United Kingdom Country Guide 2017 Cross-Border Trading Report Your guide to international e-trading
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United Kingdom
Country Guide 2017
Cross-Border Trading Report
Your guide to international e-trading
A report researched & compiled by eCommerce Worldwide
in conjunction with IMRG supported by
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The UK Country Guide 2017 is the latest publication in a
series of international trading guides produced and maintained
by eCommerce Worldwide, our sister associations and
supporters for a variety of key territories around the globe.
The UK guide is compiled in partnership with IMRG, the UK
e-retail association.
These are designed to operate as comprehensive guides for cross-border
e-Trading, exclusively focusing on the B2C markets in their subject territories.
The complete set of published Guides are available for download on the
eCommerce Worldwide website at ecommerceworldwide.com/countries
and on the websites of our approved publisher network.
For more information please visit
www.ecommerceworldwide.com
or you can email
info@ecommerceworldwide.com
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CONTENTS
Foreword 6
Executive Summary 8
Introduction 10
Territory Overview 11
Online & Mobile Statistical Overview 13
Marketing 18
Finance & Payments 25
Taxation 26
Legal Framework & Regulation 30
Fraud 34
Logistics & Communications 36
Optimising Customer Experience 44
References 46
About Royal Mail 47
About IMRG 49
About EWW 49
About Avalara 50
About Bond Dickinson 51
5
FOREWORD By Royal Mail The UK provides a wealth of opportunity for any online retailer, whether they are based in the country itself or exporting into the UK from outside. Online shopping in the UK continues to grow. 77% of those with access to the internet already shop online and online retail in the UK was worth £133 billion in 2016, increasing by over 10% in 2015. You can find more information about Royal Mail services at: royalmail.com/business/services/sending/parcels 6
UK online consumers are arguably the most We have also been busy transforming our business
sophisticated in the world with a continued to enhance the service we offer and we understand
demand on delivery services and use of multiple what online shoppers want.
devices to shop, particularly mobiles. UK consumers
For over 8 years we have been exploring the needs of
are highly attractive to non-UK retailers with a high
shoppers through our independent research Delivery
per capita online spend and a confidence in online
Matters, to ensure retailers can provide the best
retailing which means they are fully prepared to look
possible service to their customers. We know that
outside of the UK to buy the products they want if
value for money is important for online shoppers
the price, quality etc. is right.
– and we know that delivery charges are really
UK online shoppers have high expectations of important and have a big impact on purchasing
their online shopping experience particularly decisions. Equally we know that you can trust Royal
around delivery which results in the perennial Mail to deliver, we’re the most trusted national
problem of cart abandonment. Based on this it is delivery company year-on-year by online shoppers*.
essential that retailers offer a great overall online And trust translates into sales – 76% of online
and delivery experience to win repeat business. shoppers are more likely to use an online retailer
Competition in the UK is fierce so online retailers if they use Royal Mail for delivery*. Our network
need to go above and beyond to build reputation. enables us to deliver more than 1 billion parcels a
Despite this it is clear the opportunity in the UK is year to over 29.3 million addresses all-year-round.
undeniable and major marketplaces Amazon and
As the most trusted delivery company in the UK*
eBay make reaching online shoppers in the UK
we are pleased to sponsor the 2017 IMRG UK
easier for online retailers in the UK and beyond.
Country Guide, which is full of great insights into
At Royal Mail, we understand the delivery the challenges and opportunities faced in the UK
experience and how important it is to online ecommerce market.
shoppers. We have been delivering to doorsteps
for around 500 years so we have the experience to
provide a great delivery experience to shoppers.
Nick Landon
Managing Director
Royal Mail Parcels
UK retail sales at £340 billion
in 2015 with online retail
27% sales making up 27% of this
number.
* Delivery Matters UK, April 2016, conducted independently Source: IMRG/Capgemini
by Trinity McQueen
7EXECUTIVE SUMMARY
The UK is one of the most advanced ecommerce countries in the world, so it
isn’t unexpected that many brands are looking to expand into the market.
This report will provide the reader with the insight and background to either
reinforce their decision to invest, or highlight those areas that they will need to
think about more closely.
With an adult population of around 50 million and During this period, there will be swings in
90% access to broadband, there is plenty of market sentiment and confidence but ultimately,
opportunity. 77% of those with access to the internet business will find a way to trade and consumers
already shop online and online retail in the UK will still want to consume. In the meantime,
was worth £133 billion in 2016, increasing by over the UK is still part of the EU and subject to the
10% in 2015. There is also a high incidence of common legislation and benefits of access to the
cross-border shopping, with more than 50% of open market and customs union.
online shoppers having already shopped on a
eCommerce has been so successful in the UK
non-UK website.
due to geography, investment in infrastructure,
The obvious question mark at present is what and willingness of the population to adopt digital
impact the UK’s decision to leave the European technologies. The main metropolitan areas are
Union will have not just on trade, but also on obvious targets for any international merchant,
consumers’ attitudes, legislation, and the but consideration should be given to how the
overall economy. The process to leave, or ‘Brexit’, populations of rural areas will be served; there is
was triggered in March 2017 and will run certainly a drive from their perspective to be part
for 2 years. of the digital community.
8UK internet users are also a social
group. Over 80% of them use social
media regularly, with Facebook
leading the charge.
This is reflected in a high level of smartphone Online payments are dominated by credit and debit
ownership, with these mobile devices also being cards. However, eWallets are increasingly important
responsible for over 50% of website traffic and 55% and there are innovations emerging that allow for
of purchases made via mobile devices. In terms direct bank payments, payment by invoice and
of finding product, Google dominates the search mobile-enabled apps. The pace of change is going
landscape, and have widely publicised the increasing to increase as new payments regulations come
volumes of search originating from mobile devices, in to force in January 2018, allowing for Fintech
which provides international merchants with an businesses to expand whilst increasing security
opportunity to compete in the local market, for users.
often when the user is in a competitor’s store.
