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The Brexit transition period ends on 31 December 2020 and the VAT rules and customs border checks will change as a result as the UK ceases to be within the EU VAT net and within the European Economic Area (EEA) and the related trade agreements.
All businesses which buy or sell goods or services to the EU need to be aware of the current HMRC guidance on how these changes will affect their business from 1 January.
The changes affect the cross-border supply of goods differently from services and there are also differences between supplies of goods from mainland UK (Great Britain or GB) to the EU and those between Northern Ireland and the EU. As is currently the case business to business supplies (B2B) are treated differently from business to customer supplies (B2C).
The changes are examined below under the following headings
Supplies of Goods
Supplies of Services
The actions businesses need to take – whether or not there is a trade deal agreed with the EU before 31 December – are detailed in the article and the key action points for businesses include:
Exports of goods
There will be no change to the VAT rules on exports to non-EU countries. Supplies to such countries from the UK will continue to be zero rated.
There will however be changes for the supplies of goods to EU Member states. Currently no VAT is charged where goods are moved between EU Member states. From 31 December 2020 the sale of goods from the UK to EU Members states will be treated in the same way as current exports to non-EU countries and will be a zero-rated export from the UK.
As the UK will no longer be within the EU VAT net, import VAT will arise in the EU Member state to which the goods are exported. The goods are deemed to be supplied in that EU Member state by the “importer of record”, the person named as the importer in the entry documents.
Where a consignment value exceeds £135 (€150) and If the customer is the importer of record, then the customer is liable for the import VAT and the UK supplier need not register for VAT in that EU country
In cases where the consignment value is below this value, then the UK supplier as with non-established taxable persons will have a VAT registration obligation in the EU.
If the UK supplier is the importer of record that supplier will need to be registered for VAT in that EU Member state, pay the import VAT and charge that EU Member state’s VAT on its supply to the customer. A UK supplier which is registered in an EU Member state will also need to apply for an EU EORI number.
In 20 of the 27 EU Member states the importer of record must be established in the EU (see table below). For the UK supplier to be importer of record it will either have to be or become established in EU or appoint a local VAT Fiscal Representative in the EU Member state to which the goods are exported.
In addition to the requirements in EU Member states is should also be noted that all EEA Member states which are not in the EU – Iceland, Norway and Switzerland – require a VAT Fiscal Representative to be appointed where the importer of record is not established in the EU.
Many EU countries, including Belgium, France, Germany, Ireland, Netherlands, Portugal and Spain, have schemes which permit the deferment or postponement of payment and recording of VAT from the point of entry to the regular VAT returns. The rules and requirements regarding the place of establishment and VAT registration, appointment of VAT Fiscal Representative and provision of guarantees vary from country to country. UK suppliers which will be the importer of record should familiarise themselves with the VAT deferment schemes in the EU Member state to which they are exporting their goods.
In light of the above, UK suppliers which export goods to EU Member states may consider amending trading arrangements so that the customer becomes the importer of record or setting up a business establishment within the EU.
Online sales of goods exported to the EU
Distance selling thresholds which apply to UK e-commerce sellers of goods to EU consumers will cease to apply from 1 January 2021. Such UK e-commerce sellers will need to register in the EU Member state in which they make their sales and may also consider becoming established in EU.
The EU will be introducing an e-commerce VAT package with effect from 1 July 2021 which will have a significant effect on B2C online sellers and Online Marketplaces (OMP).
The changes will include:
The new deemed supplier regime for OMPs will apply in two cases, when the OMP is facilitating a B2C sale of imports not exceeding €150 and online sales transactions of any value for non-EU sellers.
These changes are similar to those which the UK will implement from 1 January 2021 more details of which are provided below under Goods in consignments not exceeding £135 and Online sales of goods in consignments not exceeding £135
Northern Ireland
The above changes do not apply to the export of goods to the EU from Northern Ireland. Under the Northern Ireland Protocol, Northern Ireland will maintain alignment on certain processes within the EU VAT rules for goods whilst at the same time remaining part of the UK VAT area.
The arrangements under the Northern Ireland Protocol remain subject to agreement between the UK and the EU and the following is the current advice available.
UK VAT will be charged by sellers on goods which enter Northern Ireland from GB as they would for any sales within GB, subject to the exceptions noted below.
UK VAT will also be charged on goods which are transported via Northern Ireland to another EU Member State and UK VAT will be accounted for by the seller on the transfer to Northern Ireland. The UK government guidance states the seller will not be able to claim this back as input VAT on the sale to the EU Member State and further notes the seller will be responsible for zero-rating the goods on export to the EU from Northern Ireland. As a result the seller will pay UK VAT to the UK government on these sales.
The result is that all transactions in goods between Northern Ireland and the rest of the EU will continue after 31 December 2020 as they do before that date. The processes and reporting of VAT transactions in respect of Northern Ireland will also remain unchanged between the two periods.
The exceptions to the requirement for the seller to charge UK VAT on the sale of the goods transferred from GB to Northern Ireland are where goods are:
VAT registered businesses with an address registered in Northern Ireland which sell or purchase goods to or from the UK or an EU Member state should apply for an EORI number. The EORI number for a business with an address registered in Northern Ireland will have a prefix XI rather than GB applies to all other UK VAT registered businesses.
