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 UK left the EU on 31 January 2020. We are now nearing the end of the transition period, which ends on 31 December 2020. The current rules on trade, travel, and business for the UK and EU continue to apply during the transition period.
New rules will take effect on 1 January 2021. These are summarised here (to reflect current guidance) but full details of the updates issued by HMRC so far in 2020 can be viewed by following this link.
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What are the main changes envisaged 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.
- VAT on imports, both EU and RoW, can in most cases be declared using Postponed Accounting via VAT returns when the importer is VAT registered.
- 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
For goods located outside the UK at the time of sale with a value below £135:
- sale via an Online Market Place (OMP) – supplier pays no import VAT and OMP must register for/charge UK VAT
- sale not via an OMP – supplier pays no import VAT but must register for charge UK VAT
- these requirements apply regardless of whether the supplier or OMP is established in the UK
- consignments below £135 in value and subject to the new measure will still need Customs declarations and be subject to normal customs processes and procedures
The arrangements described will not apply to:
- non-commercial consignments, such as gifts (gift relief for consignments valued up to £39 will remain)
- consignments containing any goods that are subject to an excise duty
- consignments from Jersey and Guernsey that are covered by the Import VAT Accounting Scheme
- a B2B supply with a value below £135 where the customer provides its VAT number to either the supplier or OMP, the business customer will in that case declare VAT as a reverse charge.
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:
- goods sold via an OMP – the OMP will be responsible for charging declaring VAT and 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.
- goods not sold via an OMP – normal rules will apply and the supplier 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 soon afterwards.
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 complex and means effectively that movements of goods between NI and the rest of the UK will be treated as imports and exports and movement of goods between NI and RI will continue to move freely without import or export requirements. This area is still developing and advice should be taking if it impacts on your business.
NI will remain in the Single Market so shipments between NI and the EU will not be treated as imports and exports. Instead the current arrangements will continue. However, shipments between the UK and NI will be dealt with as imports and exports – albeit with the promise of simplified arrangements and a degree of uncertainty at the moment due to the UK’s apparent backtracking on undertakings within the Withdrawal Agreement.
It is likely that businesses that are importing/exporting goods from both the UK mainland and NI will need to identify supplies separately and apply different treatments. For example a shipment from the EU to NI may be subject to acquisition VAT (declaration of VAT in Box 2 of the VAT return) whereas and identical import would be subject to import VAT albeit with that VAT being declared in Box 1 of the VAT return under “postponed accounting”.
HMRC has issued more information on 26 October 2020 movements of goods between NI and the UK.
- For at least the first 6 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. It seems likely that these will also apply when services that would otherwise be viewed as arising in the EU are used in the UK after January 2021. However, HMRC has declined to offer a view on this pending the outcome of UK/EU negotiations (businesses will not have much time to adapt if they are required to!)
- Use and enjoyment place of supply rules that operate with the EU are also likely to have a widened. Even non-EU EEA countries that have close trade alignment – such as Norway and Switzerland – are caught so it would appear to require a miraculous negotiation outcome by the UK to take the UK outside these provisions.
- 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 form 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 ready for the new 2021 rules on charging VAT on consignments not exceeding £135.
Please contact us if you have any immediate concerns about trading with the EU post Brexit. You should consider:
- The impact of any likely changes on cross-border transactions, including MOSS, distance selling etc;
- 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;
- Whether it may be necessary to consider a VAT registration in another EU country.
- 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.