The UK operates under stable taxation and
UK internet users are also a social group. Over 80% legal systems which, while this may change
of them use social media regularly, with Facebook post-Brexit, currently operate under EU ‘norms’.
leading the charge. Snapchat and Pinterest also There are a couple of major changes in the legislative
have strong followings, particularly amongst environment happening in 2018. The first is around
younger users. The latter shows promise as a data protection, with the introduction of the
tool for inspiration and product discovery. General Data Protection Regulation, which changes
areas such as gaining consent, procedures, liabilities,
Key categories for online shoppers in the UK
reporting and fines. The other area is around online
include fashion, electricals, and health & beauty.
privacy — cookies, definitions of personal data,
Drivers for shopping international include variety,
tracking and marketing. These rules changes
choice, and value.
take effect in May 2018, irrespective of the
The main driver of revenue for retail websites Brexit schedule.
is natural search traffic, irrespective of device.
With excellent road and rail communications,
Affiliates are also strong contributors of revenue,
the UK consumer benefits from a wide range of
with good return on investment (ROI) whilst PPC
delivery options when shopping online. Next day,
performs well. Email is still the perennial favourite
locker boxes, Click & Collect, premium and standard
for driving awareness and revenue, with mobile
options (3-5 day) and increasingly timed and
usage contributing to increased engagement
weekend delivery choices make it very easy for the
and effectiveness.
customer to get what they want, when they want it.
Direct mail retains a role in the marketing The financial models employed are varied,
communications activity of many brands, but ‘premium’ services don’t always attract
increasing engagement, good open rates and ‘premium’ prices. Consumer choice is key and being
proven conversion influence. open at the point of product discovery is important;
Media on the move is also in strong demand, local competition is only a click away!
with 27% of UK adults having listened to radio UK online shoppers are generally very sophisticated
via their smartphone and one of the biggest in the way they shop and their expectations.
increases in digital advertising being seen in the Being open early on in the engagement will
field of Video on Demand (VoD). Increasingly, deliver big benefits for international merchants.
retailers are using this tool to drive engagement Whether this is around marketing choices, payment
through product awareness, inspiration from options, delivery, returns or customer support,
experts, and how-to guides, all of which are avidly giving them the information required for an
consumed by the online audience and resulting in informed purchasing decision will open them up to
new commercial opportunities. international merchants who can offer something
different, at the right price and on competitive terms
to the local market.
9INTRODUCTION
The UK has a relatively mature and sophisticated e-market of around 41 million
high-spending online shoppers - who spent £133bn online in 2016 alone. This potential
for high financial return together with the relative ease of setting up a business in this
location clearly make the UK an attractive destination in which to set up an online
shop. To sell within this territory, however, an aspiring entrepreneur should exercise
caution; successfully setting up and selling within a new territory involves much more
than just acquiring a new URL.
Although the extensive UK marketplace is diverse With its multichannel shopping culture, the UK also
and highly competitive, British consumers always leads Europe in terms of mobile revenues, and a
have a keen appetite for fresh and novel goods and prospective merchant will benefit from being able to
are very willing to try new things - especially those identify and exploit such developing opportunities.
who are well-versed in social media. As such, any Finally, shoppers in the UK are the beneficiaries
prospective e-merchants will need compelling, of a vast array of consumer protections, imposed
unique and preferably exclusive offers, and will by both UK and European law. A comprehensive
need to put mechanisms in place to attract their understanding of all of these areas is a necessary
target customers’ attention in this well-subscribed element of an aspiring e-retailer’s journey.
marketplace. They will also need to build and
Ultimately, whilst many factors make the UK an
retain high levels of consumer confidence and fulfil
excellent and rewarding location in which to set
expectations in order to ensure the completion of the
up an online shop, as with any new trading
order process and good levels of customer retention.
location, care should be taken to thoroughly
It is essential that an aspiring entrepreneur is also
research and analyse your new market and its
aware of the various hurdles and developments in
rules and procedures.
the UK marketplace and infrastructure, and caters
for them accordingly.
In recent years, UK consumers have grown
accustomed to fast-loading web pages,
comprehensive information in English, debit /
credit card payments, and, at least above a certain
threshold, free standard delivery with easy returns.
10KEY UK POPULATION AREAS RANKED BY LATEST
COMPARABLE GDP DATA ($M)3
Source: Brookings Institute, 2014
LONDON
$796,883 billion
BIRMINGHAM
$115,450 billion
MANCHESTER
$87,979 billion
GLASGOW
$54,114 billion
CARDIFF
$34,339 billion
EDINBURGH
$30,989 billion
TERRITORY OVERVIEW
Supported by Royal Mail
OVERALL
World ecommerce rank: 3
Population: 64 million
Constituent countries: England, Scotland,
Wales and Northern Ireland
Official language: English You can find more information about
Gross domestic product : 2.94 trillion USD Royal Mail services at:
royalmail.com/business/services/
Currency: Pounds Sterling (GBP)
sending/parcels
11COUNTRY STATISTICAL PROFILE: UNITED
KINGDOM
The below table displays the overall country statistical profile for the UK. The table was assembled using
OECD iLibrary data, and forms a useful comparative piece when viewed in conjunction with the identical
statistical profiles in other Cross-Border Trading Country Guides. For the purposes of these Country Guides,
in this section we will be using the US dollar (USD) as a comparative currency.
