26 Feb UK VAT after the Brexit transition period
UK VAT after the Brexit transition period
As of 1 January 2021 UK, businesses must consider imports and exports to and from the European union (EU) in much the same way as they do for countries outside the EU.
The UK has now left the customs union meaning more complex customs procedures will now apply and the way VAT is accounted for will also change.
The UK will continue to levy VAT and domestic transactions will continue in the same way as before. On the whole VAT procedures will remain as they were, with the exception being transactions between the UK and EU member states.
How Brexit might affect your business
Trade in goods
- Great Britain (England, Scotland, and Wales) will treat EU sales and purchases as rest of the world imports and exports.
- Businesses in Northern Ireland will continue to trade goods with the EU as they did before Brexit.
- Sale of goods and services between the UK, from a VAT perspective, are expected to be treated as they are today – i.e., domestic sales and purchases.
- EU countries will treat sales and purchases from Great Britain as imports and exports
- Businesses from both UK and Ireland will be able to account for import VAT by using postponed accounting.
Trade in services
- There is not a major impact from Brexit on the supply of services between the UK and the EU. The supply of services to customers in the EU from 1 January 2021 is treated the same as those to any customer outside the EU.
Import of goods from the EU
The existing rules for imports from non-EU countries now apply to imports from EU countries, with some changes. The government has introduced postponed accounting for VAT on imports brought into the UK. This will allow UK VAT registered companies to account for import VAT on their VAT returns as opposed to paying it around the time they enter the UK border. This applies to both EU and non-EU imports. This has been introduced by the UK government to help avoid cash flow problems and means goods can be released from customs without the need for VAT payments. It may also help avoid unnecessary holdups are the border.
Customs declarations and the payment of other duties will still be required. Tariffs will apply to some goods and excise duty will still apply to tobacco, alcohol, and some energy products. Customs and excise duties can be deferred and then settled monthly with a duty deferment account. To open a duty deferment account business must register with HMRC and will be required to provide a bank guarantee.
VAT on imported goods with a value of up to £135 is collected at the point of sale not the point of importation meaning that UK supply VAT, not import VAT, will be due on these imports. Online marketplaces involved in the sale of imported goods are responsible for accounting for the VAT, even if the goods are in the UK at the time of sale.
When sending goods from overseas and selling directly to UK consumers, the VAT is accounted for by the overseas seller. These overseas sellers are also responsible for accounting for VAT when selling goods that are in the UK-to-UK consumers.
Although business-to-business sales are also subject to these rules, if the business customer can provide its UK VAT number to the supplier they can then reverse charge the supply on its VAT returns, avoiding the need for the supplier to account for the VAT.
Exporting goods to the EU
VAT registered UK businesses can still zero rate sales of goods to EU businesses. EU member states will account for UK imports in the same was as any other non-UK import. Therefore, import VAT and tariffs are due on arrival in the EU.
It may be possible for some businesses to Common Transit Convention (CTC) to complete some customs procedures away from the border and therefore defer import VAT and tariffs until the goods reach their destination. A guarantee may be required to cover import VAT and tariffs whilst they are being moved. However, there are new procedures currently being implemented that should limit the number of businesses that will require these guarantees.
VAT registered UK businesses will no longer have to complete an EC sales list. It will now be a case of retaining evidence to prove that zero-rated goods have left the UK. This evidence is already required for sales to non-EU countries. Business in Northern Ireland will still require completing an EC sales list.
Supply of services to the EU
The supply of services to customers in EU countries will be treated in the same way as the supply of services to non-EU countries.
The VAT treatment will be covered by the VAT ‘place of supply’ rules. These rules still apply rather broadly as before, with a few updates.
When a UK business is supplying a service to a non-business customer in the EU, the ‘place of supply’ will continue to be the customers location. The VAT on these services is due in the EU member state the customer resides. As above there is no longer any requirement to complete EC Sales lists for these services.
Sales of digital services to Consumers
All supplies of digital services to consumers in EU member states are now liable for VAT in the consumers member state. The £8,818 annual threshold for cross border sales of digital services no longer applies. VAT should be charged at the rate where the customer is based, and the sale should be declared to that EU member state.
As of 31 December 2020 businesses can no longer use the UK MOSS Scheme as it has been withdrawn. Therefore, UK businesses making Digital supplies to EU consumers must either register for the non-union MOSS scheme in a preferred EU member state or register in each EU country where relevant supplies are made.
EU VAT refund system
Prior to the 1 January 2021, UK businesses could recover any VAT incurred in other EU countries using an electronic system. Businesses are no longer able to use this system. UK businesses can claim refunds of VAT from EU member states, but it will need to be done using the existing refund system for non-EU businesses. The way that the refund system operates is different across each EU country so businesses will need to check the exact requirements in each EU country where they incur VAT.
