B2B transactions, B2C transactions and service businesses to get prepared for post-Brexit trade.
The following summary focuses on what VAT changes your business should be considering for
Navigate to the relevant section by clicking the buttons below and find on-demand webinars and FAQs.
B2B Transactions VAT Considerations
Q: What will happen at 11pm on 31 December 2020?
A: There will be no more intra-EU movements, and instead, there will be formal imports and exports, and from 1 January 2021, businesses will need to trade under new conditions and apply special procedures. It is worth noting that this will be the case even if the UK’s free trade agreement (FTA) with the European Union is in effect.
Q: Will Customs declarations be required?
A: Yes, Customs declarations will be needed for goods moving from the UK into the EU (an export) and goods coming into the UK from the EU (an import). A separate declaration is required for each part of the transaction so one for the export and one for the import.
As previously noted this will be the case regardless of the Free Trade Agreement (FTA).
Q: Will there will be an option to account for import VAT on the VAT return?
A: Yes, HMRC have announced that Postponed VAT Accounting (PVA) will be available for all UK VAT registered businesses, with effect from January 2021. This will be the case for goods coming to the UK from anywhere in the world and not just the EU.
The use is optional however, and some businesses may wish to account for VAT at the point of import, but accounting for it on the VAT return is a major cash flow advantage. It is important however, to ensure that whoever completes the import declaration is aware of your intentions so that they can complete the customs entry appropriately or VAT will be due.
Q: Will customs duties still apply?
A: The FTA with the EU envisages zero tariffs on most goods moving between the UK and the EU and this removes many of the customs duties. However, the FTA only applies to goods that originate in the UK or the EU. Where goods themselves originate outside, or are largely comprised of products that originate outside of the EU, then duties can still apply (depending on the UK’s arrangements with the country they originate in).
Businesses will need to put processes in place to demonstrate the origin of the products.
Q: What VAT registration issues may arise?
A: EU countries often have very low or no registration limit for non-EU businesses, so the import and onward sale of goods either in the UK or any EU member state is likely to give rise to a requirement to register for VAT.
This requirement is driven by who 'imports' the goods - the contract or Inco-terms will help define that. So in the case of Delivery Duty Paid (DDP) the supplier is the importer, and that in the case of Delivered At Place (DAP), the customer is the importer.
If you, as the supplier are responsible for the import of goods into another EU member state, you are likely to have to pay VAT. You will also be required to register for VAT and account for local VAT on the sale. This might give rise to multiple VAT registrations across the EU.
Registration issues may also arise as a result of the UK losing access to a variety of EU simplifications:
- The loss of the call-off stock concession would lead to a need to register in the EU wherever a business holds stock.
- The loss of the supply and install simplification could lead to a need to register in the EU state where the goods are installed.
The loss of the triangulation simplification would lead to a need to register in another EU state, where you arrange for a supplier in one member state to deliver goods directly to a customer in another EU state.
Q: What main actions are required in relation to possible registration requirements?
A: Check supply chains, and consider whether a new VAT registration requirement exists. If there are multiple registration requirements, review this urgently – what options are there?
Check who will be the importer, and whether there is reliance on any simplifications. If the customer is the importer, check that they are aware of this and that your contract terms and incoterms reflect this.
Check that any existing overseas VAT registrations that you already have will not change or require a fiscal representative.
Q: What about moving goods to and through Northern Ireland?
A: Although Northern Ireland has left the EU, due to the requirements of the Northern Ireland Protocol, Northern Ireland remains part of the EU VAT system too. There will be new paperwork requirements when moving goods from the rest of the UK into or out of Northern Ireland from 1 January 2021 and for movements of goods between Northern Ireland and the EU.
Businesses will need to notify HMRC that they are trading goods covered by the Protocol and such businesses need to apply EU rules and use a special ‘XI’ VAT number prefix instead of GB for these goods.
The Protocol requires there to be customs entries when moving goods between the rest of the UK and Northern Ireland and the Government has set up a free Trader Support Service to help with this. Businesses will need to apply for a special ‘XI’ EORI code with HMRC to complete entries and as a condition of entering such goods onto ferries etc.
The EU simplifications on VAT will still apply to some movements involving Northern Ireland.
Q: What will the next stage be?
A: Businesses will need to think more widely, about the impact on their strategic position, where their supply chains sit, and how that will operate within their business models.
Back to top
B2C Transactions VAT Considerations
Q: What will the main differences be in the VAT treatment of B2C supplies post-Brexit?
A: Currently, VAT on sales of goods is accounted for in the UK until the distance selling threshold in the EU member state of destination of the goods is exceeded, and there is no requirement to pay import VAT.
From 1 January 2021, the main changes are that;
- UK retailers that want to import the goods into the member state of the customer and sell them to customers will have to register in the EU member state of the consumer, pay import VAT and charge local VAT.
- UK retailers that want their customer to be the importer, will still charge no UK VAT but the customer will be liable for the VAT and any duty on the import. This may have an impact on customer service.
- We are aware that some freight forwarders are offering an option to pay the VAT and duty on the customer’s behalf, so the customer receives cleared goods.
As a separate matter and noted below, from 1 July 2021, the EU will be introducing new optional rules for distance B2C sales of goods with a value of less than €150.
Q: What are the detailed changes from 1 January 2021 where the consumer is responsible for importing the goods into Europe?
A: The UK retailer can zero rate the export of the goods from the UK, if appropriate evidence is retained. Import VAT is payable by the private consumer.
