It’s clear that many businesses that trade with the EU or move goods via Northern Ireland need to think carefully about how Brexit impacts them.
Author: Sally-Ann Galbraith, VAT Advisory Manager
As the Brexit transition period comes to an end, many businesses still feel uncertain about how the myriad of changes to VAT and customs regulations will impact their UK VAT accounting and compliance. We’ve set out below some of the issues which businesses need to address.
Importers: EU to Great Britain and Rest of World (RoW) into the United Kingdom
A series of planning points and considerations arise concerning UK businesses importing from the EU into GB:
- Different rules for consignments under £135 and UK stock sold by overseas online sellers (see next section).
- Obtain a GB economic operator registration and identification (EORI) number if there is any chance of you buying goods cross-border.
- Get an XI EORI number (in addition to a GB one) & sign up to the free Trader Support Service if you expect to move goods between Northern Ireland (NI) and non-EU countries (including GB).
- Use a freight forwarder/agent, or process imports yourself (a government fund is currently available to help train staff and update software).
- Consider use of simplified import procedures to ease the burden of new and additional import declarations. It may also be possible to defer the more detailed declarations for imports from the EU until July 2021.
- Determine the duty applicable on the goods imported and whether you can use other import reliefs.
- Use postponed import VAT accounting (compulsory if you use certain simplified import procedures) and report imports in box 7 of the VAT return and the relevant VAT in boxes 1 and 4 (only boxes 4 and 7 if the business chooses not to use postponed accounting).
- Apply for deferment account to ease release of goods from customs (useful for customs duty, even if also using postponed accounting for the VAT) unless you are using an agent’s deferment account.
- Ensure contracts involving goods moving between the UK and other countries are clear as to who will be responsible for customs duty and import VAT.
- There are currently no changes to rules for postal imports greater than £135 consignments which are dealt with via the Royal Mail.
Overseas sellers selling goods via Online Market Places (OMPs)
Although not Brexit related as such, the government is bringing in some additional new rules at the same time as Brexit in an attempt to combat VAT avoidance around online sales. The new rules apply to goods sold by overseas-based sellers, from UK-held stock, via facilitating OMPs. The OMP must declare & account for the UK VAT to the UK buyer and the seller (who should have suffered import or normal UK VAT on importing / buying the stock) is deemed to make a zero-rated sale to the OMP.
Low value imports – under £135 per consignment
- Low value consignment VAT relief will not apply to goods from the EU but consignments under £135 can still be imported duty-free.
- For consignments under £135, there are special rules where the goods are overseas at time of sale (see table below)
- The £135 is per consignment, not item, and is based on the intrinsic value of the goods (excl. packing, post and other taxes).
For consignments < £135 outside the UK at point of sale
|Buyer gives its UK VAT# to OMP/Seller
||Buyer accounts for and pays UK VAT under reverse charge (boxes tbc but probably 1, 4 and 7).
|Direct from Seller to non-VAT registered buyer
Seller charges and accounts for UK VAT on its UK VAT return (boxes 1 and 6) although avoided if Seller able to prepay.
If not already UK VAT registered this spears to make Seller required to be (this is definitely the case for and overseas seller as no UK VAT registration threshold applies).
Seller must issue paper or digital VAT invoice to customer which must accompany the goods.
|Sold via OMP to non-VAT registered buyer||
OMP charges and accounts for UK VAT on the sale (boxes 1 and 6).
OMP must issue paper or digital VAT invoice to customer.
Exporters: GB to EU and UK to RoW
Likewise, we can outline some planning points for UK businesses exporting:
- Obtain a GB EORI number to clear goods through UK customs when exporting goods from GB to the EU (already required for UK businesses exporting to RoW).
- Get an XI EORI number (in addition to a GB one) & sign up to the free Trader Support Service if you expect to move goods into or out of NI.
- Check whether any labelling, licenses or excise requirements apply for the type of goods concerned
- For export declarations, the business should either:
- use a third party (say a freight forwarder) to document the declarations; or
- complete export declarations itself and register for the national export scheme
- Consider using CTC (EU common transit convention) if goods are being exported by transit through other EU countries.
- Ensure appropriate evidence obtained and held to meet export UK VAT zero-rating requirements.
- Establish with the customer who is responsible for the import into the destination country and the information they need (Incoterms are often used in contracts to make this responsibility clear).