UNIT 2010 2011 2012 2013 2014
Production and income
GDP per capita USD current PPPs 35 859 36 575 37 605 38 743 39 709
Economic growth
Real GDP growth Annual growth % 1.5 2.0 1.2 2.2 2.9
Taxes
Taxes on the average worker % of labour cost 32.6 32.5 32.1 31.4 31.1
Trade
Imports of goods and services % of GDP 31.3 32.3 32.2 32.0 30.3
Exports of goods and services % of GDP 28.6 30.7 30.1 30.0 28.4
Goods trade balance: exports minus
Bln USD -156.6 .. -207.9 .. ..
imports of goods
Prices and interest rates
Inflation rate: all items Annual growth % 3.3 4.5 2.8 2.6 1.5
Inflation rate: all items non food non
Annual growth % 2.9 3.2 2.3 2.1 1.6
energy
Employment
Employment rate in population aged
% 50.2 49.6 49.6 48.5 51.2
15-24
Employment rate in population aged
% 79.7 80.0 80.3 80.8 82.0
25-54
Employment rate in population aged
% 56.9 56.7 58.0 59.6 60.8
55-64
.. Not available
Based on latest data from: Source: OECD Factbook statistics. For explanatory notes, see OECD Factbook 2014
(DOI: 10.1787/factbook-2014-en)
12Online & Mobile Statistical Overview
OVERALL
Technological penetration
Number of internet users 2016:
46 million (88%)
Number of mobile phone subscriptions 2016:
91.5 million (108%)
Proportion of adults with a
smartphone 2016: 71%
Rank Domain National website domains
1 .co.uk In the UK, the two most prestigious domains are ‘.co.uk’ and ‘.com.’ Other,
2 .com mainly non-commercial, domain names include .org and .ac, the latter of
3 .net which is mainly used by academic institutions.
Popular search engines (Desktop):
This diagram shows the three most popular search engines
in the UK, together with the relative percentages of their usage
Primary Search Engine 88%
Secondary Search Engine 9%
Tertiary Search Engine 3%
88% 9% 3%
Popular search engines (Mobile):.
94.38%
3.24%
2.06%
other 0.32%
13SOCIAL MEDIA
Over 80% of British internet users are active on social media, with Facebook being the most popular platform.
It was also reported that a British consumer is also likely to be a member of at least two different social
networks.
Whilst it is currently hard for many brands to see social media’s direct effect on sales in the UK
(see ‘Marketing’), it is still considered to be a valuable marketing and brand-education tool.
Leading social media platforms in the UK are:
Facebook Google+ Pinterest
Twitter LinkedIn Snapchat
Recent survey information has also shown sharp
growth in the popularity of Snapchat and Twitter
amongst the teenage population. Smartphones and
tablets have been recorded to be the most popular
devices from which people access social
media platforms.
E-RETAIL IN THE UK
UK ecommerce 2016 £133 billion
UK m-commerce 2016 £72 billion
smartphone 2016 55% of web sales (fashion)
tablet 2016 45% of web sales (fashion)
2016 average online spend per capita: £3,325 (inc. travel)
2016 average order value (excluding travel): £76
2016 average order value (including travel): £130
Online’s percentage of total retail in 2016: 27%
HOW THEY BUY 46%
BROADBAND VS MOBILE 54%
Mobile commerce (which includes both sales via tablets and
smartphones) accounted for 56% of the UK e-retail market in
2016, up from less than 1% in 2010. 68% of retail visits are now
coming via mobile, according to the IMRG Capgemini Quarterly
Benchmarking Report.
The latest data from IMRG indicates that 54% of UK consumers
have used their smartphones to shop online for products, Illustration of m-commerce and shopping behaviour
while 46% have purchased goods via a tablet device. based on device
14PEAK ONLINE SHOPPING TIMES
In the UK, peak online shopping times include:
• Mondays, but Sunday evenings are also becoming a peak • ‘Cyber Monday’ - the first Monday in December and the two
shopping time for ‘sofa surfing’ on tablet devices weeks prior to Black Friday and moving into December now
constitute online peak sales period
• Black Friday – the fourth Friday in November; represents a • high levels of consumer traffic is seen during commuting
trading period in the UK. Covering 2 weeks,culminating in hours (7am – 9am on weekdays), when retailers have reported
Black Friday itself, now accounts for £6.46bn in online sales spikes in traffic as consumers are accessing websites via
and pulls forward Christmas ‘Peak’ into November. smartphones. Spikes are also seen during lunchtime and in
the evenings on tablet devices
RETAIL CATEGORIES
The top-selling UK online retail categories are displayed in the table below, ordered by overall sales.
Ranking Sector
1 Clothing and fashion
2 Electricals
3 Beers, wines, and spirits
4 Travel
5 Health and beauty
6 Gifts
The below chart then sets out the UK e-retail categories with the highest growth rates from
January 2009 to December 2015.
E-RETAIL CATEGORIES
This chart shows that, within e-retail, the ‘accessories’ category has seen by far the largest level
of growth in the past five years, more than doubling the growth of any other category.
Index Growth: Jan 2019 to Dec 2016
Accessories 1030%
Lingerie 366%
Footware 264%
H&G 255%
Clothing 197%
H&B 178%
Gifts 168%
Total Market 167%
BWS 112%
Travel 110%
Electrical 108%
0 200 400 600 800 1000 1200
Source: e-retail Sales Index
15ONLINE & MOBILE E-RETAIL GROWTH
The table below shows the average e-retail growth recorded since 2009
30
2009 14%
2010 18%
2011 16%
15 2012 14%
2013 16%
2014 14%
0
2015 11%
2009 2010 2011 2012 2013 2014 2105 2016 2016 10%
Levels of e-retail growth in the UK have been steadily growing since 2000, as shown by the graph below,
which charts this growth between June 2000 and December 2016.
2015 +42%
2016 +15%
Mobile commerce has been growing rapidly in the UK since 2010. The below diagram shows that the average
m-retail growth recorded over recent years (including both smartphones and tablets) is still growing, but in
more recent years the rate of that growth has settled. This trend is expected to continue.
