Logistics

High Expectations

UK online consumers are arguably the most sophisticated in the world when it comes to delivery expectations. Almost 27 million households packed onto an island, where the maximum distance between major population centres is only 650 miles, means that a signi cant number of carriers and couriers can claim to offer national delivery services, creating a highly competitive environment where retailers and their customers have a wide choice of services. There is a concentration of online orders in London and the South East of England but in order to succeed in the UK a non-UK retailer will need to offer a fully national delivery solution.

UK consumers are also highly attractive to non-UK retailers with a high per capita online spend and a con dence in online retailing which means they are fully prepared to look outside of the UK to buy the products they want if the price, quality etc. are right. The latest IMRG Blackbay UK Consumer Home Delivery Survey confirms that almost 65% of respondents have shopped cross-border but that when making that decision it is still delivery and returns issues that create the biggest concerns.

So when dealing with UK online shoppers it is important to get the logistics offer right and just as important to communicate this offer clearly and frequently through the buying process - two-thirds of UK consumers feel that access to clear delivery and returns information, before they start to shop, is important in making their shopping experience more convenient. [1]

Infrastructure

A non-UK retailer wishing to deliver to UK consumers at home has a number of service providers to consider. The first of these is of course the UK postal service, Royal Mail which provides the ability to reach every home, every day with a number of service options. Royal Mail works alongside its sister company, Parcelforce to offer delivery services through most weight ranges and with its now commercial partner, the Post Office to provide collection and returns services available to non-UK retailers. The delivery lead time will of course depend on the destination and how long it takes to enter Royal Mail’s UK network. From arrival, the delivery levels are:

  • 1-day delivery with signed and unsigned for options
  • 2 to 3-day delivery with signed and unsigned for options

In addition to the postal options, retailers in most countries will have access to the major global carriers, namely:

UPS - Subject to the point of origin, UPS uses a suite of services - UPS Standard, UPS Express Saver, UPS Express and UPS Express Plus to offer a delivery range typically between 5 days and 1 day with pre 12:00 and 09:00 options.

FedEx - Dependent on the exact delivery location FedEx typically offers 1 to 3-day delivery options from the US using its ‘International First’ and ‘International Priority’ options. From other destinations, delivery times are typically 2 to 5 days (International Economy) or up to 7 days (International Ground).

DHL - DHL’s standard offer for deliveries into the UK is DHL Express Worldwide which offers ‘delivery by the next possible working day’ which is a little vague and each country will have its own lead times. From some markets it will offer pre 09:00, 10:30 and 12:00 options.

DPD - DPD offers cross-border delivery services to the UK from 35 countries, mostly within Europe. DPD Classic offers Europe to UK in 1 to 4 days. DPD Guarantee is available from 14 European countries providing a money back, specified day delivery option and DPD Express extends this to next day delivery with pre 08:30, 10:00 and 12:00 options.

Hermes Europe - Hermes-Europe offers cross-border delivery services to the UK from Germany, Austria, Italy (and France as part of the Mondial Relay network). Upon arrival in the UK Hermes Standard Service offers direct coverage to 99.5% of UK addresses with a 2-day delivery to most locations. Deliveries are made Monday to Saturday but a Sunday delivery option is also available. There is also a Next Day option to 98% of the UK for Tuesday to Saturday delivery again with the Sunday option available.

When sending goods from outside the UK, Royal Mail services are accessed through either the postal authority in the originating country or a commercial service partner. Most notable of these are the companies that are part of the GLS (General Logistics Systems) network, covering 37 countries across Europe. Transit times and service options to the UK will depend on the country of dispatch and the service range offered by the selected carrier. GLS estimates that for parcel shipments, deliveries to the UK will be made between 24 hours and 96 hours from dispatch dependent on where they are sent from.

The other carriers mentioned above will provide their own branded access options in each of the countries they serve which are fully integrated with their UK operations. Senders looking for a more managed carrier solution can look to integration specialists who will provide the interface with a range of carriers and services. This will generally include the production of the right labels (and where necessary, customs documentation) for each carrier and service the sender wishes to use and data exchange including any pre-advice and tracking information.

Providing carrier integration within the UK market are companies like Electio, GFS and MetaPack. MetaPack in particular provides carrier management and integration across 200 countries including into the UK where it can access all of the postal and global carrier solutions already mentioned plus the wider range of UK domestic carriers including Yodel, DX, TNT and UK Mail. [2]

Customer experience

Price, demand and a lack of availability with UK retailers are cited as the key drivers behind shoppers venturing to international retailers with many being unconcerned about where a retailer is based, as long as they’re selling the right product at the right price. A significant number of cross-border purchases are made via marketplace sites such as eBay and Amazon suggesting consumers mainly head to international retailers when the product they’re after is niche. However, price and choice aside, delivery and returns are very important to UK consumers and has now become an important factor, differentiating retailers they will and will not shop with. In order to win customers non-UK retailers should appreciate that 70% of UK consumers positively con rm that a good delivery experience will encourage them to return and shop again with the retailer providing it.

