Directions for cross-border e-commerce expansion: United Kingdom

Although the emotions and debates surrounding the United Kingdom’s exit from the European Union (Brexit – January 31, 2020) have long since subsided, the relatively new reality may still raise doubts among entrepreneurs wishing to start online sales in the UK market. The interest in expanding in this direction is due to many aspects, such as the popularity of e-commerce in this country and the enormous purchasing power of society, which we will discuss in detail in the following paragraphs of this article. Additionally, the text will include information regarding tax settlements for cross-border sales, as well as a classic analysis of local e-commerce and its major players. We invite you to read on!

Market analysis

Including the United Kingdom in the series of articles in which we meticulously build a map of cross-border e-commerce expansion within the European Union will slightly disrupt the previously presented ranking based on GDP. Recall that the top three positions were previously held by:

• Germany – €4.12 trillion
• France – €2.8 trillion
• Italy – €2.09 trillion.

However, it is impossible not to mention the UK due to its high level of development in the online sales sector and significant purchasing power. Last year, the country generated a GDP of €2.274 trillion, thus, if not for Brexit, it would have ranked third among the largest economies in the Community. During the same period, GDP per capita was €33,271 (which is below the median wage for full-time employees, which was €34,963), and the population numbered approximately 68 million, with an unemployment rate of 3.8% (Statista Research Department, December 2023). In comparison, the average in the EU at that time was 6.4%. Similarly to the other countries discussed, youth in the UK is a group with the highest percentage of people who are economically inactive – 11.6% in December last year. Inflation (for CPI – Consumer Price Index) during this period was 4% – it is worth noting its downward trend, as in October of the previous year, it was as high as 11.1%. To emphasize this reduction, it is noted that the Statista reading from June 2024 shows only 2%, thus below the Community average of 2.6%.

Let us take a look at the private enterprise sector, where the last three years have seen a slight regression. The first two decades were characterized by relatively stable growth – at the beginning of the millennium, there were 3.47 million entities, and after two decades, there were already 5.98 million companies. The third decade began with a decline to 5.59 million, and subsequent years solidified this level – 5.51 and 5.56 million (2022 – 2023). For a better understanding of the economic situation, let’s also look at the number of businesses in various sectors according to data from the UK Department for Business, Energy and Industrial Strategy:

• Construction – 888,065
• Science and technical industries – 771,285
• Retail and wholesale – 547,545
• Services and administration – 497,120
• Logistics and warehousing – 348,115
• Health and social activities – 342,750
• Communication – 318,550
• Education – 310,095
• Arts and entertainment – 280,525.

Finally, let us analyze the balance of imports and exports. The former in the years 2020-2022 amounted to: $638.25 billion; $694.64 billion; and $823.94 billion. The main partners of the UK in this regard were then China (13%), Germany (11%), the USA (8%), the Netherlands (6%), and Norway (5%). On the other hand, among the largest exporting countries for the UK were the USA (13%), Germany (9%), the Netherlands (8%), Ireland (7%), and Switzerland (6%). However, we must emphasize that the balance has remained negative since 2012 – this means that the United Kingdom imports more goods than it exports. The values during the years 2020-2022 were as follows:

• -$238.72 billion
• -$244.13 billion
• -$293.71 billion.

VAT in the UK for online sellers

The UK is still a very popular destination for e-commerce sellers. However, it is important to note that if you sell goods and services in the UK, you may need to register for VAT. On January 1, 2021, the new UK VAT regulations came into force, thus the UK is not subject to EU VAT settlement regulations – for example, you can’t use the EU VAT OSS procedure under the VAT e-commerce package, which from July 1, 2021 allows you to collect and remit VAT on sales in all EU countries in one country.

In the case of sales to the UK, we are talking about the export of goods, which are taxed at a 0% rate in the European Union, but are also subject to UK VAT registration, rates and settlement requirements.

When is VAT registration required in the UK?

In order for registration for VAT in the UK, for non-UK e-commerce entities, to be mandatory, one of the specific conditions must occur:

• the company sells goods and services to UK buyers, and the total value of these sales during the year will exceed £70,000,
• the company stores its goods in the UK and sends them to its buyers from different countries,
• the company imports goods into Europe through the UK.

In addition to mandatory registration for UK VAT, the company can, of course, also voluntarily register for UK VAT. However, it must then also comply with all the obligations of a VAT payer, including issuing invoices with UK VAT, settling at the applicable rates and filing the relevant returns.

You can find the full article with all details regarding UK VAT at: https://amavat.eu/uk-vat-registration/.

Characteristics of local e-commerce

The value of British e-commerce exceeded 100 billion US dollars in 2020 (124.27 billion USD), reaching 131.5 billion USD last year. Which product categories played the most significant role in this outcome? According to Statista, the revenue per sector in the top six, measured in billions of USD, was as follows:

• Fashion – 39.65
• Electronics – 25.75
• Beverages – 12.99
• Food – 12.6
• Furniture – 7.17
• DIY – 5.89
• Beauty – 5.14

These figures are also reflected in statistics published by PPRO, which indicate the market value share of the largest segments: 31% belongs to the fashion industry, 19% to toys, hobbies, and DIY, and 18% to electronics and media. The next 17% went to food, and 15% to furniture and household appliances.