16AVERAGE M-RETAIL GROWTH IN UK
The graph below illustrates how mobile commerce has grown over the past 4 years:
200 Smartphone
186%
M-retail
Tablets
150 Total E-retail
138%
131% Desktop and laptop
100 93%
79%
47%
50 42%
25% 29%
36%
16% 16%
14%
8% 11% 7%
0
-3% -2%
2013 2014 2015 2016
-50
LEADING ONLINE RETAILERS
1. Amazon
2. Apple
3. Argos
4. Tesco
5. ASDA
CROSS-BORDER
Cross-border purchasing is popular amongst UK consumers, with 65% of those surveyed in 20156 confirming
that they had previously ordered from non-UK websites, and 90% said they would do so again.
The table below indicates the leading international shopping destinations for UK online shoppers
Cross-Border e-retail Rank Country Online as Percentage of Total Retail
1 United States 60%
2 Europe 57%
3 Asia 53%
4 Australia 12%
5 Other 4%
17MARKETING
The channels and methods e-traders choose to market their products in the
UK have far-reaching implications for the overall success of their businesses.
Researching successful territory marketing channels is a key first step for any
developing organisation. This section examines the most popular and effective
marketing mechanisms in the UK, and has the aim of assisting you in making the
best overall choices for your business.
Overview
Natural search provides by far the biggest share of Via mobile channels, affiliates still provide valuable
revenue, at 28.5%, for an e-retail website according to traffic, averaging a 6.5% contribution to total revenue
IMRG’s Quarterly Benchmark. Interestingly, this also contribution. Affiliates are particularly strong in the
remains true irrespective of device; desktop (31.8%), fashion vertical, with nearly 10.7% of revenue coming
tablet (26.8%) or smartphone (25.9%). Direct traffic, from this marketing channel; pointing to the strong
at 22% is the next biggest source of revenue and role that these sites have in building range awareness
obviously the most cost effective. Revenue from and facilitating transactions.
paid-for traffic accounts for 20.3% of the total and
It is important to note that certain marketing
whilst having a direct cost, still provides a strong
activities, such as social and banners, might not
Return on Investment (ROI). For example, for every
have an obvious link to revenue generation, they do
£1 spent on Pay-Per-Click (PPC), the average
have a strong role in building brand and in the case
ROI is £7.69.
of social, an important communications channel
In comparison, revenue derived from social with customers.
marketing in the UK is currently limited, accounting
The graph on the next page shows visits split by
for just 0.3% of total e-retail revenue in 2015, down
marketing method since Q1 2012
from 0.8% in 2010. There has been little change in
the percentage of revenue derived from display
marketing, which accounted for 0.7% of total revenue
in 2015. Affiliate marketing however is growing and is
strongest in the desktop environment.
£
£
£
£ £
£
£
£
£
18Visual split by marketing method
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
3
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/1
/1
/1
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Q
Other Email
Display Affiliate
Social Paid
Direct
Natural
EMAIL MARKETING PRESS
Email marketing is renowned as one of the most Advertising investment in the UK print press
effective and developed methods for driving sales has declined, as consumers use of media has
in the UK. From IMRG / Capgemini data, one clear changed. 2016 saw a sharp fall in print ad-spend
emerging trend is that email marketing continues of 10.7% on average to £2.63bn. Publishers aren’t
to grow in popularity and become a more important necessarily losing out though as they ramp up their
tool for the online community. The development of digital output, with most national newspapers now
mobile commerce has been identified as one of the having a digital format.
key drivers of this growth and a strong correlation
has been identified between the growth in mobile
commerce over recent years and the increase in
visits and revenue generated from email marketing.
IMRG / Capgemini data indicates that during 2010,
revenue generated from email marketing accounted
for 7.7% of UK e-retail sales, and by 2016 this had
reached 12.2%, representing almost 50% growth
in terms of penetration in just five years.Visits to
e-retail websites through email marketing have
decreased, from 14.5% in 2014 to 14.4% in 2015.
19DIRECT MAIL
Although online retail is very much a digital activity, given Specifically, mail can be used in the following ways in the UK
the influence of all channels mail has a place in winning e-retail market;
and keeping online shoppers. In fact, as a means of bringing
customers to web sites and to cross sell after an initial purchase,
• Direct mail communications and catalogues add another
dimension to online shopping, allowing more relaxing
it proves to be an ideal partner with digital, making it a medium browsing time
that is enjoying a renaissance.
Mail remains central to UK consumer’s lives, homes and
• Consumers do value receiving mail from retailers. It reminds
them about brands, brings them new information
behaviour. 90% of people open at least some of their mail
immediately (Source: IPA TouchPoints 2016). Mail is displayed Importantly, there is evidence that mail drives customers online
and persists in the home – presenting multiple opportunities and that customers shop more and spend more when they
to be seen and interacted with – mail drives action1. receive mail from a retailer.
• Mailed catalogues are opened and read; As a direct result
of receiving mail, 87% were influenced to make online
Mail drives consumers online purchases3.
• Catalogues drive consumers to buy more and more often. 40%
of consumers report that they buy more than they originally
intended to when shopping from a catalogue and 50% say they
43% buy more frequently if they regularly receive a catalogue4.
downloaded
something • 74% of consumers who received a catalogue bought from the
retailer within 6 months and 81% of these purchases were
54%
engaged in
influenced by the catalogue4.
As a direct social media
result of Sources
recieving
mail2 1. TGI Q1 2016
86% 2. Royal Mail MarketReach, Mail and Digital Part 2,
connected with Quadrangle, 2014
businesses
3. Royal Mail MarketReach Ethnographic Quant,
Trinity McQueen, 2014
87% 4. Royal Mail MarketReach, Print Catalogues in a Digital Age,
92% influenced to
Illuminas, 2013
driven to online make online
or digital purchases
TV AND RADIO
On average, 90% of the UK population tuned Thinkbox reported in 2016 that TV adervtising
into the radio each week in the 12 months prior in the previous year rose by 7.4% 2015, to £5.27;
to March 2016. Overall ad-spend is also expected to increase by
3.8% to £21.79bn in 2017. (Advertising Association
Interestingly, in the OFCOM Communications
/ Warc) Barb reports that since 2010 overall TV
Market Report of August 2016, it was reported
audiences, fell 12% between 2010 and 2016.