When it comes to delivery location UK consumers still overwhelmingly want delivery to home with in excess of 80% consistently giving this as their top preference. However, home delivery needs to work efficiently. 

Between two thirds and three quarters of UK consumers rank this speci c option as important in making their delivery experience more convenient

  • Safe-place delivery – Providing the customer the option to give safe-place delivery instructions can avoid a missed delivery and the need for a repeated delivery.
  • Neighbour delivery - Providing the customer the option to select a neighbour to accept goods on their behalf can avoid a missed delivery and the need for a repeated delivery. This option has increased in use especially since Royal Mail has been given the regulatory freedom to offer to delivery to a speci ed neighbour.

Despite the preference for home delivery, over the past five years click & collect has been gaining in popularity. This is where the customer can choose to collect their online order from the retailer’s own store, a parcel-shop or a locker bank at a time and place to suit them. Awareness of this option is now very high with 98% of UK consumers and with three quarters having used it or intending to use it in the future. Non-UK retailers should actively look at their ability to access local parcel-shop or locker networks because up to 35% of UK shoppers have used this option which is also popular for returning unwanted orders. This also provides an element of brand association. If the shopper knows and trusts the click & collect provider, that trust extends to an overseas retailer. [3]

Returns

A very important element for any retailer’s offer to UK consumers must be the ability to accept returns and make the returns and refund / replacement process convenient. When surveyed, 60% of UK consumers stated that the ability to return unwanted orders and get a credit was a concern and potential barrier for them shopping with a non-UK retailer. For non-UK retailers unable to offer their own stores for the customer to return to, the most used option is Post Offices, using Royal Mail or Parcelforce to provide the logistics link to the local postal administration. Royal Mail is a leading participant in the recently developed IPC (International Post Corporation) Common Return Platform which allows the seller to provide the consumer with an internationally accepted, pre-paid label. With the UK and Royal Mail as one of the original participating countries, the service is now available from nine other markets.

In addition to Post Offices for accepting returns, non-UK retailers may also have access to the click & collect networks and collection from home services offered by global carriers, which then integrate with their corresponding returns distribution services. As with deliveries there is also the option to use a managed solution through a ‘returns portal’. This is a website (which may have the option to be integrated into the retailer’s website) which the consumer is asked to visit when making a return. This can identify the product, the reason for the return etc. and give the consumer returns options best suited to that situation. Labels and instructions are then provided and once again some click& collect networks may be available. Providers of such returns portals, serving the UK market include RoyalMail, MetaPack, wnDirect and ReBound. When sufficient volumes of orders (and returns) are being generated, another option for dealing with returns is to arrange for them to be consolidated and managed ‘in country’. When selecting the delivery solution, a non-UK retailer should consider in parallel the returns solution. [4]

Taxes

For companies engaged in ecommerce in the UK, taxes divide into three parts:

 

  • Corporation Tax, which is a direct tax levied on UK companies’ profits. This is paid to the UK tax authorities, HMRC, via an annual tax return.
  • Value Added Tax (VAT), which is an indirect sales tax, levied on sales of goods or services by companies to UK consumers. This is paid to HMRC through a quarterly VAT return.
  • Customs duties, which are excise charges charged when businesses import goods into the UK. These are paid to HMRC at the time of the import. Note – there are generally no customs duties to be paid on goods imported from other EU member states.

There is only one major tax on a company’s pro ts, which is currently levied at a maximum rate of 20% (from 1 April 2016). Rules are fixed in advance and announced in the Budget each year. Within three months of commencing trade or becoming active, a UK company or establishment is required to notify HMRC that it falls within the charge to UK corporation tax. Failure to notify can result in a penalty. A company (including the subsidiary of an overseas company) that is resident in the UK for tax purposes is liable to pay corporation tax on its UK pro ts and chargeable gains. Those foreign companies with UK establishments will be liable to this tax on chargeable gains arising on the disposal of any assets that are situated in the UK and used for the purposes of the UK establishment or its trade. Particular rules and exemptions apply to this, and professional advice should be sought.

A company will be considered ‘resident’ if the organisation’s central management and control takes place within UK borders. UK permanent establishments of non-UK resident companies are liable to UK corporation tax generally on:

  • •trading income arising directly or indirectly through the UK establishment
  • income from property or rights used by or held by or for the UK establishment
  • chargeable gains accruing on the disposal of assets situated in the UK and used for the purposes of the establishment

Corporation tax is assessed on total taxable profits (after certain statutory tax adjustments) and chargeable gains in respect of each accounting period. The rate of corporation tax is set for the financial year ending on 31 March. If the rate is changed, the profits of an accounting period that straddles the date of change are apportioned and charged at the appropriate rates.

