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Brexit still causing tax headaches when it comes to online shopping

There is relief for small gifts or items of value but the sender must be meticulous or could leave the recipient with a financial headache

Even small gifts can lead to charges if they are not properly labelled. Photograph: iStock

Dominic Coyle's face
Dominic Coyle
Fri Sep 22 2023 - 10:30

I was walking through a supermarket the other day and, in horror, chanced upon some Advent calendars, which raised the whole issue of Christmas shopping and, before that, the chaos of Black Friday.

I’m not one of those organised people who can even contemplate festive shopping three months out but clearly there are some of you out there. And, in any case, online shopping has become pretty ubiquitous all year round, especially among those under 30. So it seems as good a time as any to remind people of the rules on shopping online, particularly the Brexit factor.

Not least as an ongoing series of spam calls and texts are informing people that they have a charge due to An Post, UPS, DHL or the likes to free up delivery of a parcel. The first rule of online shopping is, if you didn’t personally order anything, assume all such calls, texts, WhatsApps and so on are scams.

That aside, Brexit is still causing headaches when it comes to online shopping. Many of the websites that Irish online shoppers still default to are based in Britain. Advice to shoppers on Amazon, for example, to default instead to amazon.de or amazon.fr is all well and good but the range of goods the company offers differs from country to country, so that wonderful gift for your mother that your English-based sister saw on amazon.co.uk might well not be available at all on amazon.de.

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And then there is the confusion caused by companies based in other countries using .ie domains.

The company that sells .ie sites says that almost one in 10 .ie domains are registered to overseas owners, with Britain being the location of businesses most likely to seek such an address. Companies in the US are the next most likely to seek a .ie domain along with those in EU states Bulgaria and Germany, with the last two not an issue for cross-border tax on shopping.

Many more established companies abroad are well versed in the tax rules and take these into account in the price you pay at the online checkout but far from everyone does. And, in On the Money’s experience, companies in Britain – especially smaller outfits – are still struggling to get to grips with the new regime, even though it has been in place for a couple of years now.

The bottom line is that buyers must beware; otherwise they can get stung.

It’s not just people buying online, of course. There are also the recipients of well intended gifts from British-based family. And surprise gifts are just a nightmare as you are getting notifications of charges that you’ll assume are spam and then the gift will get sent back to Britain, to everyone’s annoyance.

Tax rules

So what are the rules, what is tax free and, where tax is due, what is it?

First of all, it is important to draw a line between gifts and purchases as they are subject to different rules.

On gifts, the Revenue Commissioners state that you can receive a gift free from customs duty and VAT if the full value of the gift is less than €45. That €45 includes the cost of postage/courier services and any insurance of the parcel.

To qualify, the gift has to be declared accurately and sent from a private individual outside the EU to a private individual in the EU. That rules out online purchases, or any other commercial activity. If you have paid for the goods, they will not be exempt. Revenue says it must be for the personal use of you or your family and it must be an occasional gift – for example, to mark a birthday, an anniversary or some such.

If you are getting a number of items in a parcel from family in Britain – or the US – whose total value exceeds that €45 limit, you are entitled to tax relief on any items that tot up to less than the €45 threshold. So, if you got a parcel with four items valued at €20, €15, €12 and €8, you should pay tax only on the €12 item as the others come in under the limit.

Of course, this presumes that the package and its contents (including their individual value) are properly declared, labelled and valued; otherwise the default will be that the total value is about €45 and everything will be taxed.

In this case, your €12 items is subject to customs duty at 2.5 per cent, or 30 cent.

Or is it? Not necessarily.

Aside from the €45 tax exempt limit, there is a “negligible value” provision that says goods with a value of less than €150 are exempt from customs duty. And this negligible value provision does not just apply to gifts but to all goods brought in from outside the EU. So it covers your online shopping as well – up to that €150 ceiling.

Revenue’s position is that the importer has the discretion to choose whichever is the most beneficial when the goods are declared. Of course that means you are relying on whoever declares the goods, making sure they use the negligible value provisions.

But then there’s VAT, of course, and that can complicate things.

[ Q&A: Parcel from UK lands reader with confusing bill ]

Any item subject to VAT because it exceeds the €45 threshold, or was bought commercially rather than being a gift, will be VAT rated on the basis of the Irish VAT regime, not the regime for VAT in Britain or sales tax in the US.

The first thing to note is that if you are availing of the negligible value provision for customs duty, you are no longer able to rely on the €45 gift exemption. So you might avoid customs duty but get hit with a higher bill all round as VAT is charged at a higher rate than customs duty. Unless you are dealing with items zero rated for VAT here, such as that children’s clothing or footwear and few other items like books.

Outside customs duty and VAT, you will also be facing charges for excise duty if you are importing alcohol or tobacco, so those fine wines or cigars could cost more than you bargained for.

And then there are anti-dumping duty and countervailing duty. These are additional charges to prevent cheap imports from countries that have lower labour or raw material costs damaging EU industry. There is an EU website where you can check if your item will attract one or other of these charges but it is anything but user friendly to the ordinary punter.

It is very easy to get rushed when you are holding up a queue in a post office but it is what this form says that will determine the tax treatment of the package. Photograph: iStock

Labelling

The key thing here is accuracy. Describe something vaguely or incorrectly and that can very easily change how it will be assessed for tax.

And in this automated age, it is no good Aunt Mary assuming that someone will go by what she has scribbled on the label attached to the parcel.

Revenue’s advice is that if someone is sending a gift to the Republic from Britain or elsewhere outside the EU, they need to pay particular attention to the customs declaration form. It is very easy to get rushed when you are holding up a queue in a post office but it is what this form says that will determine the tax treatment of the package. Scribble clothes and you’ll be charged VAT. Don’t clarify that it’s a gift and you might also fall foul of the rules.

If you tell the courier “clothes” rather than “baby clothes” – or they inadvertently input the wrong code – you will be charged

For gifts, Revenue says the customs declaration form should be marked “gift” or “present”. And, if you are relying on the negligible value exemption on goods up to €150, the customs declaration form needs to be marked “negligible value”.

The same goes if you are using a courier. They will rely on the data that was inputted at the British depot. The data you give is converted into a harmonised system code used by customs authorities globally to classify products, which is then encoded in the printed label the courier puts on the package at the start of its journey. If you tell them “clothes” rather than “baby clothes” – or they inadvertently input the wrong code – you will be charged. And couriers will also charge a fee for managing the tax collection, raising the bill for the recipient, especially as any customs duty levied will be on the full value of the item, including any courier charges for transport, insurance or customs processing.

As you can see, it is pretty easy for the unwary to go wrong. If they do, it is the recipient who will pay the price and, at 23 per cent, VAT charges could certainly take the fun out of an intended gift. If you are expecting great-uncle Joe to send over his usual gift for the children, it might be no harm to have a little word about what needs to be done before he gets to the post office or courier depot.