost an Irish consumer £54 thanks to duties (12 per cent) and VAT (23 per cent) – and potentially even more given how UK retailers price their goods for the Irish market. “It makes it [online shopping] untenable,” O’Loughlin says.
What about Northern Ireland?
Of course, for Irish residents shopping in the UK doesn’t have to be done online; we can also physically cross the Border and shop in Northern Ireland. Again, this could be challenging post-Brexit. According to Cody, goods arriving in the Republic from a third country by land are duty free up to a limit of €300. Above that duties will apply. So you could be a smuggler if you don’t declare your duties.
According to Cody, if you’re buying a high-value item, such as a television, it will be up to you to declare the value of the item. Customs expects to operate a self-assessment system, as is currently the case for travellers flying into Ireland with goods from outside the EU, although it could also be the case that customs officers will stop cars to identify the value of goods bought.
“The starting point is that there will be a border, and there will be obligations in terms of commercial trade having to make obligations,” says O’Loughlin, adding that the onus of factoring in customs and duties into the price will likely lie on a business selling kitchens, for example, rather than in the consumer living down South who is buying it.
In practice, Cody said the Revenue’s approach would be “risk-based”.
“We police it [customs] through mail centres and the various couriers when goods are coming in from outside the European Union. How to police multiplications of transactions is one of the challenges at which we will have to look...” he said.
Whether small Northern Ireland-based businesses will be willing and/or able to cope with the additional costs and administrative burdens in selling to the South remains to be seen.
“A lot of this sort of trade will just cease,” says O’Loughlin. “It may be too cumbersome and difficult to trade.”
Is online shopping finished?
With a potential mark-up of 35 per cent on clothes and duties of as much as 50 per cent on food, the future of UK retailers in Ireland looks uncertain – and it won’t be just online. After all, UK bricks and mortar retailers selling their goods in the Republic will be bringing them in from the UK, which will incur duties and VAT.
“The market is going to have to consider to see if it’s worthwhile,” says O’Loughlin.
This could be particularly true of British supermarkets, where duties can be as high as 50 per cent on food, even if most food is zero rated. Whether the Irish market can absorb such inflation remains to be seen.
O’Loughlin expects retailers to operate on a “DPD” basis – deliver duty paid – whereby the price you pay checking-out is the final price.
US department store Neiman Marcus, for example, currently works out the tariffs for you before you buy, promising “duties and taxes calculated at checkout”; but the differential in prices can be eye-watering.
Consider a Tory Burch “Alexa” mini-bag, retailing at €307.13 on the site. With duties (€28.63) and VAT (€84.04) the purchase price actually comes to €419.80. The same bag is for sale to US customers for just $325(€290).
Other intermediaries could also step in to help with the process. Parcel Motel, which allows Irish-based consumers to save on delivery costs from the UK by using a UK address, says it will continue to operate on this basis, but will also help smooth the customs process.
“Our intention is not only to ensure we continue to operate and offer our UK virtual address service, but to develop a fast and efficient electronic means of clearing items through customs with minimal impact on transit times,” a spokeswoman for the company says.
Another way around this could be for UK retailers to set up a distribution hub within the EU, through which it could sell to EU customers and therefore bypass additional VAT and duties – provided, of course, that the goods never touch UK soil, with O’Loughlin citing the Netherlands as a possible hub.
Amazon, for example, declined to comment on its post-Brexit plans for this article, but one can surely expect that it will find a way around the challenges. Already the US giant has developed an English language version of its www.amazon.de website, and for some goods it may in fact already be a bit cheaper for Irish consumers.
A Kindle Oasis, for example, retails at €299.74 on the German site and costs €8 to be delivered to Ireland; the same product is on sale for £269.99 (€309)on Amazon.co.uk and costs £6.82 (€8.10) for delivery.
Prices will rise
However, the introduction of duties and VAT does inevitably mean higher prices, and that may cause some retailers to exit the Irish market, which will cut competition, driving prices up further.
“Generally speaking, goods are going to become more expensive,” says O’Loughlin. “We will be paying more for day to day products.”
It’ will also possibly mean less choice on our supermarket shelves. Giving the example of biscuits, O’Loughlin notes that there is just one Irish manufacturer of biscuits at present – East Coast Bakehouse. McVities and many supermarket own brand biscuits are made in the UK, but post-Brexit the cost of these could jump 8 per cent on the back of duties. So stock up on your Jaffa Cakes now!
Will we be protected?
Price is one thing, and tariffs, taxes and duties will inevitably have an impact. But another aspect of trade post-Brexit is consumer protection.
Currently Irish consumers are protected under EU law when shopping on line across the EU; but will these rules still apply when the UK departs?
When you buy something on a UK website today EU law dictates that you have the same rights as if you bought the good at home. This means that you are entitled to a cooling-off period of 14 days, which gives you the freedom to change your mind after you have made a purchase; the express right to a refund for delayed or non-delivery; and, most pertinently perhaps, the right to redress in case of faulty goods.
Once the UK leaves the EU its retailers won’t be covered by EU law, which means that these rules may no longer apply.