- If selling to VAT-registered businesses in the EU, Incoterms making that customer responsible for the import would be simplest for the UK supplier, but other commercial considerations need to be factored in.
- If the UK seller is responsible for the import into the destination country (especially likely for sales to consumers where sellers don’t want the negative commercial implications of making consumers pay VAT and duty on top of their selling price) it is likely the UK supplier will have VAT and customs duty obligations in the destination country and will need an EU EORI number (for the first EU country the supplier imports into post-Brexit). This will bring new compliance and (for over €150 consignments) duty costs for sellers to the EU consumer market. Some of this might be eased:
- Until 1 July 2021 by use of the existing EU Low Value Consignment Relief. Under this, EU imports of consignments valued €22 or less are both VAT and duty free.
- From 1 July 2021 when the EU is introducing a one-stop-shop facility for EU imported consignments under €150; this is similar to the MOSS for digital services and may reduce the number of EU VAT registrations required by UK businesses.
- The VAT Retail Export Scheme will no longer be available to retail outlets in GB.
- Sales of all vehicles, ships and aircraft between GB and EU will be treated as exports and imports. Special schemes are available for personal exports of vehicles and sailaway boats.
- Where goods are moved between a fiscal warehouse in Great Britain and a fiscal warehouse in the EU or Northern Ireland, this will not be treated as a VAT-free movement. The goods will have to exit the fiscal warehouse in Great Britain and be subject to the appropriate VAT, before entering the fiscal warehouse in the EU or Northern Ireland.
- The fulfilment house due diligence scheme will now also apply to GB fulfilment houses that hold stock on behalf of EU businesses.
Goods into and out of Northern Ireland
Exactly how these will translate into customs and VAT rules between GB, NI, the EU and RoW is still being worked out (especially as there are still some differences between EU and UK interpretation) so guidance is being updated as things progress. Currently the UK is planning for the following:
|Goods sold:||Reporting||Customs duty £||VAT £||Comments|
|NI to GB||VAT return only||None||Normal VAT||Anti-avoidance rules planned to ensure only ‘normal’ NI to GB trade avoids duty.|
|GB to NI||No GB export declarations. Digital import declaration in NI via the free Trader Support Service or HMRC systems using XI EORI.||Only for goods destined for, or ‘at risk’ of entering, the EU. If goods remain in UK, the duty will be refunded. Range of customs procedures available too.||Seller invoices and accounts for NI import VAT (and recoverable by buyer) in same way as normal UK to UK VAT.||Special rules for: intra-VAT group movements/sales on GB; NI ferries/goods under a domestic reverse charge/ goods under special customs procedures/ goods sold by overseas sellers via OMPs.|
|NI to EU||Treated as EU to EU sales so follow the existing EU rules intra EC requirements for zero-rating, ECSL, Intrastat etc. using XI VAT number. No additional checks and no customs declarations or duties.|
|EU to NI||Same as above|
|RoW to NI||EU tariffs apply to goods destined for, or ‘at risk’ of entering, the EU, otherwise same as rest of UK. Use XI EORI number.||Normal rules for UK imports.|
|NI to RoW||Normal rules for UK exports.||Normal rules for UK exports using XI EORI number.|
|GB to EU (transport via NI)||Unclear what declarations are required here, presumably digital import declaration into NI only (no GB export declaration and no IE import declaration).||Presumably EU customs duty will be payable under the GB Seller’s import declaration as goods are destined for the EU.||Seller accounts for the NI import VAT in Box 1 of its VAT return, but zero-rate the export sale to the customer. Seller unable to recover this import VAT.||The VAT accounting seems out of kilter with how VAT is supposed to work as there appears to be sticking VAT. We await clarification from HMRC on this scenario.|
|EU to GB (transport via NI)||Unclear what declarations are required here, presumably GB import declaration by EU Seller.||Presumably UK customs duty will be payable under the EU Seller’s GB import declaration.||EU Sellers must UK VAT register to invoice and account for UK VAT to GB customer (who will be able to recover in the normal way.||It is hoped there will be some kind of transit relief available for such movements to avoid additional customs duty and paperwork. To be confirmed.|
|NI to EU (transport via GB)||GB export declaration EU import declaration||Customs duty on import into EU for importer.||Import VAT in EU for importer.|
|NI to GB (transport via IE)||Unclear. EU x-border deemed supply and/or IE export declaration GB import declaration||Customs duty on import into GB.||Potentially a deemed EU supply on NI to IE movement + IE VAT registration and import VAT in GB.|
- Get an XI EORI number (in addition to a GB one) & sign up to the free Trader Support Service if you expect to move goods between NI and non-EU countries (including GB). TSS registration also gives you access to useful webinars and guidance specific to NI trade.
