VAT and Brexit

Where are we with VAT and Brexit?

Are you clear about the implications on your business of VAT and Brexit?

With the whole world’s attention on the global health pandemic it’s little wonder that Brexit news has taken a back seat.

VAT and Brexit: an EU flag outside Downing Street

However, the UK will leave the EU VAT regime, Customs Union and Single Market after 31 Dec 2020, leading to an increase in complexity in procedures and reporting, plus the possible introduction of import/export tariffs. 

VAT has always been a complex area, particularly for businesses importing/exporting goods or services, or in the construction/property sector.

For the majority of UK VAT registered businesses the changes will be superficial and the normal rules will apply: charge VAT at the appropriate rate, claim VAT back on goods and services where you have a valid VAT invoice, and pay HMRC the difference.

But for those businesses with customers or major suppliers in the EU, there will be significant changes to the way they operate.

Leaving the EU Customs Union

The most significant impact on business will be the UK leaving the EU Customs Union. This will see the end of tariff-free movement of goods to/from the EU, resulting in customs declarations and the possible imposition of tariffs.

The details of this are still under negotiation, however the UK Border Operating Model will allow for the deferment of customs declarations and import tariffs until 1 July 2021.

Brexit VAT Changes

The major changes for UK and EU businesses upon the UK leaving the VAT regime include:

  • The UK will be able to set its own VAT rates – there are unlikely to be any changes soon, unless the Chancellor decides to increase the tax to help pay for Covid support measures.
  • The ending of zero-rated B2B intra-community supplies; all movements will become imports or exports, subject to UK or EU import VAT.
  • By way of compensation, the UK will introduce a Postponed Accounting import VAT deferral scheme so no cash VAT payment has to be made by business importers to UK customs. However, many EU countries do not offer the same scheme for UK businesses importing their goods.
  • The loss of Distance Selling thresholds for UK e-commerce sellers of goods to EU consumers. Goods will now be subject to import VAT, and UK sellers will have to consider VAT registering in Europe immediately. Similarly, EU e-commerce sellers may now need to register immediately for UK VAT if they have been selling to UK consumers under the £70,000 threshold.
  • For UK sellers of digital services to EU consumers, the UK will no longer be a member of the EU Mini One-Stop-Shop single VAT return scheme. 
  • There will be limited changes on the VAT on services for B2B transactions after the UK leaves the EU VAT regime. The reverse charge will still apply. 
  • UK businesses incurring EU VAT on travel, hotel or other expenses will no longer be able to use the 8thDirective online VAT reclaim system operated via HMRC. Instead, they will use the 13th Directive paper-based reclaim process. This requires individual claims to each country where there is a VAT claim.
  • As part of the Withdrawal Agreement, Northern Ireland will enter into a special VAT and customs relationship with the EU. Whilst NI will remain within the UK VAT area, it will track EU rules, including zero-rating for VAT on intra-community supplies across the Irish border. EU VAT on imports into Ireland via Northern Ireland will be collected by the UK authorities.
  • Intrastat reporting after Brexit will still be required for 2021 for arrivals / imports into GB from the EU. But they will not be required for dispatches / exports to the EU.

Further details about the transition period post Brexit can be found here.

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