Radio’s share of overall ad-spend is up marginally
However, the availability of Video-on-Demand
at 3.0% in 2015. National ad revenue for commercial
and ‘catch-up-TV’ is replacing much of this as
radio stations has also increased, up by 1.4%,
viewers now consume programming at a time to
to £519m. This spend is by brands with a national
suit them, rather than by schedules set by
footprint. Ad-spend by local brands is flat,
broadcasters. Rather than being a challenge for
a reflection on the growing importance and
advertisers, many of whom were worried about
cost effectiveness of targeted, localised,
audiences skipping past the adverts, IAB UK
internet advertising.
estimates that VOD has driven much of the 51%
Data from OFCOM has shown that one recent increase in mobile ad-spend, now worth £3.9bn
development in radio listening has been substantial in this context.
growth in listening via a mobile device as a
proportion of total listening - with 27% of UK
adults claiming to have listened to the radio via
Smartphone or Tablet in 2016.
20Subscription video-on-demand
199M
estimated
households
65M
by 2020
750,000
40M
Total TV Industry revenue, by source: 2008-2015
Growth
1 year 5 year
CAGR
£bn £11.8bn £12.4bn £12.5bn £12.8bn £13.2bn £13.6bn 3% 3%
7
£6.0bn £6.2bn
£5.9bn
6 £5.4bn £5.5bn 3% 4%
£5.0bn
5
£4.1bn
£3.6bn £3.7bn £3.8bn 7% 3%
4 £3.5bn £3.5bn
3 £2.6bn £2.6bn £2.7bn £2.6bn £2.7bn £2.6bn
-4% 0%
2
1 £0.7bn £0.7bn £0.7bn £0.7bn £0.7bn £0.7bn
3% 0%
0
2010 2011 2012 2013 2014 2015
Subscription New advertising BBC income Other revenue
revenue revenue allocated to TV
Source: Ofcom.org.uk
Whilst not of obvious interest to internet based brands looking to trade into the UK, it should be noted
that a number of online ‘pure-play’ retailers are starting to use more traditional advertising media
channels to support their digital activities. For example, eBay and Very use television whilst ASOS
uses video channels such as YouTube to distribute video advertising. The above graph highlights the
continuing rise in advertising revenues experienced by the TV industry.
21Est.
£17.7 Billion
in 2015
£24.75 return
on every £1
AFFILIATE MARKETING
Affiliate marketing is also becoming an increasingly developed method of marketing within the UK.
Affiliate marketing and lead generation channels generated an estimated £17.7bn worth of sales in 2015
according according to the latest publicly available IAB UK data. On an ROI basis, performance varied
depending on digital channel used. For example, on the desktop / laptop, an ROI of circa £25.73 was
achieved whilst on smartphone this was lower at £23.77, as reported by IMRG.
22SOCIAL MEDIA PLATFORM POPULARITY
YOUTUBE 85%
FACEBOOK 78%
GOOGLE+ 50%
WHATSAPP 48%
TWITTER 45%
LINKEDIN 30%
INSTAGRAM 29%
PINTEREST 20% *
SNAPCHAT 18%
Figure 1 Popularity of Social media platforms as a percentage of the UK population.
Source: weareflint.co.uk and * smartinsights
SOCIAL MEDIA
Social media marketing has had a mixed effect As with other territories, it is important to
for many brands. Data from the IMRG Capgemini understand the demographics of the users of each
Quarterly Benchmark in 2016 reported that it was of the social media platforms. Facebook is by-far the
only responsible for driving 0.6% of total most popular social media platform in the UK but is
e-retail revenue. The challenge for this measure it more widely used by older generations. Part of the
however is that it averages out over different challenge is that youth audiences don’t want to be
verticals and business sizes. Perhaps the best on the same platform as their parents. The younger
measure for social is actually around brand audience’s demands from these platforms are also
awareness, customer interaction and as a different, with messaging being a key component,
promotional tool. There is evidence where along with immediacy.
businesses have driven commercially successful
promotions through social media and as a tool
for having conversations with your customers,
it is unparalleled.
* Whilst not technically a social platform, Pinterest is gaining ground as a product
discovery tool with 93% of its users in the UK saying that they use the service
for this purpose.
Source: Daily Telegraph April 2016
23UK FACEBOOK AGE SPLIT
50+
40 - 49
30 - 39
20 - 29
13 - 19
0 1 2 3 4 5 6 7 8
million
Figure 2 - Demographic split by age of UK Facebook Users. Source: Clicky.co.uk
That is not to say that the UK audience for retailers isn’t significant, it is purely important to note that
understanding a merchant’s customer segments is an important element of targeting which platforms to
focus on.
USER GENERATED APPS VERSUS
CONTENT (UGC) BROWSERS
UGC is an important source of information for There is an increasing use of apps in the UK,
potential purchasers in the UK. In their 2014 Media with 48% of smartphone users downloading
Use and Attitudes Report, OFCOM said that of in 2014, versus 37% in 2012. Of these users, the
those surveyed, 39% wrote reviews whilst 78% said average number present on the smartphone is 23
that they read reviews as part of their decision whilst only 10 are regularly used (OFCOM 2016).
making process. It was also interesting to see that
The usage case for apps is centred on gaming,
39% of online users rated online recommendations
streaming music and video. Consumers of news
as their most important source of information,
output also preferred browsers (43%) to apps
closely followed by 36% who ranked UGC at a
(37%) on their smartphone. 55% of app users also
similar level. Closed Facebook groups were also
preferred to use browsers for online shopping.
used by 38% as a source of information.
The balance is made up of app usage and using
other devices for their shopping experience,
including using tablets.
