Brexit & VAT
Table of Contents
1. Movement of goods into the UK
2. Goods sent from the UK to the EU
3. Northern Ireland
5. Provision of Services
6. Reclaim VAT from EU countries
7. What should businesses be doing now?
8. How can Constable VAT help?
The Brexit transition period ended on 31 December 2020 and the UK is no longer part of the EU. This has important and complex VAT and Customs implications for businesses trading with non-UK businesses.
New rules took effect on 1 January 2021. These are summarised on this page, with links to HMRC’s website where possible. However, it should be noted that the rules are still bedding in and care must be taken to ensure that transactions are processed correctly and any overseas VAT registrations required as a result of the UK leaving the EU are put in place.
We will be updating this page over the coming months to address the areas our clients are finding particularly problematic. In the meantime if you have a query that you cannot easily find the answer to please contact us.
To ensure you receive our updates on any changes to the UK VAT system, including Brexit, as these are announced we highly recommend signing up for our regular free electronic newsletter service.
What are the main changes from 1 January 2021?
- A UK (GB) EORI (Economic Operator Registration and Identification) number will be required to import goods from the EU – as with the rest of the world (RoW) imports.
- Import VAT on purchases from the EU (and the rest of the World) can in most cases, be paid using Postponed VAT Accounting. This allows import VAT to be declared and paid on a business’ VAT return rather than payment being required before the goods can be released. The business will be able to reclaim the VAT declared, subject to the usual rules. If the import VAT declared is a cost component of an intended taxable supply, the same sum will be reclaimed as input VAT and the position is VAT neutral. The business’ GB EORI number must be included on the import declaration when the goods are released in order to use Postponed VAT Accounting (PVA).
- If PVA is to be used, the import VAT due will be declared in Box 1 of the VAT return. This differs from the process pre Brexit when movements of goods into the UK from Europe were treated as ‘acquisitions’ and the VAT due was shown in Box 2.
- The import VAT declared under PVA can be recovered as input tax on the same VAT return (in Box 4) in accordance with the usual rules on the recovery of VAT incurred.
- There will be no need to show an entry in Box 2 or Box 9 of the VAT return, the output VAT due under PVA will go in Box 1 and will be reclaimed via box 4 (with the net value shown in box 7)
- We understand that HMRC may eventually change the number of boxes on a VAT return.
This link provides more guidance on how to Complete your VAT Return to account for import VAT – GOV.UK (www.gov.uk)
- A Customs entry is required immediately for controlled goods, e.g. subject to Excise Duty.
- Until 1 July 2021, a Customs entry may be delayed for up to six months for goods that are not “controlled”. This deferral option ends after 30 June 2021.
- Whether a supplier needs to charge VAT on sales of imported goods will usually depend on who acts as the importer. For example:
- If an overseas supplier acts as importer then as well as dealing with import formalities it will usually need to VAT register and account for VAT on its sales.
- If the UK customer of an overseas supplier acts as the importer then in most cases the overseas supplier will not need to register for VAT and account for VAT on its sale.
Points to keep in mind are that:
- There is no VAT registration threshold that applies to sales by non-established businesses in the UK
- HMRC policy that only the owner of goods may reclaim import VAT should be considered
- To reclaim import VAT (or use postponed accounting) a business needs to be VAT registered. Unrelated to Brexit, problems are common when an importer has not dealt with its VAT registration obligations at the time of the import and the standard documents that allow VAT to be reclaimed are not available
The rules that came into effect from 1 January 2021 are different depending on the following factors:
- Are the goods inside or outside the UK at the time of the supply?
- Is the seller established in the UK?
- Is the consignment value of the goods greater or below £135 (GBP)?
- Is the sale to a business customer (B2B) or consumer (B2C)?
- Is an online marketplace (OMP), as defined by HMRC, facilitating the sale?
Goods located outside the UK at the time of sale
Where the sales are made via an OMP
There is an obligation on the online marketplace (OMP) to account for VAT on consignments with a value up to £135 and which are not B2B sales to a VAT registered customer. The seller’s supply will be to the OMP and will not attract UK VAT.
Where the customer has provided the OMP with its UK VAT registration number, the customer is responsible for declaring VAT as a reverse charge.
Non OMP sales
For consignments over £135 or sales that are not via an OMP normal rules apply. Import VAT will be payable by the seller or the customer (depending on who acts as the importer) and if the seller imports the goods into the UK then UK VAT must be charged and declared.
Goods located in the UK at time of sale
Where goods with a value less than £135 are inside the UK at the time of sale the treatment will vary depending on whether the seller is established within the UK. The goods will already have been imported into the GB from outside the UK and existing VAT and duty obligations will apply at importation. Where the seller is established in the UK normal VAT accounting rules will apply. However, for overseas sellers the position will be:
Where the sales are made via an OMP
Where a business is not established in the UK then for B2C sales via an OMP, the OMP will be liable to charge and declare the VAT due on all sales regardless of value. The overseas seller will be deemed to make a zero-rated supply to the OMP, which will allow it to register for the purpose of reclaiming VAT that may have been paid on importing the goods into the UK.
Where the customer has provided a UK VAT number the seller will be responsible for declaring the UK VAT under its UK VAT number.
