BREXIT has been a hot topic ever since we voted to leave the EU, and even more so in 2020 as the government grappled with a trying to agree a deal with the EU.
But what does this mean for VAT? We’ve all been fairly comfortable with how to account for VAT with the EU for a long time, but with BREXIT it will bring some changes to be aware of.
So let’s dive in and see what’s new.
Imports and exports
From the 1st January 2021, UK businesses have to consider imports and exports to and from European Union (EU) countries as they do for countries outside the EU, which means complex procedures and the way VAT is accounted for is changing.
Argh, I know! Just when you were getting comfortable!
The good news is that the UK government has introduced a couple of measures that should ease the administrative load and reduce the impact on cash flow.
The UK has remained within the EU customs and VAT systems. This means there has been no trade borders between the UK and EU countries, and therefore no customs formalities but major adjustments are required for businesses that import or export to the EU.
The key thing here is what are the changes, and how is it going to affect your business.
The UK leaving the customs union means the UK will no longer have to include the EU VAT Directive rules into its own VAT law. What does this mean? Well to put it into plain English, to be part of the EU, the UK had to adopt the same rules as the rest of the EU when it comes to many laws, VAT included.
So what has changed?
The UK can set its own VAT rates
The EU sets a minimum VAT rates of 15% that all its member states cannot go below for standard rated goods and services. This doesn’t include the special vat rates on energy, and children’s clothing etc.
Now that the UK has left the EU, it can set its own VAT rate, however since the UK has a VAT rate of 20%, and it accounts for almost a third of the tax revenues to government, any reduction is unlikely.
Zero rated B2B supplies
The ending of zero-rated Business to Business (B2B) intra-community supplies; all movements are now imports or exports, subject to UK or EU import VAT.
Businesses moving goods now need two EORI numbers to move goods between the UK and EU. An EORI number is a unique ID code used to track and register customs information in the EU. (EORI – Economic Operator Registration and Identification Number).
To help UK businesses adapt, the UK has introduced a Postponed VAT Accounting import VAT deferral scheme so no cash VAT payment has to be made by business importers to UK customs. However, the same cannot be said for many EU countries, as they do not offer the same scheme for UK businesses importing their goods
Distance selling thresholds
Distance Selling thresholds for UK e-commerce sellers of goods to EU consumers, which is the amount you can sell to EU Consumers before you have to register for VAT overseas is now void for the UK.
Goods are now be subject to import VAT, and UK sellers will have to consider VAT registering in Europe immediately, and 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.
Any UK business selling to the EU may be obligated to appoint a special VAT representative who will hold direct responsibility for any unpaid VAT and will require cash deposits or bank guarantees of payment to act. This applies in 19 of the 27 EU states.
Low consignment stock relief (goods under £15)
When the UK left the customs union, it scrapped £15 low-value consignment stock relief, which exempts imports of goods (including from the rest of EU after Brexit) from VAT.
Instead, for goods at £135 or below, sellers or their postal service have to declare and pay to HMRC via a new quarterly filing for the VAT charged at the point-of-sale.
Mini one stop shop VAT scheme
For UK sellers of digital services to EU consumers, the UK is no longer be a member of the EU Mini One-Stop-Shop single VAT return scheme.
UK sellers of electronic, broadcast or telecoms services to consumers will therefore have register in any other EU state, as a non-union businesses, to continue to file their VAT declarations for EU e-service sales.
EU sellers into the UK have to now register with the UK’s HMRC for the same declaration. Any non-EU business which used the UK MOSS registration now has to reregister for MOSS in the EU and separately in the UK under a regular VAT return.
So what does this all mean for my business?
For those of you who are VAT registered and operate in the UK, and perhaps get a few services from abroad, not a lot will change for the immediate future.
You may see some VAT charges on EU goods and services where you weren’t charged before but for the whole its business as usual.
For those of you that buy and sell overseas, this is where the biggest changes will come into play, specifically if your business is selling to consumers and not businesses.
The UK government have a great tool to check what BREXIT rules apply to your business.
Head on over to our resources page to find more handy free downloadable VAT guides for your business.
Still unsure how your business will be affected?
We can help you understand the impact on your business.