Brexit VAT Notes

As of 1st January 2021, the transitional arrangements for the supply of goods and services between the UK and the EU has ceased. Agreement has been reached on a post-transition trade agreement, but this does not prevent the UK from leaving the EU VAT regime. As a consequence, there are a number of ways in which the treatment of VAT on transactions with the EU have changed.

This is particularly so in respect of supplies to non-business customers (consumers) residing in the EU.

Please note that these notes are for guidance purposes and cannot cover all eventualities.

N.B. there are different rules for supplies of goods to the EU from or through Northern Ireland (the Northern Ireland protocol). Additional advice may be needed in these cases.

Goods

All businesses (traders and hauliers) importing or exporting goods from the UK must have a GB Economic Operator Registration and Identification (EORI) number.

HMRC have auto enrolled all VAT registered businesses that did not have an EORI number and had previously declared EU trade. Businesses should check whether they already have a number before applying for an EORI number. If in doubt, contact HMRC to check.

In addition, businesses exporting to EU countries will have to obtain an EU EORI number if they are the importer of record.

For the movement of goods through Northern Ireland there is an XI EORI number.

Imports

Please note that the import VAT procedures outlined below apply to all imports, not just those from the EU.

Paying Import VAT

With effect from 1st January 2021, VAT will be levied on imports of goods from the EU, following the same rules as for imports from the Rest of the World.

For imports from the EU, the charging of VAT changes from acquisition tax to import VAT. This means that the importer of record is liable to pay UK VAT on the value of goods at the point of entry into the UK.

The importer of record is the person who, under the terms of the contract, is responsible for bringing the goods into the country. Therefore, the contract terms (INCO terms) should be checked to determine who has this responsibility. For example, under ex-works (EXW) or Delivered at Frontier (DAF) the customer is responsible from a point before entry into the UK and therefore is the importer. However, under Delivered Duty Paid (DDP) the supplier is the importer.

If the supplier is the importer of record and is not already registered for VAT in the UK, they will have a requirement to do so.

For most customers who are VAT registered it is preferable that they are the importer so, wherever possible, the INCO terms should be on a basis to allow this. This avoids the need for the seller to register for VAT here and enables the customer to pay and, subject to the normal rules, reclaim the Import VAT.

The same criteria apply to imports into EU countries (exports from UK) – see section on exports.

In order for goods to be released, the Import VAT must be paid. Import VAT can be paid in two ways:

1. At the point of entry, by either direct payment to HMRC at the port, payment by the freight forwarder as the agent of the importer of through a deferment account.

If the freight forwarder pays the import VAT on behalf of the importer, they will need to input the importers UK VAT and EORI number on the customs declaration in order to ensure the import VAT is recorded against the importer.

With a deferment account, the goods are released without payment and the import VAT is paid by means of a monthly direct debit. A deferment account has to be set up with HMRC and may require a guarantee.

2. Through “postponed accounting”. This allows VAT registered businesses, to pay the import VAT through their VAT return. This option is selected by inputting “G” as the method of payment on the customs declaration.

Reclaiming Import VAT

Irrespective of the method of payment, import VAT is claimed though the VAT return. This means that unregistered businesses cannot recover Import VAT.

For postponed accounting, the Import VAT is declared in box 1 on the VAT return and, subject to the normal rules, partial exemption etc., reclaimed in box 4 on the VAT return. The entries on the VAT return take the same form as those for reverse charge supplies.

The Import VAT to be declared on the VAT return can be found by the business accessing its postponed Import VAT statement on the Customs Declaration Service (CDS) which is available using an existing Government Gateway ID.

Information is input into the CDS at the point of entry by the trader or courier, but some importers still use the CHIEF system. If this is the case, the business will need to apply for a CDS login.

Low Value Consignments

For consignments of £135 or less a separate scheme will apply.

For these shipments, the seller exporting to the UK will be required to charge and collect any VAT due at the time of sale. This will mean such businesses having to register for VAT in the UK.

If the sale is to a VAT registered UK customer, the seller does not have to pay the VAT as long as the customer provides them with their UK VAT number. The VAT registered customer then accounts for the import VAT through their VAT return as a ‘reverse charge’.

Exports to Business Customers

Sales to EU business customers can continue to be zero rated as long as the applicable evidence of export is obtained. In addition, the exporter should maintain evidence to show that the customer is a business. The most obvious evidence is an EU VAT number, but other commercial evidence is acceptable.

Additional EU VAT forms such as the ESL and supplementary declarations will no longer need to be completed.

If acting as the importer when moving goods to the EU, GB traders or hauliers may also need to apply for an EU EORI number.

