In Partnership with Shopify, Xero, A2X & ClearCloud Accounting
In 2020 the UK was hit with a twofold setback of events which directly affected UK e-commerce retailers.
Firstly, Britain leaving the European Union means a change in legislation leaving uncertainty on where businesses will lie in the new parameters. More recently COVID-19 struck and caused chaos to the economy and global markets, to which the full extent is yet to be revealed. This article sets out to help explain the effects and potential advantages of the current climate to UK ecommerce retailers.
Brexit Legislation Changes
The UK will most likely lose access to the single market, if not have restricted access. If you purchase and sell your products only in the UK then you are unlikely to be directly affected, although do bear in mind your supplier might be affected.
If you do trade with the EU; imports and exports will most likely be subject to tariffs.
Import VAT will be introduced however as the EU currently has an intercountry VAT scheme in place, the cost to your customer should not be affected. The issue lies in the extra admin required by your customer, your EU customer will be required to pay VAT upon receiving the parcel – much like we do in the UK currently when we receive a parcel from outside the EU.
A duty is also likely to be applied on your sales to the EU, of which the rate is yet to be decided depending upon the agreement between the UK and the EU. Tariffs into the EU usually range between 5%-20% which means your product is going to be more expensive compared to an EU competitor.
If your suppliers are based in the EU, then the cost of your supplies will also increase with a UK duty on EU exports.
There are some businesses which this may advantage; if you import and export from outside the EU then your tariffs may change depending on what agreements the UK and the rest of the world put in place. The UK may be able to negotiate better tariffs than the EU for countries such as America, China and India.
Affects of COVID-19
Focusing solely on the revenue effects of COVID-19, it could be both a blessing and an issue for businesses. It all depends on what you sell and who you sell to.
The first few weeks of the pandemic saw a sudden drop in sales with general retail down by around 70%. Essential items such as medicine, cleaning, food and baby products shopping had an increase of 200%.
As we came to terms with the new normality of lockdown, retail of outdoor sports and leisure increased in line with behaviour habits. If you sell luxury items or travel items, unfortunately the market is still underperforming from pre-COVID-19.
However overall, the ecommerce market is up 28.48% as more business have now adapted to the pandemic. As high-street businesses continue to deteriorate, ecommerce will grow from strength to strength.
How to make sure your business can survive the upcoming changes and current climate? Plan & adapt!
Create a map detailing where your products go from supplier to customer. This will help you identify any barriers to entry that your products will face. You can then apply a current worst-case scenario EU import tariffs which will help you plan what adjustments your business needs to make. Your accountant will be able to help analyse your map and explain potential barriers.
Focus more on UK customers, this reduces your business’ risk by relying on EU markets. After all we do account for a third of all EU online sales! British shoppers will try to avoid tariffs and high shipping costs from the EU and will look closer to home.
To compete with EU business’, you need to make your products and service desirable. Try to offer multi-currently on your platform so that EU customers can pay in their domestic currency. Fluctuations in currency may mean you receive less if you only offer GBP.
Fulfil your products from the EU to offer quicker delivery with less administration for your customer. Amazon currently offer this service and you can use independent fulfilment companies for other selling channels. Having said that, please bear in mind this may mean addition legislation requirements for your company.
Short term COVID-19 government support packages should be utilised along with adjusting your product line to meet trends.
If your new to online retail, focus on getting the basics right first!
- Good base products
- Fast website – Each 1 second delay load time results in 7% loss of traffic!
- Seamless checkout
- Good communication, before and after!
- Fast delivery
ClearCloud Accounting are specialist e-commerce accountants who are partnered up with A2X, Shopify and Xero to provide all the services you need when selling online. They are here to help during COVID-19 and are willing to offer free advice to those struggling to get help from their current accountants. ClearCloud Accounting believe that we are all in this together and you should get the right level of advice when times are hard.
Feel free to reach out to the team at [email protected] and speak to a qualified accountant who will be more than willing to help.