The retail world has undergone significant changes in recent years, largely driven by the advent of the web and the growth of online shopping.
Where once consumers would go to a store or use mail order and wait weeks for an order to be received, now it’s possible to order online – from the other side of the world – and receive goods in just a few days.
Naturally, governments aim to protect domestic businesses and collect tax revenue, hence the application of import duties and VAT on goods entering a country. But to ease trade, there’s the application of a ‘de minimis’ rule, which effectively exempts goods below a certain value from import taxes.
De minimis plays a crucial role in global shipping and customs, significantly impacting e-commerce businesses and those who purchase products internationally. Its value is determined by individual countries and can vary significantly from one country to another.
In the UK, it’s £135, in Australia, it’s AUD1000, and €150 in the EU. And until recently, it was $800 in the US.
However, President Trump signed an executive order on 30 July “to deal with national emergencies and save American lives and businesses now” that removed the exemption from 29 August. The move is to be enshrined in law from July 2027.
And it looks like the EU will follow suit, given time.
The effect on the US is yet to be seen, but US nationals are likely to pay more for small items they buy online, assuming that firms outside the country still find it economical to send such goods.
Notably, there are calls within the UK for the government to follow the US example; inexpensive small goods imports worth £5.9bn entered the UK tax-free during 2024-25 according to HMRC data released to Sky News following a Freedom of Information request. This is a 53% increase on the previous year’s figure of £3.9bn.
In particular, companies such as Shein and Temu have taken advantage of the exemption and led the charge in increasing the volume of inexpensive goods being imported into the UK.
The British Independent Retailers Association (Bira) is very unhappy that the government has, thus far, taken no action to limit the abuse of the de minimis rule.
It cites research from Sky published at the end of July, which said that “companies like Shein and Temu have become big players in British retail, not to mention elsewhere around the world, by manufacturing cheap products in China and then posting them directly to consumers, benefiting from the de minimis rules.”
BIRA reckons that de minimis is having a detrimental effect on independent retailers as well as manufacturers across the UK.
That said, if the de minimis rule were to be abolished, then, as in the US, lower-income households would end up paying a proportionately higher amount for their purchases from overseas.
Clearly, a government in need of tax revenue will welcome the value that duties on low-value goods might bring; just a simple tariff of 20% on the £5.9bn imported last year would add £1.18bn to the Treasury if volumes of goods imported didn’t drop.
The government is still deliberating on the topic, with no date yet set for an announcement.
Regardless, it needs to be noted that the removal of de minimis is a double-edged sword; while it hampers the ability of overseas firms to sell inexpensive goods to UK consumers, it also has the same effect on UK firms selling overseas. As the Scotsman observed, the rule’s removal with a 10% duty “could add $80 to Scottish products sold in the USA” based on an import value of $800.
Who wins then?