VAT and Duty will be payable on entry into the EU. If the GB supplier is acting as the importer, there will be a requirement to register for VAT in the country of import and there may also be a requirement to appoint a fiscal representative or agent.

A requirement to register for VAT can be avoided by the customer acting as the importer.

Exports to non-business customers

Prior to 1st January 2021 the sale of goods to non-business customers (consumers) in the EU was dealt with under the distance selling rules. UK VAT was charged unless the sales to an individual country exceed the distance selling threshold, at which point, the business would be required to register for VAT in the EU country.

With effect from 1st January 2021, these rules cease, and the sales become exports.

For consignments with a value below 22 Euros there is import VAT relief until 30th June 2021. For consignments above this value and for all sales from 1st July 2021 the seller will be liable to register for VAT in the county of import and obtain an EU EORI number. In addition, they may need to appoint an import agent and fiscal representative.

Again, the requirement to register can be avoided if the customer is the importer of record. However, from a commercial perspective, consumers are unlikely to buy from suppliers if they are going to have to pay VAT to the Customs authority or Post Office before the goods are released to them.

The method of registration and requirement to appoint an agent or representative varies from country to country so it is advised that any business making sales to consumers in other EU countries obtains advice from a firm specialising in overseas VAT registration.

Provision of services

The VAT treatment of a supply of services is determined by the place of supply rules.

Provision of services to business customers (B2B)

The general rule is that B2B services are supplied where the customer is based. VAT is dealt with under the reverse charge rule (the customer accounts for the VAT). These rules remain the same.

UK VAT is not charged when supplying services to an EU business customer. The supplier should obtain evidence to show that the customer is a business. Whilst not a requirement, it would be advisable to annotate the invoice to show this is a reverse charge supply.

EU VAT is not charged on a supply of services to a UK business, but the UK business has to account for the VAT under the reverse charge mechanism.

Provision of services to consumers (B2C)

The general rule is that B2C services are supplied where the supplier is based meaning UK businesses would charge UK VAT.

Exceptions

Some types of B2C supplies are not dealt with under the general rule. For example:
• Services relating to land are supplied where the land is located.
• Educational, artistic, and similar services are supplied where they are physically performed.
• What are known as Schedule 4A services are supplied where the customer is based if this is outside the UK. (This includes accountancy, consultancy, and many others)

Prior to 1st January 2021, the Schedule 4A services rules only applied if the customer was outside the EU. With effect from 1st January 2021 these rules also apply to supplies made to consumers in the EU. Therefore, supplies of accountants, lawyers, consultants etc. will take place in the EU country in which a consumer customer is located.

This will create a liability to register for VAT and, in some cases, a requirement to appoint a fiscal representative, in that EU country.

B2C Digital Services

Since 2015, UK suppliers of digital services to EU consumers have been required to register for VAT in the EU counties in which their customer is based or to register for the VAT “mini one stop shop” (MOSS) in order to declare VAT due in other EU countries.

The MOSS system remains available in the EU, but UK VAT Moss will cease. UK businesses making digital supplies to consumers residing in the EU will have to register for VAT in an EU member state and join the non-union MOSS system. Alternatively, they would have to register for VAT in each EU country to which they deliver digital services.

Trading with, or through Northern Ireland

Under the Northern Ireland Protocol, Northern Ireland will operate EU rules in respect of goods but UK rules in respect of services.

Businesses based in Northern Ireland will continue to supply and receive goods to or from the rest of the EU using current EU rules including the submission of EC Sales Lists and Supplementary declarations

This means that the movement of goods between Great Britain (England, Wales, and Scotland) and Northern Ireland will incur import VAT. However, the UK Government has decided that for the sale of goods between GB and NI the “Import VAT” will be accounted for by the seller charging VAT. In other words, the supply is treated as a normal intra-UK sale.

For the movement of goods from GB to the EU via NI the Northern Ireland protocol applies. This has been called one of the most complex pieces of VAT regulation in the World and additional advice should be sought.

A Trader Support Service has been established to assist NI and GB businesses with the movement of goods and customs declarations. The address is:-

https://www.gov.uk/guidance/trader-support-service

It is a free service, available to all traders moving goods between GB and NI and importing goods into NI from the rest of the World and businesses are advised to use the service if trading goods with or through Northern Ireland.

Customs Declarations

A customs declaration must be made for all goods entering the UK.

Customs declarations are complicated and beyond the scope of this guidance.

Most businesses that currently trade outside the EU use an intermediary, such as customs agents, Fast Parcel Operators (FPOs), Freight Forwarders (FFs) or brokers, to help them meet the customs requirements. Businesses who previously only traded with the EU are advised to consider this option.

If a business wishes to make Customs declarations themselves, they should seek specialist advice from a specialist adviser in this field.

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