The UK has now left both the Single Market and the EU. As a result, there are several important VAT changes that businesses need to consider as the UK has become 'a third country' for EU VAT purposes.
With this major change, HMRC have taken the opportunity to simplify the VAT accounting procedures for imports, while introducing new measures to increase compliance on the sale of goods by suppliers outside the UK to non-business customers in the UK. Some of these changes will increase the VAT yield to HMRC from overseas suppliers, putting them on a level playing with UK suppliers of similar goods.
Below we have identified the major changes for both UK, EU and non-EU businesses when the UK leaves the EU VAT regime:
- As the UK is no longer part of the EU it is not constrained by the EU VAT Directive and is free to set its own rates of VAT for goods and services. Previously, the UK had to set rates within rules set out by the EU. This will give the Chancellor the opportunity to possibly reduce rates in the entertainment area while including some Zero-rated items in a higher rate band.
- The concept of intra community supplies with the need for EC Sales Lists will disappear. Instead all trade with the EU will now be referred to as imports and exports as it is for suppliers and customers outside the EU. Before, goods could move freely within the EU, now any imports or exports with EU suppliers and customers will require Customs declarations both at import and export.
Goods and Services into the UK
- Currently, VAT is paid at the point of entry of the goods into the UK from suppliers outside the EU. This has required in many instances the need to guarantee the deferment of the VAT and Customs Duty at import. From 1 January 2021 the UK will introduce a system called Postponed Accounting VAT (PVA). PVA will not require any guarantee at the point of 'import' as the VAT will be accounted for on a VAT return. There will still be a requirement to defer any Customs Duty but that is a much smaller amount than a combined VAT and duty figure.
- At present, a business can import goods up to a value of £15 without having to pay VAT. This will change from 1 January 2021, when all sellers of goods from outside the UK who do not use an Online Market Place (OMP) must register and account for VAT if the consignment value is less than £135. That will include EU as well as other businesses worldwide.
- Where a non-UK established business sells goods using an Online Market Place (Amazon, eBay etc.) the OMP is considered to be the vendor of the goods for UK VAT purposes and the OMP will account to HMRC for all sales made through its platform up to a value of £135.
Goods and Services out of the UK
- If you will be involved in the import or export of goods you will need to apply for a UK EORI number. Also, if you are now exporting goods to the EU, you will need an EU EORI number.
- UK business will also need to recognise that on leaving the EU, the VAT distance selling rules will no longer apply to UK companies. Goods sold to non-business EU customers will be subject to Import VAT and consideration needs to be given as to whether VAT registrations are needed in the EU. EU sellers in an identical situation selling to UK non-business customers will now have to consider whether they may require a UK VAT registration.
- UK and EU vendors may, if they store goods in another jurisdiction, need to consider whether they should be registered for VAT in that country.
- UK businesses with an EU VAT registration, may from 1 January 2021 be required to appoint a fiscal representative. Currently 19 of the 27 member states require a fiscal representative. These fiscal representatives are joint and severally liable for any unpaid VAT owing by businesses they represent. For this reason, they will usually require a cash deposit or bank guarantee and charge a fee for this representation. Consideration may need to be given terms of trade with EU customers, possibly avoiding the need for costly representation in a number of EU countries.
- UK businesses who made claims for the recovery of VAT incurred on expenses of accommodation, subsistence and travel in other EU countries will no longer be eligible to make claims via the EU Portal from 1 January 2021 and will instead have to make claims using the paper based 13th Directive procedures. The same will apply to EU businesses who incur UK VAT that they want to reclaim.
- Another major change relates to the supply of services. Currently, where most types of service are provided to a non-business customer in the EU, VAT is accounted for by the supplier of the service according to their country's VAT rate. When the UK leaves the EU, these services provided to non-business EU customers will not be subject to the 20% UK VAT rate and will be treated as Zero rated.
- There is a possibility that there will be changes to the application of Customs Duties, but that is still the subject of discussions between the UK and the EU to see if an agreement can be reached on a Trade deal.
- You should also note that the EU proposes changes to its VAT system with effect from 1 July 2021 and these changes look to mirror a lot of what the UK is proposing to introduce from 1 January 2021. We can provide further details if you believe you may be affected.
For affected businesses, changes to systems may need to be acted upon before 1 January 2021 and we are well positioned to help your business navigate this ever-changing Brexit environment. If you would like assistance with Brexit planning, please contact us today.