Brexit VAT implications

Pre COVID-19, Brexit had taken the headlines for the previous couple years. The media and notable individuals in society such as David Cameron stepping down as PM created a negative view over the matter creating fear of its potential impact; despite a majority vote in the referendum from UK citizens believing Brexit to be a good idea.

The leave vote was defended most notably by ex London Mayor and the now PM Boris Johnson who has forced Brexit through parliament supported by few British businesses like Weatherspoons, JCB and Tate and Lyle.

As the Brexit changes have been effective from 1 January 2021, we may see the Brexit impact hit the front pages of the media once again following the COVID-19 pandemic becoming under control.

At Everyday Accountants, we are in many ways relieved that the changes are now effective because of the significant uncertainty since the referendum back in June 2016. 4 1/2 years on, the rules have been set, new processes created and we can work towards creating a new normality for many UK businesses.

Many domestic businesses will be unaffected by Brexit. However, one of the major changes of Brexit is how VAT is accounted for between the UK and the EU. We believe it is a good test for UK businesses to prove their resilience and adaptability when the world is watching intently on how well we pivot. Even though 48.1% of the population didn’t vote for Brexit, we must all get behind it for the welfare of ourselves and the UK economy.

We have noted below the key VAT changes Brexit has had:

Up to 31 December 2020

• VAT was charged on most goods and services sold within the UK and the EU.
• VAT was payable by businesses when they brought goods into the UK. There were different rules whether the goods came from the EU or non-EU.
• Goods that were exported by UK businesses to non-EU countries and EU businesses were zero rated, meaning UK VAT was not charged at the point of sale.
• Goods that were exported by UK businesses to EU consumers had either UK or EU VAT charged, subject to distance selling thresholds.
• For services, the ‘place of supply’ rules determine the country in which you needed to charge and account for VAT.

From 1 January 2021

• The UK continues to levy VAT and the rules relating to UK domestic transactions continue to apply to businesses as they did previously.
• VAT procedures on the whole remain as those prior to 31 December 2020, but there are some changes to VAT rules and procedures for transactions between the UK and EU member states.

Importing goods

The existing rules for imports from non-EU countries now apply to imports from the EU, but with some differences.

Postponed accounting:

• The government has introduced ‘postponed accounting’ for import VAT on goods brought into the UK with effect from 1 January 2021 from both EU and non-EU countries. The import VAT will now be payable on a business VAT return instead of the time the goods arrive at the UK border. Customs declarations and excise duty still apply but payments can be deferred to be settled monthly by registering with HMRC a duty deferment account and a bank guarantee must be provided. This should improve business cash flows and processes.

Goods valued <£135:

• From 1 January 2021, VAT on imported goods with a value up to £135 is collected at the point of sale not importation. This means UK supply VAT, not import VAT, will be due on these consignments.
• Online marketplaces (OMPs), like Amazon, involved in facilitating the sale of imported goods, are responsible for collecting and accounting for the VAT, even when goods are in the UK at the point of sale. This is a benefit for the sellers as responsibility is shifted. Overseas businesses cannot avoid VAT being charged which also creates a level playing field for UK businesses against overseas sellers.
• For goods sent from overseas or in the UK and sold directly to UK consumers, the overseas seller is required to register for VAT to HMRC.
• B2B sales are also subject to the new rules. However, where the business customer is VAT registered and provided its registration number to the seller or OMP, the VAT will be accounted for by the customer by means of a reverse charge. This means no VAT is paid at the time of acquisition of the goods and the customer must account for the VAT on their own VAT return. This is tax neutral for the VAT registered UK business and protects cash flow.
• The £135 threshold is based on the ‘intrinsic value’ of the goods which equates to the price at which the goods are sold: excluding transport and insurance costs if they are separately shown on the invoice and any other taxes or charges identifiable by customs.
• It’s also important to know the £135 threshold relates to the value of the consignment, not each individual item within the consignment which boils down to whether the items are packaged and sent singularly to the customer. For instance, if an Amazon basket has 5 items of £30 each from the same seller this will most likely be packaged together so the consignment value will be >£135 where these rules don’t apply. If the 5 items in the basket are from 5 different sellers then each item will be packaged separately and the OMP will handle the VAT. For OMPs to be able to establish how the VAT should be calculated they have updated their processes and as the seller you must determine the new changes set by your OMP. In Amazon’s case, they have included a ‘Ship from address’ requirement.

Exporting goods

Zero rate:

• VAT registered UK businesses continue to zero rate sales of goods to EU businesses. EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries. This means import VAT and any customs duties are due when the goods arrive in the EU.

CTC:

• Businesses may be able to use the Common Transit Convention (CTC) to complete some customs procedures away from the border and defer import VAT and customs duties until goods reach their final destination. But a guarantee may be needed to cover import VAT and customs duties while the goods are being moved.
• There are no distance selling thresholds anymore and all such sales are zero rated exports.
• UK VAT registered businesses no longer have to complete an EC Sales List. Instead, UK businesses need to retain evidence to prove goods have left the UK which is already the requirement for exports to non-EU countries. However Northern Ireland businesses still need to complete EC Sales Lists.

Supplying services to the EU From 1 January 2021, supplying services to the EU is treated the same as non-EU countries. The ‘place of supply’ rules still apply with some small changes:

1. Digital services: the place of supply is where the customer resides and due in their EU member state. All supplies are liable for VAT. Businesses using UK VAT MOSS scheme can continue but must register for the VAT MOSS non-union scheme in an EU member state; such as Ireland (Mini One Stop Shop). A business must register for the non-union MOSS scheme by 10th day of the month following a sale. It’s therefore vital that the correct planning is undertaken. Alternatively, businesses can register in each EU member state where they make sales. Likewise, for digital services in the UK by non UK businesses they must register for VAT in the UK.
2. Insurance and financial services: these are outside the scope with recovery, and therefore aligned with existing rules to non-EU countries.
3. EU VAT refund system: UK businesses must use the refund system for non-EU businesses now. The system varies across each EU country so UK businesses must check the precise requirements in each country where they incur VAT.

Other comments:

1. EU VAT Registration Number Validation: this service allows businesses to check if a customer or supplier’s VAT number is valid. UK businesses can still use this to check EU businesses but UK businesses will cease to be included and HMRC have adopted their own validation service.

Please see the government’s website for more information:

https://www.gov.uk/government/publications/changes-to-vat-treatment-of-overseas-goods-sold-to-customers-from-1-january-2021/changes-to-vat-treatment-of-overseas-goods-sold-to-customers-from-1-january-2021

If you, your friends or family have any concerns on how Brexit has impacted your VAT situation, please get in touch and we will be happy to assist.

Stay safe Everyday Accountants