There is no local requirement for the UK retailer to account for VAT or Customs Duty in the country of the consumer. Although this may be more convenient for the UK retailer, there are some commercial considerations, as the consumer may have to visit a depot or post office to clear the goods and pay the Import VAT (often plus an administration fee).
We are aware that some parcel operators are offering products that ensure that VAT is paid on the Customers behalf, so cleared goods can be delivered to the consumer.
Q: What are the detailed changes from 1 January 2021 where the UK retailer is responsible for importing the goods into Europe?
A: The UK retailer can zero rate the export of the goods from the UK, if appropriate evidence is retained. Import VAT is payable by the UK retailer in the country of import.
The UK retailer will need an EU EORI number, if it is going to import the goods in its own name. The UK retailer will make a domestic sale of the goods in the country of the consumer, and will need to register for local VAT in the country of the consumer.
Q: What optional scheme will apply from 1 July 2021 for B2C sales of goods valued at less than €150?
A:The UK retailer can zero rate the export of the goods from the UK, if appropriate evidence is retained.
The UK retailer can register under the Import One Stop Shop (IOSS) in one EU Member State. There will be no registration threshold for non-EU established retailers.
No import VAT or Customs Duty will be payable if the consignment is valued at less than €150. The UK retailer will file a monthly IOSS return and account for VAT on all EU sales, on a country-by-country basis, on a single IOSS return.
Q: What about supplies of B2C digital services?
A: At present, UK businesses selling telecoms, broadcasting and digital services (e.g. apps, computer software, music and video downloads/streaming services, online gaming, ebooks etc.) to EU consumers have the option of using the UK’s Mini One Stop Shop (MOSS) portal to account for VAT on B2C digital sales to EU customers. This allows vendors to declare VAT on sales without having to register for VAT in each EU country where sales are made.
From 1 January 2021, the UK will no longer have a MOSS portal, and all businesses will be deregistered from UK MOSS. UK vendors will instead have to choose an EU Member State in which to register for the VAT MOSS ‘Non-Union scheme’ as a non-EU provider (there is no registration threshold). The alternative is that a VAT registration would be needed in any country B2C customers are located in, so it is assumed that most businesses will elect to use the Non-Union MOSS scheme.
Back to top
Service Businesses VAT Considerations
Q: Is it only VAT that service businesses need to worry about?
Depending on the outcome of an EU trade deal, there may yet be regulatory or other non-tariff barriers in the future. The most well-known example is financial services, where the EU may block ‘passporting’ rights for UK financial services businesses forcing them to register their EU operations locally for regulatory purposes. However, similar issues may arise across other service sectors if EU member states wish to protect service providers in their own countries. We recommend that you consult with your regulatory advisors as needed in respect of these points.
In addition, just because you derive your income from providing services, doesn’t mean that you will not need to know about the new rules impacting on the movement of goods. For example, you may import equipment or other goods to help you deliver your services. You will need a UK EORI number to continue to bring goods into the UK.
Q: What are the key VAT changes for service providers?
A: The current place of supply of many services e.g. B2B consultancy services, will not fundamentally change but there are changes proposed to be aware of. UK legislation is changing to deal with the consumption of services by private individuals.
Currently, services supplied to EU business are treated separately to supplies of non-EU businesses for certain VAT rules and the distinctions between EU and non-EU businesses is set to be removed from the UK legislation.
For businesses that apply the Tour Operators Margin Scheme (“TOMS”), the removal of the distinction between services provided to customers in the EU and the rest of the world will mean that all services provided outside the UK will be treated the same from a UK VAT perspective, which may make the UK an attractive place for travel businesses to be based. Again this would apply equally to relevant business to business and business to consumer supplies. However, this may yet be affected by any trade deal with the EU or if not, the EU may seek to redress the balance by imposing tougher VAT rules on non EU owned tour businesses operating in their countries.
Q: What is happening for financial services?
The Government has announced changes to the ‘Specified services order’ that applies to the financial services sector.
The changes will extend the types of financial and insurance related services on which input VAT can be recovered by the provider: At the moment certain financial transactions can lead to VAT being recovered on associated costs, if the customer or transaction is located outside the EU. This is the case, even though those services would be exempt from VAT in the UK and generally would result in non-recovery of VAT on associated costs.
From January, this treatment applies to any qualifying transactions taking place outside the UK, rather than the EU (i.e. the current distinction for EU businesses will be removed). This is good news for the sector as businesses will be able to recover more of their input VAT going forward.
Q: Are there any other major changes that could impact business to consumer services?
A: In respect of certain business to consumer services, the place of supply rules for VAT purposes is changing with EU consumers being treated the same as ‘rest of the world’ consumers. This means that certain services provided to EU consumers that are currently liable to VAT will become ‘outside the scope’ of VAT. Amongst other, this affects most professional services to consumers (legal, accounting etc.) who will no longer need to charge UK VAT to EU based individuals.
Q: Are there any other admin changes?
A: Businesses selling services to EU VAT registered customers will no longer need to complete EC sales lists from 1 January. It will also no longer be a legal requirement to include your business customer’s EU VAT number on your invoices, although obtaining this information is generally considered to be a good business practice for a variety of reasons.
For partial exemption special methods of VAT recovery, the definition of ‘non-EU’ will change to automatically include EU from 1 January. This means that there is no automatic need to change the partial exemption special method. However, it is still sensible to review the appropriateness of any agreed method if you have restructured as a result of Brexit.
Back to top