Every brand I meet that expands into Europe does it the same way. Someone ticks the "ship internationally" box on the marketplace, or the shipping app, and the founder watches the first German and French orders land with a warm feeling that lasts about six weeks. Then a customer sends you a photo of a parcel held at customs with a bill attached, or the marketplace sends a VAT notice in a language you do not read, and the expansion suddenly has a tax problem bolted to it.
I am a specialist e commerce accountant, and I spend my days inside the settlement reports and VAT returns of brands scaling past £1m. The international VAT mess is a weekly sight in my inbox. It is always the same root cause: nobody decided which VAT route the European sales were supposed to take before the first order shipped.
This post is the decision framework: what OSS and IOSS are, which one applies to your sales, what changed on 1 July 2026, and what each route does to your books. Rules checked against gov.uk and the European Commission's One Stop Shop portal on the day this went out.
The Quick Summary
Selling from the UK, shipping parcels to EU consumers, goods worth £135 or less: you can use the Import One Stop Shop, IOSS. You charge the customer's country VAT at checkout, your intermediary files one monthly return, and the VAT goes to HMRC, who passes it on to the member states. Since 1 July 2026 there is also a flat €3 customs duty per customs goods item on those consignments.
Selling from stock already sitting in the EU, like Amazon FBA Europe: your own direct cross-border sales can go through the Union One Stop Shop. You register for VAT in the country your stock is in and declare sales to the other member states on one quarterly return. Sales a marketplace facilitates may be the platform's VAT to account for instead.
Selling digital services, downloads or subscriptions to EU consumers: that is the non-Union scheme, also quarterly, also one return, and it covers any B2C service whose place of supply is in the EU.
The Three Roads to Europe
Where are the goods at the moment of sale? That is the first question. Customer status, consignment value, product and sales channel come next. Goods in Great Britain, shipped to an EU consumer, are a distance sale of imported goods: you can use IOSS for eligible low value consignments, or import VAT gets collected at the door instead. Goods already inside the EU, sold to a consumer in another member state, are an intra-Community distance sale: your direct sales can go through the Union OSS. Digital products and services: the supply happens where the customer is, and the non-Union scheme is the route for B2C services whose place of supply is in the EU.
What the One Stop Shop Actually Is
OSS stands for One Stop Shop, and the name is the whole point. Without it, a UK business selling to consumers across the EU can face registration in every member state where its supplies are taxable: up to 27 registrations and returns. The OSS lets you register in one place and declare the eligible supplies covered by that scheme on one return, split by country for you.
Three schemes sit under the umbrella. The Union scheme for cross-border sales of goods from EU stock, and certain B2C services for businesses established in the EU. The non-Union scheme for businesses outside the EU supplying B2C services whose place of supply is in the EU. And the import scheme, IOSS, for low value goods shipped into the EU from outside. A UK business can use the non-Union scheme and IOSS, and can also use the Union scheme for goods dispatched from EU stock: the Commission's rules explicitly allow it.
Two rules apply everywhere. One registration per scheme, and once you are in, you declare all the supplies that fall under it. No cherry picking the profitable countries.
One point saves most founders a nasty surprise. The EU's €10,000 threshold, under which you can keep charging your home country VAT on cross-border sales, is only available to businesses established in a single EU member state. A UK business has no EU establishment, so the threshold does not apply. From your first euro of EU consumer sales you charge the customer's country rate. No grace period, no small seller exemption on that side.
IOSS: Shipping From the UK
This is the scheme for the brand ticking the international shipping box. You sell from Great Britain, the goods are worth £135 or less per consignment, and the customer is a consumer in the EU. One correction most founders miss: goods in Great Britain sold to a Northern Ireland consumer are UK VAT on your UK return, not IOSS.
The mechanics are straightforward. You charge VAT at the rate of the country the goods are going to, at the point of sale. German customer, German rate. Hungarian customer, Hungarian rate: 27%, in case you were wondering. Your checkout software handles this, but only if you set it up. You put your IOSS number on the customs declaration for every parcel and keep the records. Because your business is in Great Britain, your intermediary files one monthly return and pays HMRC on your behalf, due by the last day of the month after the sales. No sales in a month? You still file a nil return. Miss the deadline and HMRC reminds you ten days later, you get ten days to fix it, and three missed periods in a row means exclusion from the scheme for at least two years.
You must be UK VAT registered to use the scheme, even below the £90,000 threshold. IOSS sits on top of UK registration, it does not replace it. Full rules in our VAT registration post.
If your business is in Great Britain, you register through an intermediary. Northern Ireland and Norwegian businesses can register directly. It costs money and it is not optional.
You can only hold one IOSS registration at a time. Already registered for IOSS in an EU country? Cancel that one before you apply through HMRC, and vice versa.
The consignment value is the sale price, not including transport and insurance unless they are hidden in the price. Consumer sales only: sales to VAT-registered businesses do not qualify, and excise goods like alcohol and tobacco are out entirely.
