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VAT after the Brexit transition
One of the key issues to consider before and after the Brexit transition period ends is VAT. Much of the UK’s current VAT rules and regulations are derived from EU VAT directives or existing customs arrangements.
This has ensured that the UK’s VAT rules are in-sync with the EU, but this is likely to change once the transition period ends.
Changes to customs arrangements and rules will mean that important processes could be altered overnight and so businesses must be prepared.
From 1 January 2021, goods that move into the UK from the EU will be considered imports, meaning import VAT and customs duties will be payable and customs declarations will need to be made.
To help UK businesses, the Government has confirmed that they can use a postponed accounting system. This allows for import VAT to 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 other duty costs may not.
Accounting for import VAT on your VAT return
Under the postponed accounting system, businesses will have to account for import VAT via their VAT return 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 is needed. Businesses that do not have an EORI number can obtain one online by clicking here.
Businesses account for import VAT on a VAT return when they submit a customs declaration that releases 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, which is commonly referred to 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.
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.
Some businesses may be able to account for VAT using a duty deferment account, which allows a company 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 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.
Imported goods in a consignment 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
To ensure all VAT is paid correctly, businesses will need to determine the country where a supply takes place for VAT purposes.
At the moment the place of supply rules are applied almost identically across the EU and it is expected that the UK will retain similar rights after the transition period ends to reduce disruption.
However, businesses should be aware that they may continue to create VAT liabilities in other EU member states and it may mean that businesses have to obtain multiple EU VAT registrations for each country.
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
At face value, the impact of the end of the transition period on VAT on services appears minimal.
From next year, there will be no need for businesses to differentiate between business to business and business to consumer services to customers in the EU as all will be free of UK VAT. Similarly, there will also be no need to differentiate between EU customers and those from the rest of the world.
UK suppliers will no longer have to obtain customers’ VAT numbers and quote these on invoices.
Where UK businesses are receiving services from non-UK suppliers, it is expected that they will continue to be required to apply a reverse charge, ensuring there is no competitive advantage from sourcing services via non-UK suppliers.
There will be substantial changes where businesses wish to reclaim VAT incurred in the EU. Currently, they submit a single claim to HMRC in respect of the whole of the EU. However, from 1 January 2021 onwards, businesses will have to submit separate claims in each country where it has incurred VAT.
Claims will need to be made in the language of the country concerned, on specific forms and according to that country’s own deadlines and other requirements.
In some instances, businesses may need to register for VAT in the EU depending on the rules in different countries and the class of service being supplied.
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.
If you would like support with your VAT affairs we are here to help. To find out more about our dedicated VAT services, please contact us.