VAT is complex at the best of times, but the latest guidance on the Brexit transition makes the process of accounting for VAT on imports and services to and from the EU even more difficult, which is why we have summarised the main points for you.
Goods that move into the UK from the EU after 1 January 2021 will be considered imports, meaning import VAT and customs duties will be payable and customs declarations will need to be made.
Import VAT will no longer be payable when goods enter into the UK from 1 January 2020 and businesses will instead account for VAT on all goods imported using a postponed accounting system.
This means that import VAT will be accounted for and paid via the usual VAT return instead of at the border, which will lead to an improved cash flow position for many businesses.
This applies to all goods imported by VAT registered importers to the UK, including those from the EU.
In most cases, import VAT should be recoverable by businesses, but duty costs are irrecoverable.
Accounting for import VAT on your VAT Return
Businesses will have to account for import VAT via their VAT return under the postponed accounting system if the goods they import are for use in their business.
The business must include its EORI number starting with ‘GB’ on its customs declaration and their VAT registration number if it’s needed.
If you have not obtained an EORI number it is essential that you do so immediately by clicking here.
A business can then account for import VAT on its VAT return when they submit the declaration that releases those goods into free circulation from one of the following special customs procedures:
- customs warehousing
- inward processing
- temporary admission
- end use
- outward processing
- duty suspension.
A business can only account for import VAT on their VAT return once they release excise goods for use in the UK – also known as ‘released for home consumption’.
If the business imports goods that are not controlled into Great Britain from the EU between 1 January and 30 June 2021, they must also account for import VAT on their VAT return, even if they delay the customs declaration or use a simplified customs declaration to make a declaration in their records.
Controlled goods for transitional simplified procedures include excise goods, such as alcohol or tobacco, and some goods that need a licence to be imported.
For further guidance on how to account for import VAT on your VAT Return from 1 January 2021, please read the latest official guidance here.
New rules for duty deferment will apply in Great Britain from 1 January 2021. These will allow businesses that import goods regularly, to apply for a duty deferment account to delay paying most customs charges, including customs duty, excise duty and import VAT.
Through this account, a business can make a single payment each month via direct debit instead of paying for each individual consignment separately.
The scheme is open to importers or customs agents and freight handlers that work for importers and have an approved deferment guarantee or waiver in place.
Further details on duty deferment and how to apply for an account, can be found here.
Regardless of the method of accounting for VAT on imported goods, checks to ensure that the data on the customs declarations is accurate will continue to be highly important for VAT purposes, for all imports.
This will be the primary means to ensure that the correct import VAT is accounted for and paid.
Consignments of value below £135
Imported goods in aconsignment not exceeding a value of £135, excluding specific excise goods and gifts, will not be subject to import VAT at the border.
Low-value consignment relief will be withdrawn and businesses should charge VAT on these goods as if they were supplied in the UK.
These supplies should be accounted for on the UK VAT return and businesses must then settle any VAT liabilities using the standard VAT payment procedures.
Therefore, businesses selling goods to be imported into the UK with a value not exceeding £135 will be required to charge and collect any VAT due at the time of sale.
For UK VAT registered businesses importing goods in a consignment not exceeding £135 in value that has not been charged VAT at the time of purchase they can account for this VAT on their VAT return under the usual reverse charge method.
Place of supply
Businesses must determine the country where a supply takes place for VAT purposes so that they know where VAT due is payable.
At the moment the place of supply rules are applied almost identically across the EU Member States and it is expected that the UK will retain similar rights after the transition period ends to prevent disruption.
However, a consequence of this is that businesses may continue to create VAT liabilities in other EU Member States.
This may mean that businesses in the UK will require multiple EU VAT registrations within each member state that they trade within.
Further clarity on this is expected in future government guidance and may be affected by the outcome of the ongoing trade deal negotiations.
Reclaiming VAT in the EU
Currently, UK firms incurring VAT in EU countries can claim VAT back (subject to national rules) via HM Revenue & Custom’s dedicated refund portal.
That arrangement will remain in place until 31 March 2021, after which time, there is currently no provision in place to claim for VAT incurred in 2020, under the terms of the Withdrawal Agreement.
Impact on services
Post-Brexit there should be minimal impact on the supply of services. Business to business services are generally treated as though they are supplied where the customer belongs and that customer must account for the local VAT.
This will mean that for UK service suppliers they will continue to not charge UK VAT to European businesses. For businesses to consumer supplies, UK VAT generally applies and this is likely to remain unchanged.
When receiving services, it is expected that UK businesses will still have to apply a reverse charge to the receipt of services from non-UK suppliers. This would ensure that there is no competitive advantage from sourcing services via non-UK suppliers.
Here to help
As you can see, the new arrangements regarding VAT post-Brexit are complex and require businesses to undertake many new tasks and procedures.
Many of the points outlined above may also be subject to change if a deal is agreed that incorporates specific rules regarding VAT treatment between the UK and EU member states.
This article is correct at the time of publication, but may be subject to change at a later date, depending on future agreements and arrangements with the EU. We will bring you updates, as and when they are available.