Gordon Baird
Director
UK e-commerce businesses selling directly to EU consumers face additional customs costs from November 2026, adding further pressure to margins just as retailers enter the peak Black Friday and Christmas trading period.
The impact could be particularly significant for businesses selling relatively low-value or mixed-product orders, where additional charges can represent a disproportionate share of the margin.
Following the introduction of a (‘temporary’) €3 fee in July 2026, EU Customs authorities have reported a 66% reduction in impacted low value parcel shipments - dropping from 1.5bn to 500m parcels in the first quarter of the fee.
For retailers selling into Europe, determining if their existing pricing, fulfilment and delivery arrangements remain commercially viable will be an unwelcome November task.
What is changing?
Since 1 July 2026, the EU has applied a temporary €3 customs duty per item category, or tariff line, to qualifying B2C distance-sale consignments with a total value of €150 or less. For clarity, an “item” means one or more goods in a consignment that share the same tariff classification, description and, where applicable, origin. Under current rules, the charge is applied per customs declaration line, regardless of the quantity of identical products on that line.
A simple example: three identical T-shirts declared on one tariff line attract one €3 charge. A T-shirt and a candle, which would normally sit on different tariff lines, attract two €3 charges.
From 1 November 2026, the EU also applies a €2 Union handling fee per declared item. For qualifying low-value consignments, this is in addition to the temporary €3 customs duty. The temporary duty is currently due to apply until 1 July 2028, when the EU Customs Data Hub is scheduled to launch, and this charge will potentially be replaced –although the timetable may change if the infrastructure is not operational.
The precise impact will depend on the goods being sold, their classification and origin, the value and composition of each order and the retailer's existing customs, VAT and delivery arrangements.
Why could lower-value orders be particularly exposed?
A few euros of additional cost may initially appear relatively modest, but the effect needs to be considered in the context of the margin generated by each transaction. This can be particularly important for businesses selling mixed orders containing goods with different tariff classifications or origins, where charges may accumulate across a single consignment.
Gift retailers, fashion businesses, speciality food and drink suppliers, beauty and consumer-goods businesses could therefore be among those that need to look particularly closely at their position.
Retailers need to understand the true landed cost of the order, including:
- customs duties and handling fees;
- import VAT where applicable;
- Carrier, insurance and administration fees;
- fulfilment and delivery costs;
- the cost of returns or refused deliveries; and
- the margin remaining after those costs have been absorbed.
DDP vs DAP: Are your delivery terms creating a customer experience problem?
Under Delivered Duty Paid (DDP), the seller takes responsibility for import formalities and agreed duties and taxes, allowing the customer to see a more complete price before delivery. In the EU, this may result in a liability to register for VAT purposes and account for VAT at the appropriate rate (standard VAT rates differ across the EU) to the tax authorities in the country of delivery.
Conversely, under Delivered at Place (DAP), the seller delivers to the named destination, but the customer may become responsible for import clearance, duties and taxes when the goods arrive usually via a courier acting as their agent.
DAP can reduce the immediate cost borne by the seller but unexpected customs, VAT or courier charges at delivery can lead to refused parcels, complaints, returns and weaker repeat-purchase rates. This risk is especially relevant for gifts and time-sensitive purchases during peak trading.
Businesses should therefore consider customs costs alongside the customer journey and delivery experience, rather than treating them purely as a tax or compliance issue.
What is IOSS, and does it cover the new charges?
The Import One-Stop Shop (IOSS) is an EU VAT simplification for eligible distance sales of imported goods in consignments with an intrinsic value of no more than €150. It allows a seller or marketplace to collect import VAT at checkout and report it through a single monthly IOSS return, helping to reduce unexpected VAT demands when the parcel reaches the customer.
IOSS does not remove the temporary €3 customs duty or the €2 Union handling fee. These are customs charges, not import VAT, and can still apply to qualifying IOSS consignments. Businesses should therefore note that an existing IOSS process does not capture the full landed cost of an EU order.
Is it time to revisit your pricing?
The mix of items in a customer order can drive the Customs fees. Adding a low-value product from a different tariff category or origin could generate an additional customs-duty charge that is significant relative to the value and margin of that item.
Retailers should therefore review product classifications and pricing to identify loss-making shipment items.
Retailers also need to decide who ultimately absorbs the additional cost. Absorbing every additional customs charge may protect the customer experience but reduce margin. Passing additional costs directly to customers may protect margin but make products less competitive.
There may therefore be a wider commercial question around whether EU sales require a different approach to:
- product pricing;
- minimum order values;
- delivery charges;
- product bundles;
- promotions and discounts; or
- markets and product lines being targeted.
Could a different fulfilment model work better?
For businesses making significant volumes of EU sales, the changes are also a reason to review how orders reach customers. Depending on the circumstances, that could include DAP or DDP arrangements, IOSS where appropriate, EU-based inventory or warehousing, marketplace or intermediary models, and existing carrier and customs processes.
There is no single model that will suit every e-commerce business. The right approach depends on sales volumes, average order values, product mix, customer locations, VAT treatment, supply chains and the amount of additional cost the business can absorb.
Five areas e-commerce businesses should review now
1. Map your EU sales
Understand how much revenue and margin is generated from EU customers, including typical order values, individual markets and product combinations.
2. Identify the orders most exposed
Review product classifications and origins to identify potential orders involving multiple declaration lines or lower margins where the new charges could have the greatest impact.
3. Recalculate landed margins
Model profitability after customs duties, handling charges, VAT where relevant, carrier costs and the potential cost of returns or refused deliveries.
4. Review delivery and fulfilment arrangements
Consider whether existing DAP, DDP, IOSS, carrier and fulfilment arrangements remain appropriate for both the business and the customer experience.
5. Decide whether the commercial model needs to change
Consider whether pricing, delivery charges, minimum order values, product bundles, supply chains or fulfilment arrangements need to be adjusted to protect sustainable margins.
Look beyond peak trading
The immediate concern is the festive period, but businesses should not treat this as a short-term Christmas issue. EU customs reform is placing greater responsibility on businesses facilitating cross-border e-commerce. For UK businesses seeking to grow European sales, customs and fulfilment arrangements are therefore a strategic commercial consideration, not simply an end-of-transaction compliance process.
We’re here to help
The new customs costs do not necessarily mean selling directly to EU consumers is no longer commercially attractive. They do, however, make it more important to understand the true landed cost and margin of each sale.
Our Customs and International Trade specialists can help e-commerce businesses assess the impact of the changes, review customs and VAT arrangements and consider whether changes to pricing, delivery terms or fulfilment structures could improve the commercial position.
If you sell directly to EU consumers, reviewing your arrangements now can help identify margin pressure before it reaches the customer or your bottom line. Speak to your usual Azets adviser or a member of our specialist Customs and International Trade team.