The UK government has announced a scheme to help all businesses which move goods between GB and Northern Ireland with the transition to the new trading arrangements and completing and submitting declarations. Businesses should follow this link to register for the Trader Support Service
Imports of goods
The UK will be a “third country” for the purposes of EU VAT with effect from 31 December 2020. Exports of goods from the EU to a third country are not subject to VAT on leaving the EU point of departure.
Goods will be subject to UK import VAT on entering the UK (except for goods entering and remaining in Northern Ireland) which will be payable at the point of entry unless:
Goods entering Northern Ireland from the EU are not subject to UK import VAT on entering Northern Ireland. There will be no change in the VAT charged or how it is accounted and reported from 1 January 2020.
Goods entering GB from Northern Ireland will be subject to UK import VAT in a similar manner to imports of goods from the EU and will be payable at the point of entry subject to the same exceptions as noted above.
Postponed VAT Accounting (PVA)
Businesses registered for VAT will be permitted to account for import VAT for goods imported from anywhere in the world from 1 January 2021 on their VAT returns. This will be done by declaring and recovering import VAT on the same VAT return, instead of having to pay it upfront and recover it later. PVA offers a simplification and cash flow advantages compared to the current rules for imports from outside of the EU.
The normal rules about what VAT can be reclaimed as input tax will apply.
No application is required for PVA which can be used to account for import VAT if:
Businesses registered for Customs Declaration Service will receive a monthly statement of all imports where import VAT was postponed (Monthly Postponed Import VAT Statement MPIVS). Details provided in the MPIVS should be reported in the subsequent monthly or quarterly UK VAT return as VAT due (Box 1) and, if it is deductible as input VAT, the VAT reclaimed (Box 4).
Where businesses do not choose to use PVA a C79 VAT certificate will continue to be issued by HMRC showing any VAT paid on importation.
There are transitional arrangements for goods which may be in the UK before 1 January and PVA will not be available for imports made under authorisation to use simplified declarations for imports, where simplified frontier declarations are made before 1 January 2021 (including where the supplementary declaration is made after this date).
Special procedures
UK import VAT on goods put into a customs special procedure, such as a Customs warehouse, should be accounted for on the VAT return covering the date when the declaration that releases those goods into free circulation of for home consumption is made.
Goods in consignments not exceeding £135
From 1 January 2021 imports of consignments valued at under £135 and consignments valued at under £15 which are currently exempt under the Low Value Consignment Relief, will become taxable.
For these sales the point of supply, at which VAT is collected on the supplies, will move from the point of importation to the point of supply.
As a result for B2C transactions, UK sales VAT will be chargeable at the point of sale on all goods imported in consignments valued at less than £135. Import VAT will not have been charged on the importation of these goods to the UK (except where a non-UK established business holds the goods as stock in the UK) and will not therefore be recoverable on these sales.
For B2B transactions with a UK VAT registered customer such sales can be zero-rated by the seller and the purchaser accounts for UK sales VAT using the reverse charge mechanism.
The £135 value threshold includes the intrinsic value of the goods excluding costs of transport, insurance, and other import taxes. This new regime does not however apply to excise goods, such as tobacco and alcohol, nor to gifts up to a value of £39.
Online sales of goods in consignments not exceeding £135
For online sales of imported goods below the £135 consignment value will in addition be affected by the removal of the distance selling threshold for business which are not established in the UK and for new rules which will make an Online Marketplace (OMP) facilitating such sales responsible for charging, collecting and accounting for the UK sales VAT.
The effect of these changes for online sales of such goods will be:
B2B supplies
There will be limited changes to VAT on services for B2B transactions from 1 January 2021.
The general rule for B2B transactions is that supplies to EU businesses are deemed to take place in the EU country where the purchaser belongs.
Under the general rule the UK supplier does not charge VAT and under the reverse charge procedure the purchaser accounts for both output VAT and input VAT through their own VAT return. This will not be changing as a result of Brexit.
The reverse charge regime will continue to apply to supplies received by UK businesses from business in other EU Member states in the same way as it does at present for supplies of services from businesses outside the EU.
There are a number of exceptions to the general rule such as supplies in relation to land, transport, catering, broadcasting, electronically supplied services, telecommunication services, admission to events and hiring goods situated in the EU Member state. Under these exceptions the services may be deemed to be supplied where the land is situated or where the service is delivered or provided.
There will be no changes from 1 January 2021 in the deemed place of supply of these services which do not follow the general rule however from that date the UK supplier will need to register for VAT in the EU Member state in which the services are deemed to be provided.
B2C supplies
There will be changes to VAT on B2C supplies of services.
At present supplies to consumers and other non-business customers who belong in another EU Member state are (with the exception of services relating to land) treated as UK supplies liable to UK VAT.
Services provided to EU consumers after 31 December 2020 will be exports of services and will be zero-rated. As the place of supply under EU law is deemed to be the UK these services should not be subject to VAT in the EU Members state in which the customer resides. Accordingly, there will be no requirement for the UK supplier to register for VAT in that EU Member state.