Economic Operator Registration and Identification (EORI) number
After the transition period, one of the changes is that UK businesses will need an EORI number to continue importing or exporting goods with the EU. An EORI number is issued by HMRC and allows you to do the following: Trade goods into or out of the UK, submit declarations using software and apply to use simplified customs processes.
HMRC advise you need a UK EORI number if you are going to import or export goods with the EU after the UK leaves the EU.
EORI numbers are required for customs declarations and therefore are usually included on a commercial invoice (explained below). The EORI number should not be included on a VAT invoice.
HMRC announced that all VAT registered firms in the UK who did not already have an EORI number would automatically be enrolled so it is likely you would have already received one of these. If you have not received this, it can be easily applied for by using the HMRC website.
Note: you do not need to apply if you only import or export goods with Ireland across the Northern Ireland and Ireland border. You also do not need one if you only import or export services.
What is a commercial invoice?
These help shippers and customs authorities assess duties, taxes and assess goods suitability for transportation in and out of the country.
There is no legal requirement on formatting of the commercial invoice- it is a document that is often used to report the most common information needed when completing the most common import and export formalities. The following information is normally included in a commercial layout:
- The company address
- The receivers address
- For each item shipped, the commodity code (https://www.gov.uk/trade-tariff)
- The total net weight (kgs)
- The International Commercial Terms (Incoterm) that the goods are being moved under
- The reason for export
- The value of the goods
- Your VAT and EORI number (explained above)
- Space for the vendor’s agent’s signature
Processing Transactions
For those using Sage 50cloud Accounts v27.1, the below table will assist in showing the different tax codes before 1 January 2021 and after 1 January 2021 for the UK. These may differ depending on which software you use.
| Before Brexit | After Brexit | |
| England, Wales, and Scotland | Northern Ireland | |
| T0 (box 6), T1 (boxes 1 and 6) or T2 (box 6) – Sale of goods – no VAT registration provided | T0 (box 6) – Zero rates transactions – assuming sale is zero rated | No Change: T0 (box 6), T1 (Boxes 1 and 6) or T2 (Box 6). |
| T1 (boxes 1 and 6) – Sale of services – no VAT registration provided | No change: T1 (boxes 1 and 6) – Standard rated transactions | |
| T4 (boxes 6 and 8) – Sales of goods to VAT registered customers in EC | T0 (box 6) – Zero rates transactions – assuming sale is zero rated | No change: T4 (boxes 6 and 8) – Sales of goods to VAT registered customers in EC |
| T7 (boxes 7 and 9) – Zero rated purchases of goods from suppliers in EC | · T17 (boxes 1, 4 and 7) – Import of goods – Under import reverse charge threshold of £135
· T18 (boxes 1, 4 and 7) – Import of goods – Postponed VAT Accounting · T19 (boxes 4 and 7) – Import of goods – VAT not Postponed VAT Accounting
|
No change: T7 (boxes 7 and 9) – Zero rated purchases of goods from suppliers in EC |
| T8 (boxes 2, 4, 7 and 9) – Standard rated purchases of goods from suppliers in EC | · T17 (boxes 1, 4 and 7) – Import of goods – Under import reverse charge threshold of £135
· T18 (boxes 1, 4 and 7) – Import of goods – Postponed VAT Accounting · T19 (boxes 4 and 7) – Import of goods – VAT not Postponed VAT Accounting
|
No change: T8 (boxes 2, 4, 7 and 9) – Standard rated purchases of goods from suppliers in EC |
| T22 (box 6) – Sales of services to VAT registered customers in EC | T0 (box 6) – Zero rates transactions | |
| T23 (boxes 6 and 7) – Purchase of services – no VAT | T16 (box 7) – Purchase of services from ROW – No VAT | |
| T24 (boxes 1, 4, 6 and 7) – Purchase of services – reverse charge | T15 (box 6 and 7) – Purchase of services from ROW – Reverse charge | |
Staying up to date
The above are developments are constantly changing and we will provide updates as quickly as possible through our various channels.
Our ethos at Infinity has always been that we are not just your accountants, but we are your partners in business and in these difficult times this has never been more important. We want to assure you all that we are doing everything we can to help you and should you have any question, big or small, please get in touch, we are here to help.
We will be releasing various documents with support and help through various channels. Please connect with our team on LinkedIn and Twitter using the following links.
Simon Cowie – Manging Director – https://www.linkedin.com/in/simon-cowie-ab36714b/
Greg Houston – Associate Director – https://www.linkedin.com/in/greg-houston-95900a42/
Alex Graham – Client Relationship Manager – https://www.linkedin.com/in/alex-graham-b78390138/
Bruce Giles – Client Relationship Manager – https://www.linkedin.com/in/bruce-giles-189a4b62/
Mark Rhynas – Tax Manager – https://www.linkedin.com/in/mark-rhynas-att-1712265b/
LinkedIn – https://www.linkedin.com/company/infinity-partnership-limited/
Twitter – https://twitter.com/InfinityABDN
Website – https://infinity-partnership.com/