- For movement of own goods from GB to NI, there will be a deemed supply by the owner and (presumably) a digital declaration will be required using the owner’s XI EORI number. The VAT on this deemed supply will be recoverable on the same VAT return if it is being used for fully taxable purposes. If there is a partial exemption restriction, HMRC are looking at a way to compensate for this by adjusting the original VAT recovery position for the item concerned.
- Goods entering NI from GB and RoW – additional checks may be required to ensure goods (e.g. chemicals, animals, medical, pesticides) conform to EU standards
- VAT Retail Export Scheme will only be available to retail outlets in NI
- Triangulation only applies for goods transactions between EU and NI
- EU Margin Scheme only available for goods purchased in NI or the EU
- UK Margin Scheme only available for stock purchased and sold within GB
- Just one UK VAT return and VAT number but XI prefix used for NI to EU trade
- NI origin goods will benefit from UK trade deals, but possibly not EU trade deals (for goods sold to RoW)
- NI’s requirement to meet EU standards for goods imported to NI – negative impact on UK RoW trade agreements.
EU VAT Reporting, Registrations and Refunds
Requirements for statistical reporting (EC Sales Lists and Intrastat) will cease post-Brexit except for:
- Supplies of goods between NI and the EU for which EU reporting requirements continue
- Intrastat Arrivals until 31 December 2021
UK businesses VAT registered in EU countries, or required to become so, but without an establishment in those countries, may need to appoint a fiscal representative in those countries post-Brexit if they haven’t already done so. This can be expensive and it is advisable to make contact with EU VAT representatives as early as possible.
For VAT number validation, the EU website for verifying the validity of EU VAT numbers (VIES) remains accessible; HMRC is working on a UK equivalent for UK VAT numbers.
EU VAT Refund claims (for EU VAT incurred by UK VAT registered businesses pre-Brexit) can be made until 31 March 2021.
For EU VAT incurred post-Brexit, EU VAT Refund claims can only be made by: businesses with an establishment in Northern Ireland; businesses selling goods within or out of Northern Ireland; or, businesses making acquisitions of goods into Northern Ireland or an EU country.
Otherwise UK businesses may be able to claim under the 13th Directive; this is on paper forms via the specific tax authority concerned and will be subject to their rules on deadlines and what can/can’t be recovered.
Three grants are available in respect of new customs declaration requirements for imports from/exports to the EU up to a maximum of €200k:
- training that helps your business to complete customs declarations and processes
- hiring new staff to help your business complete customs declarations
- IT improvements to help your business complete declarations more efficiently
This is needed if there will be customs and/or excise duty due on the items being imported and also for any import VAT (unless postponed accounting is to be used – see below). This can be done by the business itself or via a third-party freight forwarder or agent who uses its own deferment account to pays duty and/or VAT on behalf of the business at import, and then claws back these monies from the business after the event together with its fee. Without a deferment account, any duties and VAT will be payable immediately on import.
Whether there is duty to pay will depend on the nature of the goods, the tariff applicable to those goods and whether they benefit from any import duty reliefs.
If a business uses a freight forwarder, ensure they use the correct EORI and VAT number on all paperwork because this is a common cause of issues.
Postponed import VAT accounting
HMRC has also introduced postponed import VAT accounting from 1 January 2021. Under this, the importing business self-accounts for import VAT in box 1 of their VAT returns in a similar way to the current acquisition tax accounting. The business can then claim the recoverable amount of import VAT in box 4 of the same VAT return subject to the normal VAT recovery rules, meaning a cash-flow advantage compared to current import procedures. To recover this VAT, the business will need to download and keep copies of Monthly Postponed Import VAT Statements from HMRC’s CDS system. These statements will only be available on CDS for 6 months, so businesses will need to routinely download these in order to maintain adequate VAT records.
You can use this postponed import VAT accounting if:
- the goods are for use in your business; and
- your VAT registration and/or EORI number is shown on the relevant customs declaration
To notify use, specific boxes must be completed with your details on the import declarations.