Trading losses may be utilised in four principal ways by UK resident companies:

  • against other income or chargeable gains arising in the same accounting period
  • against profits of any description in the previous accounting period
  • against trading income from the same trade arising in subsequent accounting periods, or
  • as group relief in the same accounting period to qualifying companies

Taxation of foreign branches Broadly, UK companies are subject to UK corporation tax on the profits of their foreign branches (with credit for overseas tax paid). A UK company may elect for exemption from UK tax on the results of overseas branches. The exemption will apply from the first accounting period starting after the election is made. The election cannot be revoked once that rst accounting period has commenced.

Corporation tax administration Companies have to `self-assess’ their tax position in a similar way to individuals. The times at which corporation tax is payable depend on the size of the company or group paying the tax. Companies should inform HMRC of their annual Corporate Tax liability and pay it nine months after the financial year end. [5]

Import Duties

If goods are imported into the UK from outside the EU, various import duties may become due based on factors such as the tariff classification, customs value and the origin of the goods. VAT will become due upon importation from non-EU countries and certain EU ‘special territories’ when these goods are to be declared for use within the UK. As a general rule, the UK follows EU customs procedures. The UK Customs/VAT Warehousing Procedure allows the storage of goods without such goods being subject to import duties – in such cases, neither VAT nor customs duties are due.

The UK VAT regime is based on the EU VAT Directive, which the UK is required to adopt as a member of the European Union. Like all EU countries, the UK is broadly free to set its own VAT rates within certain criteria. The UK has three VAT rates: 20% standard rate levied on most goods and services; 5% due on limited number of goods; and 0% due on books, foodstuffs and other essentials. Some services are exempt from UK VAT, including financial services. There remain, however, some signi cant and confusing differences of detail between different member states of the EU.

VAT is essentially a tax on consumer expenditure that must be charged by a taxable entity in the course of furtherance of a business. This tax is levied on most goods and services provided by registered businesses in the UK, and most goods imported into the UK from outside the EU. A UK taxable entity is anyone registered or liable to be registered for UK VAT. All VAT registered businesses are obliged to charge VAT on the full sale price of the goods or services that they provide, unless exempt or otherwise deemed outside the scope of VAT. In theory, the final burden of the tax should not fall on business activity. This objective is achieved by an arrangement known as the input/output system. When a business buys goods or services, it pays VAT to the supplier (input tax).

When the business sells goods or services, whether to another business or to a final consumer, it is required to charge VAT (output tax) unless the supplies are specifically relieved from the VAT charge. If the business makes only taxable supplies, it must total the input tax it incurs and deduct this from the output tax charged, reporting and paying the balance to HMRC on a calendar quarterly basis. The result of this is that the final consumers bear the cost of VAT on the final price of the goods or services they purchase.

If you are a UK resident business that supplies taxable goods and services in the UK and your annual taxable turnover exceeds the stated threshold - £83,000 from 1 April 2016 – you must register for VAT. This fairly high VAT turnover registration limit means that a large number of small turnover businesses are not within the VAT system, though smaller businesses can also voluntarily register for the tax. A taxable person is liable to register for VAT if the combined value of their taxable supplies in the UK exceeded the registration limit in the preceding 12 months, or there are reasonable grounds for believing that the value of taxable supplies to be made in the next 30 days alone will exceed the registration limit.

A business may also de-register if the anticipated value of the taxable supplies in the next 12 months is less than the de-registration limit (currently £82,000). Taxable persons from other EU countries selling goods via ecommerce face different rules. If they hold the stocks in the UK, at a rented warehouse space, then they must register their foreign company for UK VAT immediately. They will have to do this to report the movement of the goods from their home state into the UK. If EU foreign companies are holding the stocks in their home state prior to receiving a UK order, then they are not immediately required to UK VAT register. Instead, they are allowed to charge the VAT rate of their home country. However, once they exceed the UK’s threshold for ecommerce sales, known as the distance selling threshold, of GBP 70,000 per annum, they will have to UK VAT register. They then charge UK VAT on their sales to UK consumers and le quarterly UK returns.

It is highly likely that a company seeking to set up in the UK will wish to register for VAT or be required to do so. The registration process requires the non-resident company to complete a registration form verifying the basis under which it will become a taxable person, provide statistical information, etc. The registration should be processed in three weeks. However, during busy periods HMRC can take up to 12 weeks. There are other returns that will need to be rendered if a UK based business trades with customers / suppliers located outside the UK. [6]

Sources

  1. eCommerce Worldwide. United Kingdom Country Guide. "eCommerce in the United Kingdom"
  2. eCommerce Worldwide. United Kingdom Country Guide. "eCommerce in the United Kingdom"
  3. eCommerce Worldwide. United Kingdom Country Guide. "eCommerce in the United Kingdom"
  4. eCommerce Worldwide. United Kingdom Country Guide. "eCommerce in the United Kingdom"
  5. eCommerce Worldwide. United Kingdom Country Guide. "eCommerce in the United Kingdom"
  6. eCommerce Worldwide. United Kingdom Country Guide. "eCommerce in the United Kingdom"
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