Non OMP sales
Where are goods not sold via an OMP the normal rules will apply to overseas businesses and these suppliers will be obliged to register for/charge VAT as required (there is no VAT registration threshold for non-established businesses)
- An EU EORI number will be required to import the goods
- Brexit delivers a different status to UK suppliers/shipments moving goods into the EU. Movements of goods from the UK to the EU will become exports/imports rather than dispatches/acquisitions.
- Where an EU customer acts as the importer in relation to goods exported from the UK then a UK supplier is unlikely to have an obligation to register for/charge local VAT
- Where a UK supplier acts as the importer into the EU then it is likely to have a local VAT registration liability
- In relation to B2C supplies it will no longer be possible for UK businesses to take advantage of distance selling rules when selling B2C to EU countries. This means businesses selling into these countries will either do one of the following:
- VAT register in each country
- hold stock in one EU country, VAT register in that country and use distance selling rules to sell to other EU countries (see also planned MOSS extension/change to distance selling threshold)
- place the onus for accounting for import VAT on the customer or another party, such as a postal operator (see also planned changes to import arrangements for goods below € 150).
Originally the EU intended that new provisions would apply from 1 January 2021 including:
- a €10,000 “distance selling” threshold;
- the extension of the Mini One Stop Shop for electronic services to cover B2C sales of goods (replacing distance selling rules above € 10,000);
- the removal of the Low Value Consignment Relief (packages with a value of less than €22; and
- a simplification for import consignments with a value of less than € 150
These changes have been deferred to 1 July 2021 due to the Covid 19 emergency so the trading position as of 1 January 2021 will, subject to any further deferral, change again soon..
Northern Ireland is to retain a special, dual position after the end of the transition period. This is to avoid physical borders between Northern Ireland (NI) and the Republic of Ireland (RI) (a requirement of the 1998 Good Friday Agreement).
This is a particularly complex area and advice should be taken if it impacts on your business. Information on transactions with NI can be found on HMRC’s website
- For at least the first 12 months Intrastat declarations will be required in relation to imports from the EU into the UK.
- For exports from the UK (excluding NI) no Intrastat declarations will be required.
- Intrastat declarations will be required for both shipments to and from NI and the EU (given its continued involvement in the Single Market)
- Suppliers/importers within the EU will not be required to submit Intrastat declarations for goods arriving from/sent to the UK – only NI shipments will be caught.
- B2B services supplied to the EU will be treated in the same way as B2B services to RoW business customers.
- B2C digital services are currently reported using a special single EU filing on a Mini-One-Stop-Shop (MOSS) return. The UK will no longer be able to use EU MOSS after 31 December 2020 and businesses supplying these services in the EU will have to register for MOSS in another EU country.
- There are special “use and enjoyment” place of supply provisions that apply when certain services that would otherwise be treated as supplied outside the EU are used in the UK and vice versa. You should consider if these may apply to services you supply.
- Use and enjoyment place of supply rules that operate with the EU are also likely to have a widened impact.
- Businesses can continue to use the EU VAT refund system to claim a VAT refund on expenses incurred before 1 January 2021 in EU member states, until 11pm on 31 March 2021. They will not be able to use the EU VAT refund system to claim refunds of VAT on expenses incurred in an EU member state on or after 1 January 2021.
- Each EU member state has its own process for refunding VAT to businesses based outside the EU. UK businesses need to use the process for the EU member state where they are claiming a refund for all expenses incurred after the end of the transition period. Find out about each State’s process here.
- The process for reclaiming VAT incurred in other EU countries will change from the electronic EU portal to paper-based forms of the type currently used to claim VAT from RoW countries.
- Consider if VAT registrations are required or would be of benefit in other EU countries under distance selling regulations
- Check if you need to appoint VAT Fiscal Representatives in EU States where you have VAT registrations, currently it appears these will be required in a large percentage of the 27 EU member states.
- Ensure your accounting systems can deal with Postponed Accounting. Postponed Accounting allows businesses importing from the EU and the rest of the world to pay import VAT via the VAT return system. Each month businesses using Postponed Accounting will receive a monthly statement of imports where payment of import VAT was postponed at importation. This VAT needs to be declared in Box 1 of the normal VAT return and can be recovered (as appropriate) via Box 4).
- get a UK EORI numberif you do not already have one. This is needed to import goods into the UK and an EU EORI number is required to import goods into the EU.
- Apply for a new EU MOSS registration for B2C digital services if required
- Submit any final VAT reclaims on EU Portal for EU VAT incurred up to 31 December 2020
- decide how you want to make customs declarations and whether you need to get someone to deal with customs for you.
- consider how best to structure transactions, for example whether you or your customer acts as importer in the EU will usually determine whether you must register for/charge EU VAT in the country of import/shipment.
- If you sell via ecommerce and import goods from outside the UK, ensure you are correctly applying the new 2021 rules on charging VAT on consignments not exceeding £135.
Please contact us if you have any immediate concerns about the VAT implications of trading with the EU after 1 January 2021. you may wish to consider:
- The impact on cross-border transactions, including MOSS, distance selling etc;
- Are you now required to be registered in other EU countries?
- Whether the removal of the ability to rely on EU law rights will impact on your particular business;
- Whether it may be possible to restructure some transactions to lessen the impact of changes resulting from Brexit;
- Do you do business with NI and what will be the impact of this
Constable VAT is happy to provide a review of your business and the implications of Brexit and can also provide training as required.
This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.