Preparing for Brexit – Cross border VAT changes.

Article | Robert Plumbly | 13th August 2020

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The Brexit transitional period will end on 31 December 2020. This means that, from 1 January 2021, the UK will be regarded as a third country with regards to the EU. Businesses who move goods between the UK and the EU must therefore ensure that they familiarise themselves with the new VAT regime that will come into force at the start of next year. The main changes are:
  • Customs declarations – Importers and exporters will need to complete UK and EU customs declarations. These declarations are complicated and most businesses that are required to make them use an intermediary such as a custom agent.
  • Customs duties – importers need to ensure that they pay any customs duties that are due under the new UK Global Tariff. There are options available to most businesses to defer any payments.
  • Import VAT – import VAT will be levied on imports from the EU in line with rates applied to imports from the rest of the world. VAT registered importers can use postponed accounting, although in most cases this will not be compulsory. There are specific rules in place for low value consignments.
  • Safety and security declarations – importers and exporters will be required to complete safety and security declarations to provide the UK government with information regarding the goods moving between the UK and the EU.
  • EORI numbers – importers and exporters will need a ‘GB’ EORI number. Businesses that do not have an EORI number, or whose number is not prefixed ‘GB’, should apply now.

In advance of the end of the Brexit transitional period, HMRC has announced several changes to the existing customs and import VAT procedures.

Customs declarations

To assist businesses with limited experience of importing, HMRC has agreed that, between 1 January 2021 and 30 June 2021, traders can have an extended period of up to 6 months to lodge a customs declaration for non-controlled goods. Where duty is payable, payments can be deferred until the customs declaration has been made. The business will need to apply for ‘simplified declarations’ and duty deferment. Alternatively, a business can operate the normal regime of declaring goods at the point of entry.

From July 2021, customs declarations and any relevant tariffs will be required at the point of importation.

Postponed VAT accounting

In recognition of the cash flow problems that the new requirement to account for duty and import VAT on EU imports could create, the government has agreed to reintroduce the old system of postponed accounting with effect from 1 January 2021.

Postponed accounting allows businesses to declare and recover import VAT on the same return, rather than paying it upfront and recovering it later. It is available to all VAT registered businesses and can be used for imports from anywhere in the world.

The scheme can be used to account for import VAT on goods to be used in the taxpayer’s business provided it declares its ‘GB’ EORI number on the customs declaration and it includes its VAT registration number where needed. There is no requirement to obtain prior authorisation.

A business cannot declare its import VAT on its VAT return if it is authorised to use simplified declarations for imports and the declaration is completed before 1 January 2021.

Low value goods

A new regime will be introduced for the importation of consignments that are valued at less than £135. VAT will be payable on these items at the point of sale, rather than the point of importation. This means that supply VAT, rather than import VAT, will be payable.

Where goods are sold directly from the overseas seller to the UK customer, it will be the seller’s responsibility to register for UK VAT and to declare the VAT on a VAT return. Although no import VAT is payable, less detailed customs declarations will still be required for statistical purposes.

Business to business supplies are also within these rules. However, where the UK customer is VAT registered, the VAT can be accounted for under the reverse charge mechanism.

These new rules do not apply to consignment of excise goods such as alcohol or tobacco.

Online marketplaces

New rules have been introduced where low value consignment goods are sold through an online marketplace. This change reduces the risk of non-compliance by overseas suppliers.

Where businesses that are established outside the UK sell low value consignment goods through online marketplaces, the market place will be deemed to make the supply. The marketplace is required to charge and account for UK VAT unless the UK customer provides a UK VAT number, in which case the customer will account for the VAT through the reverse charge mechanism.

If you would like to discuss how the changes will impact on your business, please contact the VAT team:

About the author

Robert Plumbly

Rob is a qualified Tax Adviser with over 20 years’ professional experience in VAT. Rob advises on all aspects of VAT

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