At the same time, the UK is the only country among those ranking at the top of the Old Continent where retail e-commerce has represented over a quarter of total retail sales for the past three years:

• 2020 – 26.2%
• 2021 – 28.9%
• 2022 – 26.5%

In comparison, in Germany, these rates were 19.9%, 21.9%, and 19.6%, while in France, they were 14.3%, 14.6%, and 14.9%, confirming the significance of the online sales sector in the UK. This data is also validated by the number of e-commerce users—according to a Statista report, there were as many as 59.9 million people last year, indicating a penetration rate of 97.25% (sic!).

What payment methods do UK residents most often use for online purchases? Among the most popular are digital wallets (35%) [such as Google Pay, Apple Pay], credit cards (24%), and debit cards (22%), as well as online transfers (9%) and deferred payments (8%). This situation is also reflected in a report published by Salesforce Research, which states that in the fourth quarter of 2023, 80% of traffic to e-shops was generated by smartphone and tablet users, while only 20% came from computers. Similarly, in terms of order share, mobile devices dominated at a ratio of 73:27%. In a multiple-choice survey conducted by Statista in 2023, respondents indicated the following usage of various devices for online shopping:

• Smartphone – 69%
• Laptop – 43%
• Tablet – 28%
• Desktop computer – 20%

The last report we will reference in this section is a study conducted by DPD, from which we derive two particularly important categories of information:

• The frequency of online shopping per product category.
• Key decision-making factors.

Regarding the first point, we will focus on categories most relevant to entrepreneurs selling on marketplace platforms.

In the beauty sector, as much as 59% of British e-consumers make a purchase at least once a month, while exactly half of customers order at least one package of sports accessories in the same period. An additional 33% buy home accessories or decorations at least once a month, 29% electronics, and 25% furniture.

Moving on to the second point, over 90% of respondents confirmed that the following options are crucial in the decision-making process:

• The option for eco-friendly delivery (93%)
• The ability to return items in-store (95%)
• Transparent and full refunds (94%)
• Product comparison (94%)
• Quick purchase without account creation (92%)

Largest e-shops & marketplaces

To accurately present the largest players in the British e-commerce sector, we will categorize the data according to the following methodology:

• E-shops in a general sense.
• Sales platforms.

Furthermore, due to the previously mentioned statistics confirming the enormous importance of mobile devices in online shopping in the UK, we will present data on app downloads. Finally, we will highlight key entities in the most popular product categories—fashion and electronics. Let’s begin!

According to data published by Statista, the largest e-shop in the UK by sales value is, of course, Amazon, with a result of 16.112 billion USD, which attests to its undeniable dominance, as Sainsbury’s took second place with nearly 10 billion less in revenue (6.587 billion USD). Tesco closed the podium with 6.398 billion USD. The next two spots went to Asda.com (5.123 billion USD) and Argos (4.161 billion USD). When it comes to the most downloaded apps for online shopping, only one representative from the aforementioned big five made it into the top five of this ranking, and that was the global e-commerce giant, which secured fourth place with 4.97 million downloads. This result was surpassed by:

• Temu – 20.76 million downloads
• Vinted – 8.87 million downloads
• Shein – 7.36 million downloads

The last spot in the top rankings was taken by Too Good To Go with 3.5 million downloads.

Now, let’s take a look at sales platforms. Thanks to SimilarWeb, we know the internet traffic generated by the largest domains:

• Amazon – 328.1 million visits per month
• eBay – 218.8 million visits per month
• ASOS – 70.8 million visits per month
• Wayfair – 10.5 million visits per month
• Vinted – 9 million visits per month

To present key players even more precisely, let’s analyze the largest domains in top product categories. In the fashion sector, the podium with results reported in billions of USD featured Sainsbury’s (6.587), Next (2.199), and ASOS (1.875). Meanwhile, among electronics seekers, the most popular were Amazon (4.344 billion USD in revenue solely from this category), Apple (2.289 billion USD), and Currys (1.527 billion USD).

Is it worth considering online sales in the UK?

This is certainly an expansion direction that requires a much greater effort—due to Brexit, Polish entrepreneurs planning to sell online in the UK must prepare for exporting outside the community’s borders and thus do without most of the conveniences introduced by it, such as the VSTO or OSS. Nonetheless, as indicated by many of the data and reports referenced above, this country has a highly developed e-commerce awareness, and the share of e-commerce in total retail turnover is the highest among countries in the Old Continent. It is also worth recalling that Amazon is the leading player there, significantly facilitating expansion for sellers who have previously operated on marketplaces within the European Union.