Anecdotal evidence from UK retailers suggests
that consumption of information, store finders and
in-store product comparison are the main reasons
for app usage. The key is to ensure relevance and
engagement with the app in order to achieve value
from it.
24FINANCE & PAYMENTS
Overview
Banking in the UK is regulated by the Bank of England, and London is recognised as a world-leading financial centre. This
is due in part to the fact that nearly all the world’s banks have branches or subsidiaries in London.
UK Tax Year: Environment Regarding Any payments that need to be
starts 6th of April 14 to 5th Commissions and Other made will be easy to determine
of April in following year Un-Official Payments: through official channels like HM
Currency Exchange Controls: These types of payment are Revenue and Customs and other
No extremely rare in the UK. Government bodies.
Payments and Payment Methods
Number of Credit Cards Issued 56.9 million
Number of Debit Cards Issued 95.7 million
Number of payment cards with contactless
58 million
functionality
Online - Credit Card expenditure £37 billion
Credit Card expenditure £138 billion
When trading in a different territory, it’s important to ensure that your customers are able to pay using the
method they would with a local retailer or supplier. 63% of online transactions in the UK are conducted via
payment card. UK online shoppers prefer to pay by credit card (21%) or debit card (79%), whilst 21% use PayPal,
and 11% pay by an alternative method.
The use of credit cards provides UK consumers with protection under the Consumer Credit Act where
purchases over £100 are insured by the card issuer. Debit card payments aren’t protected in this way but
many issuing banks offer services that help consumers where online purchases go wrong. For cross-border
payments, the availability of card payments provides consumers with a degree of confidence.
Interestingly, a recent WorldPay report suggested that by 2019, card payments would only make up 50% of all
online transactions whilst alternatives gain prominence and exceed 50%. These alternatives include eWallets,
bank-to-bank transfers and pre-pay systems.
Also worthy of note is the introduction of the Payment Services Directive 2 (PSD2). Whilst the scope of the EU
directive is wide-ranging, there are a couple of points of note for international retailers. This directive comes
into force in the UK during January 2018. Surcharging based on the use of any payment type will be banned.
Another area of interest is the requirements for strong customer authentication. This will take the format of
multiple levels of authentication; perhaps based on two devices. Businesses and consumers are protected
by a liability shift if the transaction proves fraudulent. An area to watch however is decline rates from card
issuers. As they will be taken the majority of the risk and liability for fraud, they are more likely to require
increased levels of authentication in order for transactions to be processed. The possible impact on merchants
is currently unknown but worth watching.
25TAXATION
NOTE: The following guide is a representation of may be reviewed as part of the now annual budget
the current status of taxation policy in the UK at the process but the relationship between the UK, its EU
time of publication. It is provided purely as a guide business partners and customers remains the same.
and professional accounting advice should be sought For example, VAT thresholds, customs duties and
before entering the UK market. registration requirements.
BREXIT: In June 2016, the UK Government held In March 2019, if there isn’t a trade deal in place then
a referendum on the countries membership of the World Trade Organisation (WTO) rules will apply.
European Union. The result of the referendum is If you are an EU based business looking to trade
that the UK will be exiting the EU. At the end of with UK customers then there may be additional
March 2017, the Government officially triggered tariffs and taxes due on sales and imports. It is more
the leaving process meaning that the 2-year than likely however that some form of agreement
negotiation period has commenced. How the trading will be in place, potentially with some level of tariff
relationship between the EU and UK will evolve is although a customs union is a likely outcome.
still unclear. In the meantime, businesses trading
For the next 2 years, or until further notice, the
into, or out of the UK will continue to be bound
existing rules remain in place.
by the existing taxation regulations. Elements
26TAX, VAT & CUSTOMS DUTIES
For companies engaged in e-commerce 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.
The following table depicts annual rates of tax for the financial year 2015. It should be noted that these are subject to
change, and it is recommended that you seek advice on any rates or tariffs that might apply to you and your business.
Tax Notable Reliefs/ Lower Band Mid Band Top Band Standard Reduced
Exemptions Rate Rate
Purchase See below description N/A N/A N/A 20% 5%
Tax/VAT
Corporation See ‘capital allowances’, 20% on annual taxable Main rate: N/A N/A
Tax Rate below profits that are not 21% is
more than £300,000. charged
Where there are active
There is an additional
associated companies if annual
21.25% upper marginal
(i.e. companies under taxable
rate on annual taxable
common control), profits are
profits falling between
including overseas £1.5 million
£300,000 and £1.5
companies (but not and above
million
dormant companies), the
limits (beside)
are reduced, in
effect spreading the
limit across all the active
companies
Income Tax Annual personal £10,000- £31,865, a £31,866- Over N/A N/A
allowance of £10,000 basic rate of 20% £150,000 a £150,000, an
tax free higher rate of additional
40% rate of 45%
Capital Annual exemption Entrepreneur’s relief >£11,000, any Any gains N/A N/A
Gains Tax for of £11,000, and allows for 10% tax to be gains that fall that fall
Individuals entrepreneur’s relief paid on certain business within any within the
Resident and of 10%.* Some assets assets up unused basic higher rate
Ordinarily are also exempt, such to £10 million of lifetime rate band are band are
Resident in as cars and personal gains. charged charged
the UK possessions disposed of at 18% at 28%
for £6,000 or less.
* Entrepreneurs’ Relief is available for individuals who make a material disposal of a business asset; namely:
• shares or securities of an individual’s • assets used for the purpose of the • assets owned by individuals and used
`personal’ company business at the time the business in a business in which they were a
ceased partner or by their ‘personal’ company.
• the whole or part of a business,
including partnership interests • trust business assets, or
There are qualifying conditions attached to each category.