If you sell through a marketplace, check who the deemed supplier is. Sell only low value goods to EU consumers through a marketplace and the platform reports and pays the VAT, not you. Direct sales through your own site remain yours. The full who-accounts-for-what picture is in our marketplace VAT deep dive.
The €3 Duty That Landed on 1 July 2026
Here is the change most brands have not priced for. Since 1 July 2026 the EU has abolished the customs duty exemption for low value imports. In its place, Council Regulation (EU) 2026/382 introduced a flat €3 customs duty on distance sales of imported goods in consignments worth €150 or less. It is temporary, running until 30 June 2028, and it applies per customs goods item, not per parcel and not necessarily per physical unit. Two identical T-shirts in one parcel normally attract one €3; a T-shirt and a watch attract two.
What does it mean in practice? Under IOSS the import is exempt from import VAT, so there is no VAT on the duty itself at the border. But if you pass the €3 to the customer at checkout, it becomes part of the sale consideration, which means it joins the taxable amount and VAT applies to it. Absorb it instead, and there is no VAT on it, but it is a straight cost out of your margin: €3 for every customs goods item you ship.
Take a £20 product. Absorb the duty and that is roughly £2.60 off your margin per order. Pass it on and the price rises by €3 plus VAT on that €3, and conversion takes the hit. There is no free option: you are choosing which margin bleeds.
Without IOSS, import VAT is due. Under the Special Arrangements the carrier collects it from your customer at the door, with the €3 duty inside the VAT base, and may add a clearance fee on top. You or your customs representative normally remains on the hook for the duty itself. That is the "parcel held at customs" photo, and it is the most expensive way to sell into Europe there is.
When Your Stock Sits in Europe
Once your goods are in an EU warehouse, the IOSS route is closed for those sales, whatever the value. Goods already in the EU are not imported at the point of the consumer sale. A direct sale from the warehouse to a consumer in another member state can go through the Union OSS; a sale within the warehouse country goes on that country's own return.
The setup has two steps. First, deal with the local VAT obligations in the country your stock is dispatched from: account for import VAT when the goods enter free circulation, then deduct or recover it if you meet that country's conditions. Second, register for the Union OSS and declare cross-border consumer sales to the other member states on one quarterly return, due by the end of the month after the quarter.
The economics are mostly better than shipping from the UK. VAT is charged at the destination rate but collected up front at checkout, so the customer never sees a customs bill, and delivery times collapse. The costs: local VAT administration, a fiscal representative or adviser where the country requires one, and funding import VAT on your stock until you can deduct or recover it under the local rules.
And if you sell that EU-held stock through a marketplace like Amazon, check the deemed supplier rules before you register for anything. For consumer sales a marketplace facilitates for a seller not established in the EU, the platform is generally the deemed supplier and accounts for the VAT itself.
The trap is the transfer itself. Moving stock from Great Britain into the EU remains an import. It is changing slowly: minor OSS and IOSS clarifications apply from 1 January 2027, but the main Single VAT Registration reforms, including the transfer of own goods scheme, only apply from 1 July 2028, and they concern movements within the EU, not the initial import from Great Britain. For now, EU stock means the local registration, the Union OSS, and an accountant who has done it before.
Digital Products and Online Services
Automated downloads, subscriptions and courses, the stuff that runs with minimal human intervention: normally taxed where the customer lives, and you can use the non-Union OSS scheme for any B2C service whose place of supply is in the EU. Register with one member state of your choice, charge each customer's country rate, file quarterly. No intermediary required for this one. Live webinars and tutor-led courses are not electronically supplied services, so get their place of supply checked separately.
This is the quiet route. A lot of brands running paid communities and digital courses do not realise they have EU customers until the first year's numbers arrive, and member states share the data with each other.
What This Does to Your Books
Your exports to EU consumers stay zero-rated on your UK VAT return, provided you hold the evidence HMRC requires: proof the goods left the country. Zero-rated means they appear on your return, at 0%, in the right boxes. HMRC treats undocumented exports as taxable.
The VAT you collect under IOSS is not UK output VAT. It is EU VAT collected on behalf of the member states, and it sits in its own control account, remitted monthly with your IOSS return. Mixing it into your UK VAT figures is the single most common error I see, and it produces a return that reconciles to nothing.
Currency is the second error factory. If you file through HMRC, your IOSS return and payment are in pounds sterling, converted at the European Central Bank rate for the last day of the tax period. EU OSS returns are generally made out in euro. Either way your bank account and your settlement reports live in pounds, so reconcile the transaction date values to the period end conversion and post the exchange difference, or the return never ties. That is what our multi-currency accounting guide covers.
The third is reconciliation. Amazon's European settlement reports and TikTok Shop's EU payouts arrive gross, with fees, refunds and currency conversion already applied, and the platform's VAT handling on top. Your books need a documented bridge from gross payout to VAT-exclusive sales, country by country, or the OSS return becomes a guess. The discipline is the same one we lay out for platform reporting reconciliation, just with 27 jurisdictions instead of one.
