Welcome to our special edition Brexit newsletter. With the transitional period about to end, our VAT team has summarised the key information that you need in order to trade with EU countries from 1 January 2021. We have also brought together the relevant links to the Government website to help you with your preparations.
Businesses that buy and sell services will experience minimal changes from 1 January 2021.
Businesses will continue to not be charged foreign VAT on most services that are purchased from businesses based in EU countries. Instead, the UK customer will reverse charge these services as they do now.
Services supplied by UK businesses to EU businesses will generally not be subject to UK VAT. The main change here is that a UK business is no longer required to declare these sales on an EC Sales List.
Certain services supplied to private consumers in the EU will no longer attract UK VAT. These include consultancy services, accountancy services and legal services.
Businesses moving goods between GB and the EU will experience several changes when the transitional period ends on 31 December 2020. Most significantly, customs declarations will be needed for goods crossing the border and import VAT and customs duty will become payable. All businesses involved in importing or exporting goods to or from the UK will require a GB ‘economic operator registration and identification’ number (EORI) in order to complete the customs declarations.
All imports/exports will require an ‘importer of record.’ This may be the supplier or the customer depending upon the incoterms agreed. The importer will have responsibility for paying any import VAT or duty due.
In most B2B sales, the EU customer will act as the importer. However, any GB businesses who act as the importer of goods into the EU will also require an EU EORI number and will need to carefully consider their VAT compliance obligations within the EU. It may be necessary to register for VAT in some or all of the EU countries into which goods are imported. Some countries may require a non-EU established business to appoint a fiscal representative as part of the VAT registration process.
Businesses operating in Northern Ireland or moving goods between Northern Ireland and the rest of the UK will need to familiarise themselves with the Northern Ireland Protocol.
EU simplifications, such as triangulation and distance selling registrations, will no longer be available to GB businesses having no EU presence.
HMRC provides a helpful summary of the steps that a business must take before importing goods from the EU. This can be read here.
Goods acquired from the EU will no longer be treated as acquisitions meaning no amounts to be declared in boxes 2 or 9 of the VAT return. However, intrastat declarations will continue to be required in respect of goods arriving from the EU until 30 June 2021.
From 1 January 2021, most goods imported into GB from the EU will incur import VAT. Any import VAT incurred can be recovered on the VAT return subject to the normal VAT recovery rules. A monthly certificate will be available to businesses to download via their online account in order to support VAT recovery. You can access the monthly statements here.
From 1 January 2021, the Government is reintroducing postponed accounting. Postponed accounting can be used for all imports, not just those from the EU, and will allow businesses to declare import VAT on their VAT returns rather than at the point the goods enter GB. HMRC provides guidance as to how to operate postponed accounting here.
A business does not require approval to operate postponed accounting.
From 1 January 2021, customs duty will be payable on imports into GB from the EU. This can be paid at the time of entry or a business can set up a duty deferment account to enable it to pay monthly. Businesses can apply to waive the required financial guarantee meaning, in most cases, a financial guarantee will not be necessary.
HMRC provide information about duty deferment accounts here.
Most businesses will use an agent when importing as the procedures are complicated. Depending on the arrangement, businesses may use their agent’s deferment account instead of setting up one of their own.
In some situations, duty declarations can be delayed by up to 6 months until 30 June 2021. Businesses who wish to take advantage of this opportunity are required to operate postponed accounting in order to declare their import VAT during this period. More information can be accessed here.
Consignments ≤ £135
New rules are being introduced for the import of consignments valued at £135 or less. These goods will not be subject to duty or import VAT. Instead, the supplier will be required to register for VAT in the UK and charge output tax at the time of sale.
More information is available here.
HMRC summarises the steps that a business needs to take prior to exporting goods from GB into the EU here.
A GB business that imports goods into the EU will require an EU EORI number in order to complete the import declarations. A business can apply for an EU EORI number from the tax authority in any EU member state in which it is registered for VAT .
Exports of goods to both businesses and private consumers in the EU will be zero rated for UK VAT purposes. The value of sales to EU businesses will no longer be declared in Box 8 of the VAT return.
Note, where a GB business sells goods that are already located in the EU to another EU member state, the current rules for intra-EU sales will continue to apply. Some businesses may choose to hold stock in an EU country and use this to fulfil all EU sales as intra-EU supplies. This would require a VAT registration in the country in which the stock is held but would avoid the need to register for VAT in multiple EU countries.
Where GB businesses sell goods to EU businesses, the EU customer will often assume responsibility for importing goods into the EU. In this situation, GB suppliers sending goods to the EU will not need to concern themselves with EU VAT consequences involving registrations and the payment of local taxes and duties.
The need to complete EC Sales Lists for the cross-border supply of goods and services between GB and the EU will cease with effect from 1 January 2021. Businesses established in Northern Ireland must continue to complete EC Sales Lists in respect of the sales of goods to the EU.
From 1 January 2021, goods sold from GB to private consumers within the EU will be subject to import VAT and duty somewhere in the EU. GB businesses will need to register for VAT in every EU country in which such sales breach the VAT registration threshold. If the GB business is registered for VAT in the relevant EU country, it will be able to recover any import VAT through its local VAT return.
From 1 July 2021, a simplified system will be available. From this time, businesses making relevant supplies will be able to register for VAT in a single EU country as a ‘One Stop Shop’ registration. All sales to private consumers in the EU with a consignment value of EUR150 or less will be charged to VAT in the country of destination and can be declared through the ‘One Stop Shop’ registration. If GB businesses choose not to take advantage of this scheme, import VAT will be collected from the customer by the customs declarant (e.g. postal operator or courier). The declarant will then pay this VAT over to the relevant tax authorities.
The delay in the introduction of the simplification measures means that businesses undertaking distance sales in the first 6 months of 2021 could face significant compliance obligations and additional cost.
Sales to private consumers in the EU with a consignment value exceeding EUR150 in value do not fall within this simplification and will continue to be subject to the normal export/import rules.
Northern Ireland Protocol
The Northern Ireland Protocol is a temporary arrangement under which NI operates as part of the EU in certain circumstances. The Protocol will affect any business established in NI, holding goods in NI or receiving goods in NI.
The processes involved with moving goods in or out of NI are explained here.
Import VAT will be due on goods moving between GB and NI. An ‘XI’ EORI number will be required in order to move goods from NI to GB or other non-EU countries.
Businesses moving goods between NI and the EU will need to declare a ‘XI’ prefix before their VAT number and will need to complete EC Sales Lists if selling to VAT registered businesses.
Detailed information about the operation of the Northern Ireland Protocol can be accessed here.
The Government has established a free Trader Support Service for businesses operating under the Protocol. This service can provide help and advice and complete declarations on behalf of businesses. A business can sign up to the service here.