27CORPORATION TAX
There is only one major tax on a company’s profits, 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 Relief for trading losses
company) that is resident in the UK for tax purposes Trading losses may be utilised in four principal ways
is liable to pay corporation tax on its UK profits and by UK resident companies:
chargeable gains. Those foreign companies with UK
establishments will be liable to this tax on chargeable • against other income or chargeable gains arising in the same
accounting period
gains arising on the disposal of any assets that are
situated in the UK and used for the purposes of the • against profits of any description in the previous
accounting period
UK establishment or its trade. Particular rules and
exemptions apply to this, and professional advice • against trading income from the same trade arising in
subsequent accounting periods, or
should be sought.
• as group relief in the same accounting period to
A company will be considered ‘resident’ if the qualifying companies
organisation’s central management and control
takes place within UK borders. Taxation of foreign branches
UK permanent establishments of non-UK resident Broadly, UK companies are subject to UK corporation
companies are liable to UK corporation tax tax on the profits of their foreign branches
generally on: (with credit for overseas tax paid). A UK company
• trading income arising directly or indirectly through the may elect for exemption from UK tax on the results of
UK establishment overseas branches. The exemption will apply from the
• income from property or rights used by or held by first accounting period starting after the election
or for the UK establishment is made. The election cannot be revoked once that
• chargeable gains accruing on the disposal of first accounting period has commenced.
assets situated in the UK and used for the purposes
of the establishment Corporation tax administration
Corporation tax is assessed on total taxable profits Companies have to `self-assess’ their tax position
(after certain statutory tax adjustments) and chargeable in a similar way to individuals. The times at
gains in respect of each accounting period. The rate which corporation tax is payable depend on the
of corporation tax is set for the financial year ending size of the company or group paying the tax.
on 31 March. If the rate is changed, the profits of an
accounting period that straddles the date of change are Companies should inform HMRC of their annual
apportioned and charged at the appropriate rates. Corporate Tax liability and pay it nine months after
the financial year end.
CUSTOMS 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.
28VAT
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 significant and A taxable person is liable to register for VAT if the
confusing differences of detail between different combined value of their taxable supplies in the UK
member states of the EU. exceeded the registration limit in the preceding
12 months, or there are reasonable grounds for
VAT is essentially a tax on consumer expenditure
believing that the value of taxable supplies to be
that must be charged by a taxable entity in the
made in the next 30 days alone will exceed the
course of furtherance of a business. This tax is levied
registration limit.
on most goods and services provided by registered
businesses in the UK, and most goods imported into A business may also de-register if the anticipated
the UK from outside the EU. A UK taxable entity value of the taxable supplies in the next 12
is anyone registered or liable to be registered for months is less than the de-registration limit
UK VAT. All VAT registered businesses are obliged (currently £82,000).
to charge VAT on the full sale price of the goods
Taxable persons from other EU countries selling
or services that they provide, unless exempt or
goods via ecommerce face different rules. If they
otherwise deemed outside the scope of VAT. In
hold the stocks in the UK, at a rented warehouse
theory, the final burden of the tax should not fall on
space, then they must register their foreign company
business activity. This objective is achieved by an
for UK VAT immediately. They will have to do this to
arrangement known as the input/output system.
report the movement of the goods from their home
When a business buys goods or services, it pays
state into the UK.
VAT to the supplier (input tax).
If EU foreign companies are holding the stocks in
When the business sells goods or services,
their home state prior to receiving a UK order,
whether to another business or to a final consumer,
then they are not immediately required to UK VAT
it is required to charge VAT (output tax) unless
register. Instead, they are allowed to charge the VAT
the supplies are specifically relieved from the
rate of their home country. However, once they
VAT charge.
exceed the UK’s threshold for ecommerce sales,
If the business makes only taxable supplies, it must known as the distance selling threshold, of GBP
total the input tax it incurs and deduct this from 70,000 per annum, they will have to UK VAT
the output tax charged, reporting and paying the register. They then charge UK VAT on their sales to
balance to HMRC on a calendar quarterly basis. UK consumers and file quarterly UK returns.
The result of this is that the final consumers bear
It is highly likely that a company seeking to set
the cost of VAT on the final price of the goods or
up in the UK will wish to register for VAT or be
services they purchase.
required to do so. The registration process requires
the non-resident company to complete a registration
When to VAT register form verifying the basis under which it will become
If you are a UK resident business that supplies a taxable person, provide statistical information, etc.
taxable goods and services in the UK and your The registration should be processed in three weeks.
annual taxable turnover exceeds the stated threshold However, during busy periods HMRC can take up to
- £83,000 from 1 April 2016 – you must register 12 weeks.
for VAT. This fairly high VAT turnover registration There are other returns that will need to be rendered
limit means that a large number of small turnover if a UK based business trades with customers /
businesses are not within the VAT system, though suppliers located outside the UK.
smaller businesses can also voluntarily register for
the tax.
29LEGAL FRAMEWORK & REGULATION Supported by Bond Dickinson Legal Framework England and Wales, Scotland and Northern Ireland are largely separate jurisdictions for a number of legal purposes. Scotland has a mixed common law and civil law system whereas England and Wales and Northern Ireland have a common law system. Key Legislation The table below contains some key legislation to consider before you begin trading in the UK. Please note that the table is not an exhaustive list and that it is limited to the legislation that applies in England and Wales unless otherwise stated. BREXIT: The June 2016 referendum decision for the UK to leave the EU also has an impact on a range of legislation. Because of the volume of UK law transposed from EU regulations, the UK Government is (subject to the result of the 8 June 2017 general election in the UK) introducing the “Great Repeal Bill”. This will effectively ‘copy’ all EU based legislation on to the UK statute book with no change. The Government will then take time to review and change the legislation post-exit. Whilst the exit negotiations are taking place over the next 2 years, there are a number of new EU regulations that are worthy of note in the consumer space. The main one is the General Data Protection Regulation which applies on and from 25th May 2018. The e-Privacy Regulation is also proposed to come into force on the same date. The e-Privacy Regulation is still going through the European legislative process and a final version of the regulation is yet to be agreed. Disclaimer This section of the eCommerce Worldwide UK Cross-Border Trading Country guide document is provided for general information only and does not constitute legal or other professional advice. Neither eCommerce Worldwide nor Bond Dickinson LLP owes any duty of care to any reader of this section of the Country Guide document. You should consult a suitably qualified lawyer on any specific legal problem or matter. 30
Topic Area Relevant Regulations Purpose
Privacy and a) Data Protection Act 1998 (DPA) (passed to implement To regulate the processing of personal data by
Data Protection the European Data Protection Directive 95/46/EC) businesses and other organisations.