Worked Example: Two Hundred Orders to Germany
Let me put numbers on it. A brand ships from the UK, sells a £40 product to German consumers, and does 200 orders a month.
Germany charges 19% VAT. At checkout the customer pays £47.60: your £40 plus the German VAT. Monthly takings are £9,520, of which £1,520 is German VAT you owe. Because your business is in Great Britain, your intermediary includes the £1,520 on the monthly HMRC IOSS return and pays by the last day of the following month. On your UK return, the £8,000 of product value goes in as zero-rated exports. The £1,520 never touches your UK output VAT figures.
Now add the €3 duty. Assuming each order is one customs goods item, two hundred orders is €600 a month. Absorb it and that is roughly £510 a month off your margin. Charge it at checkout and it becomes part of the VAT base, so the customer's total rises by €3 plus 19% of that €3, and your conversion absorbs the difference. Neither choice is wrong, but one of them is deliberate.
Scale the same example, £40 standard-rated goods to Germany, to 2,000 orders a month: £15,200 of VAT flows through the monthly return, €6,000 of duty is absorbed or passed on, and the reconciliation has to survive HMRC's scrutiny on one side and the German tax office's on the other.
The Mistakes I See Every Week
Shipping first, scheme never. The international switch gets flipped, the IOSS registration does not exist, and every parcel arrives at the customer's door with import VAT and a handling fee attached. That is the real cost of skipping the form.
Pricing Europe as one country. A flat price across the EU means your German margin is fine and your Hungarian margin is a different animal at 27% VAT. Know the destination rate before you set the price, the same way you would use the VAT registration checker before registering.
Mixing IOSS VAT into the UK return. The collected EU VAT is not yours and it is not UK output tax. It has its own return, its own deadline, its own control account. Blending them produces a return that ties to nothing, and it is the first thing an enquiry looks at.
Assuming the marketplace did it. If the platform is the deemed supplier, it accounts for the VAT, and you need to know which sales that covers. If it does not cover a channel, the VAT is yours.
Forgetting the evidence. Zero-rated exports need proof of export on file. Brands that cannot produce it when asked can lose the zero rate, with VAT assessed and interest on top. The paperwork is the price of the zero rate.
Frequently Asked Questions
Do I need to be UK VAT registered to use IOSS?
If you use HMRC's IOSS service, yes: you must be UK VAT registered even below the £90,000 threshold. Get that first, then the IOSS. If you register for IOSS through an EU intermediary instead, you follow that member state's rules.
I only sell through marketplaces. Do I need any of this?
If the marketplace is the deemed supplier, it reports and pays the VAT on the low value goods it sells for you. Check each channel, because your own website and anything outside the platform are yours.
What about Northern Ireland?
Sales of goods located in Great Britain to consumers in Northern Ireland are UK VAT on your UK return, not IOSS. NI sits in the EU VAT system for goods, which is why it has its own rules, and NI businesses can register for IOSS directly.
My products cost more than €150. What happens?
IOSS does not cover consignments over £135 under HMRC's scheme, or €150 under EU rules. Import VAT and any customs duty are due at the border; who pays depends on your delivery terms, and the carrier may charge a clearance fee. Price accordingly, or consider EU stock, which removes the border step from each customer delivery, though not from the initial movement of stock into the EU.
Can I register for OSS in an EU country instead of using the UK scheme?
You can register for IOSS through an EU intermediary instead of using HMRC's route, but you can hold only one active IOSS registration. Cancel your existing registration before applying for another. The schemes exist in parallel, not in duplicate.
What happens if I miss an IOSS return?
HMRC reminds you ten days after the deadline, and you have ten days to file and pay. Miss three consecutive periods and you are excluded from the scheme for at least two years. Nil returns are mandatory in quiet months, but file them knowing HMRC cancels the registration after two years of nil returns.
The Bottom Line
Expanding beyond the UK is not complicated because the VAT rules are hard. It is complicated because there are three sets of rules and you have to pick the right one before the first order ships. Ship from the UK, choose IOSS for eligible low value consignments, charge the destination rate, file monthly through an intermediary, pass on or absorb the €3 per customs goods item. Stock in Europe, deal with the local VAT obligations and use the Union OSS for cross-border sales, file quarterly. Services, non-Union scheme, quarterly, same machine.
The pattern underneath is one you already know from the UK side: collect the right VAT, keep it in the right pot, file it on time, hold the evidence. Do that and Europe is just another market with better margins. Skip it and Europe is a refund machine that runs on your goodwill.
If you are about to switch on international selling, or you already did and the first customs photo has arrived, book a call and we will map your routes, check your registrations and price the €3 into your margins before it prices itself in. See how we help Shopify sellers, Amazon sellers and TikTok Shop sellers.