You must use postponed accounting if you are using simplified import declarations for any entry into declarant records from 1 Jan 2021 onwards.
HMRC has confirmed that for services, EU based customers will be on the same footing from 1 January as non-EU customers currently are. Most VAT services rules will remain unchanged, but where the current rules make a distinction between EU and non-EU, there are changes, as explored further below.
Financial and insurance services
Specified supplies are financial and insurance services which, although exempt, are treated as taxable for VAT recovery purposes when supplied to customers outside the EU. From 1 January 2021, specified supplies will include such sales to EU customers as well, thereby increasing VAT recovery for UK suppliers to the EU market.
Digital services and the Mini-One-Stop-Shop (MOSS)
The place of supply and taxation of these services will remain where the customer belongs and UK suppliers will no longer benefit from the £8,818 de minimis threshold when selling B2C (i.e. to non-business customers). If the place of supply is within an EU country, for B2C sales the UK supplier will either be required to VAT register in that country, or will have to sign up to the non-union MOSS scheme; it will not be able to use the EU MOSS facility unless it has an establishment in the EU. To register for non-union MOSS, non-EU businesses must apply through one of the EU countries’ tax authorities (which it cannot do until 1 January 2021, but must do by the 10th of the calendar month following that in which they start making such sales).
UK Sellers currently using MOSS will be able to amend MOSS returns (for returns up to 31 December 2020) until 20 January 2022.
For EU sellers into the UK B2C market, they will no longer be able to account for UK VAT via their MOSS registrations and will instead need to register for UK VAT in full as a non-established taxable person.
Tour operators margin scheme (TOMS)
Margins on TOMS supplies by UK suppliers will be zero-rated for packages where the travel itself occurs outside the UK (whereas the current law only zero-rates travel outside the EU). This removes any risk of double taxation if the EU decides EU VAT is due on these packages. It is unclear whether EU countries will consider UK-based tour operators to be making supplies within their countries and therefore require VAT registration there. In 2014, 19 of the 28 EU member states on the EU VAT expert committee considered that the TOMS only applies to EU established suppliers, meaning the normal place of supply rules apply to non-EU based suppliers. As yet, however, the EU has not pursued non-EU suppliers, but this could change after Brexit because UK tour operators are very active throughout the EU.
Special rules for services to non-EU consumers
Special rules apply for specific services (such as advisory, hire of non-transport goods, finance, data) supplied to non-EU consumers. Currently, such supplies to non-business EU and UK customers have a UK place of supply and are therefore subject to UK VAT, but for non-EU customers the place of supply is outside the EU and therefore no VAT chargeable. Post Brexit such services to non-business customers will be outside the scope of UK VAT and therefore VAT-free for all non-UK customers.
Use and enjoyment provision
For certain services, the normal rules for working out the place of supply are over-ridden where the normal rule gives the UK, but the services are used and enjoyed by the customer outside the EU (and vice versa). This will change to apply where the services are used and enjoyed by the customer outside the UK (and vice versa).
Freight transport supplied to business customers
Currently if a UK supplier supplies freight services to a UK business, there is no UK VAT if the transport occurs wholly outside the EU. It is unclear yet whether this will be extended to cases where the transport takes place wholly outside the UK as well.
Zero-rating of freight and intermediary services
Currently if certain freight or intermediary services, with a UK place of supply, are in connection with exports or underlying supplies that take place outside the EU, the freight and intermediary services are themselves zero-rated for UK VAT purposes. As the level of exports will increase post-Brexit more freight services will benefit from zero-rating. If the intermediary rule is extended to the EU, more of these services will also benefit from zero-rating.
HMRC has confirmed that services provided for the operation of international trains, and the loading, unloading and storage of goods carried on them, will become zero-rated provided the service is physically performed in the UK.
Catering on-board transport and B2C freight transport
Supplies of catering on board ships, planes and trains, and supplies of freight transport B2C have special PoS rules currently if the journey is between two EU countries (e.g. UK and another EU country). When the UK is no longer part if the EU, these rules may need to change to reflect this.
It’s clear that many businesses that trade with the EU or move goods via Northern Ireland need to think carefully about how Brexit impacts them. In particular, goods traders need to get freight forwarders and agents on board urgently if they do not wish to grapple with import compliance and use of HMRC systems themselves. The huge growth of online selling also brings many issues as sellers balance commercial considerations against the additional compliance implications of selling to the EU consumer market.