Data protection in England and Wales is regulated
and enforced by the Information Commissioner’s
Office, which also produces guidance and best
practice guidelines for compliance with data
protection legislation
Topic Area Relevant Regulations Purpose
Privacy and b) Privacy and Electronic Communications (EC To regulate, amongst other things, unsolicited
Data Protection Directive) Regulations 2003 and as amended (PECR) electronic direct marketing to individuals and
(passed to implement Directive 2002/58/EC) businesses.
PECR also regulates the use of cookies (and similar
tracking technologies) by websites.
It should also be noted that a new e-Privacy
Regulation is proposed to come into force on 25
May 2018, in line with the European General Data
Protection Regulation. This new regulation would
replace PECR but is currently going through the
European legislative process. The final e-Privacy
Regulation is yet to be agreed.
Topic Area Relevant Regulations Purpose
Privacy and c) European General Data Protection The European Data Protection Directive (Directive
Data Protection Regulation 2016/679 95/46/EC) (which is implemented by the Data Protection
Act 1998) will be superseded by the pan-European
General Data Protection Regulation (GDPR) and
represents the single largest change to data protection
legislation for over twenty years.
The GDPR will apply on and from 25 May 2018.
Topic Area Relevant Regulations Purpose
Consumer d) Consumer Rights Act 2015 (CRA) The CRA reforms and consolidates pre- existing
Protection consumer laws in relation to:
• Rights and remedies in respect of non-conforming
goods, services and digital content for business
to consumer contracts entered into on and after 1
October 2015 (the Sale of Goods Act 1979 still applies
to contracts for the sale of goods entered into before
1 October 2015).
• Unfair terms in consumer contracts.
• Requirements relating to consumer guarantees
• Enhanced consumer remedies which can be
imposed by public enforcement bodies.
• Consolidation of existing legislation concerning
enforcement powers for public bodies.
• Consumer collective re-dress in relation to anti-
competitive behaviour.
Topic Area Relevant Regulations Purpose
Consumer e) Consumer Protection from Unfair Trading The CPRs are in place to protect consumers from
Protection Regulations 2008 (CPRs) – as amended by the unfair, aggressive and misleading commercial
Consumer Protection (Amendment) Regulations practices e.g. misleading marketing..
2014
The CPRs contain a general prohibition against
unfair commercial practices, specific prohibitions
against misleading and aggressive practices, and a
list of 31 banned practices.
31Topic Area Relevant Regulations Purpose
Consumer f) Consumer Protection Act 1987 The CPA gives consumers the right to claim compensation against
Protection (CPA) the producer of a defective product if it has caused damage or
personal injury.
The CPA also contains a strict liability test for defective products
making the producer of that product automatically liable for any
damage caused.
Topic Area Relevant Regulations Purpose
Consumer g) General Product Safety These Regulations apply to any consumer product not covered
Protection Regulations 2005 by specific legislation. They place producers and distributors
of products under a general duty to ensure that the goods they
sell are safe, and require corrective action to be taken when there
is a safety issue.
Topic Area Relevant Regulations Purpose
Consumer h) Consumer Contract (Information, The CCRs apply to contracts between traders and consumers
Protection Cancellation and Additional charges) entered into at a distance (e.g. online or over the phone) or outside
Regulations 2013 (the CCRs)(in force of the trader’s premises (e.g. the consumer’s home).
from 13 June 2014)
The CCRs do not cover certain types of contract, including:
gambling, financial services, rental accommodation, construction,
package travel and timeshare contracts.
The CCRs set out the information that has to be provided to
consumers both before and after they enter into a contract
and, in certain circumstances, give consumers the right to
cancel their order.
Topic Area Relevant Regulations Purpose
Consumer i) Consumer Rights (Payment The Regulations introduced a ban on charging consumers excessive
Protection Surcharges) Regulations 2012 – in surcharges relating to certain payment methods.
force since April 2013
The Regulations do not cover certain types of contract, including:
gambling, financial services, rental accommodation, construction and
timeshare contracts.
Topic Area Relevant Regulations Purpose
Consumer j) Electronic Commerce (EC The Regulations impose various obligations on online traders
Protection Directive) including, for example, the information to be provided to customers
Regulations 2002 before and after placing an order online.
Topic Area Relevant Regulations Purpose
Consumer k) Brussels Regulation (44/2001) and EU legislation protecting consumers who contract with companies
Protection Rome I (Regulation 593/2008) directing activities into the consumer’s member state.
Topic Area Relevant Regulations Purpose
Advertising l) Business Protection from The BPRs prohibit misleading marketing from businesses-to-
Misleading Marketing Regulations business in order to protect competitors who market similar
2008 (BPRs) products in the UK. This includes provisions relating to comparative
advertising promotions.
Topic Area Relevant Regulations Purpose
Digital m) Regulation 910/2014 on Electronic The eIDAS Regulation seeks to improve trust in electronic
Signatures & Identification and Trust Services transactions and encourage the use of electronic signatures to help
Authentication for Electronic Transactions in the create a fully integrated digital single market. The Regulation also
Internal Market (eIDAS Regulation) governs areas such as online authentication, trust services and
has repealed the E-Signature Directive electronic identification schemes.
1999/93/EC on and from 1 July 2016.
The UK also implemented the
Electronic Identification and Trust
Services for Electronic Transactions
Regulations 2016 to implement parts of
the eIDAS Regulation.
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