As a result of Brexit, the way VAT is dealt with for importing and exporting has changed for anyone who carries out these tasks with businesses or individuals in EU countries.
Domestic VAT rules remain the same following the end of the transition period. How VAT is handled for imports and exports however has changed since the UK left the EU Taxation and Customs Union on January 1, 2021.
Luckily, most rules will remain the same thanks to the measures the Government have put in place, meaning there should be negligible cash flow impact. With this said, however, the administrative requirements have changed.
POSTPONED VAT FOR GOODS IMPORTS
Businesses registered for VAT that import goods into the UK from anywhere in the world can use a system called postponed VAT accounting. This is like the previous EU reverse charge system on intracommunity acquisitions but is handled differently.
Businesses account for the import VAT on their VAT Return, rather than paying it immediately (e.g. at the port of entry), as follows:
- Box 1 – VAT due on sales and other outputs: Include the VAT due in this period on imports accounted for through postponed VAT
- Box 4 – VAT reclaimed on purchases and other inputs: Include the VAT reclaimed in this period on imports accounted for through postponed VAT
- Box 7 – Total value of purchases and all other inputs excluding any VAT: Include the total value of all imports of goods included on your online monthly statement, excluding any VAT.
The purpose of postponed VAT accounting is to avoid an impact to your cash flow when importing. In fact, if your business already imports from outside the EU then it might see cash flow benefits because it removes the need to pay for the import VAT typically due.
Use of the postponed VAT accounting scheme is optional. If you wish, you can pay the VAT upfront when the goods enter free circulation in the UK.
This will require you to obtain monthly C79 reports from HMRC, as currently is the case for non-EU imports. However, postponed VAT accounting is mandatory if you defer the submission of customs declarations – such as making use of the initial six-month customs deferment period after the end of the transition period.
Postponed VAT accounting can be used by all VAT-registered businesses in the UK, although businesses in Northern Ireland will continue to be considered part of the EU VAT area, so goods arriving from the EU will not be considered imports and will therefore not incur import VAT.
Postponed VAT is only relevant for imports to England, Wales, or Scotland and only if the value exceeds £135. For imports beneath this amount, there is still a need to account for VAT, but you must use the new e-commerce rules (even if the goods were not traded via e-commerce).
VAT ON SERVICES
When it comes to purchasing services, rather than goods cross-border, things continue much as they did before 1 January 2021.
Under the place of supply rules, business to business (B2B) sales of services will continue to be generally subject to tax in the country of the customer and administered through reverse charge, with some exceptions. Business to consumer (B2C) sales of services will continue to be generally subject to tax in the country of the seller, again with some exceptions.
However, UK businesses that use the Mini One-Stop Shop (MOSS) system will need to register for the non-union MOSS and will no longer benefit from a €10k threshold before having to apply the place of supply rules. This means many more businesses may be liable to VAT in the countries they sell digital services to and will need to register for non-union MOSS.
VAT ON EXPORT
As of 1 January 2021, when it comes to exporting goods to EU countries, the VAT situation also changes. Exports to EU countries are treated like those to non-EU countries, which is to say, they should be zero-rated for UK VAT.
This will apply regardless of whether you are exporting goods to a consumer (B2C), or to a business (B2B). In other words, there is no longer any need to observe distance selling regulations or to verify the VAT status of the recipient business. This could mean businesses selling B2C to the EU need to register for EU VAT and appoint fiscal representatives depending on the requirements of the countries in which they sell.
It is important to understand what it means to zero-rate goods for VAT if you meet the criteria outlined above. It does not mean you can simply forget about VAT. It means you apply a 0% VAT rate. No VAT is payable, but you must still include the exports as part of your VAT accounting.
VAT ON IMPORTS £135 AND UNDER
Alongside the end of the transition period on 1 January 2021, the UK is introducing additional measures for overseas goods arriving into Great Britain from outside the UK:
- Low-Value Consignment Relief (LVCR) is being Previously, this exempted imports with a value below £15 from import VAT.
- Online marketplaces (OMPs), where they are involved in facilitating the sale, will be responsible for collecting and accounting for the
- VAT on imports with a consignment value of £135 or lower will have VAT applied at the point of sale, rather than applied as import VAT at customs. For B2C transactions, this UK VAT will be charged and collected by the seller but for B2B transactions, the VAT will be reverse charged to the customer.
Essentially, this means foreign sellers sending goods into the UK will need to charge UK VAT and apply to be part of the UK VAT system when supplying goods with a value of £135 or less to end consumers (that is, non-VAT-registered individuals). Businesses who receive goods of £135 or less will have to account for the VAT as part of the reverse charge procedure, declaring the VAT on their next VAT Return. Normal rules apply for the tax point, which is to say, it will usually be the invoice date.
Additionally, the recipient business should ensure the seller knows their VAT number, or the seller will have no choice but to treat it as it was a B2C sale and apply VAT.
NORTHERN IRELAND VAT AND CUSTOMS
When it comes to customs and VAT after the end of the transition period, Northern Ireland is not like the three other countries that comprise the UK. It will use the Northern Ireland Protocol, which is part of the Withdrawal Agreement between the UK and EU that aims to avoid a customs border (known as a hard border) between Northern Ireland and the Republic of Ireland (ROI).
There are different rules for the supply of goods and services, and this is what is currently proposed by the Government:
GOODS
Northern Ireland will remain part of the EU customs and VAT regime when it comes to trade with the Republic of Ireland and the rest of the EU. From a customs perspective, moving the majority of ‘qualifying goods’ from Northern Ireland to Great Britain won’t change. There will be no additional processes, paperwork, or restrictions.
However, when moving goods from GB to Northern Ireland, goods considered ‘at risk’ of moving to the EU will be exempt and will be treated as a regular import/ export from a customs perspective.
From a VAT perspective, movements between Northern Ireland and Great Britain will largely continue to be treated as domestic sales and purchases as they are previously. This means there will not be import VAT due on movements.
SERVICES
Services are excluded from the Northern Ireland Protocol, so sales of services between Northern Ireland and Ireland/EU from 1 January 2021 will be treated like Third Country supplies.
As already mentioned, this results in very little change from a VAT perspective. Similarly, nothing will change for supplies of services between Great Britain and Northern Ireland, and they will continue to be considered domestic supplies.
TRADER SUPPORT SERVICE
The UK government will run a new Trader Support Service for businesses moving goods to and from Northern Ireland. This will provide free support to businesses buying and selling between Northern Ireland and Great Britain. The support service will also be a help if you bring goods into Northern Ireland from outside the UK.
HERE TO HELP
If you need advice or support on any of the information outlined above, we are here to help. Feel free to contact a member of our team today on 01454 619900 or by emailing advice@dunkleys.accountants.