The UK left the EU on 31 January 2020. The transition period, at the end of which the Single Market rules will cease to apply, will end on 31 December 2020. The following new rules will take effect on 1 January 2021. It is important to prepare now as some of the new rules do involve taking action before 1 January 2021 to ensure a smooth transition.
Movements of Goods into the UK
- A UK (GB) EORI (Economic Operator Registration and Identification) number will be required to import goods from the EU – as with the rest of the world (RoW) imports.
- An EU EORI number will also be required to import goods into the EU.
- VAT on imports, both EU and RoW, can in most cases be declared using Postponed Accounting via VAT returns when the importer is VAT registered.
- Until 1 July 2021, a Customs entry may be delayed for up to six months for goods that are not “controlled”. This deferral option ends after 30 June 2021.
- Whether a supplier needs to charge VAT on sales of imported goods will usually depend on who acts as the importer. For example: o If an overseas supplier acts as importer, then as well as dealing with import formalities it will usually need to VAT register and account for VAT on its sales.
o If the UK customer of an overseas supplier acts as the importer, then in most cases the overseas supplier will not need to register for VAT and account for VAT on its sale.
- Points to keep in mind are that: o There is no VAT registration threshold that applies to sales by non-established businesses in the UK. If any taxable supplies of goods are made in the UK by an overseas business, they must register for VAT.
o HMRC policy that only the owner of goods may reclaim import VAT should be taken into account when considering who should act as importer/pay VAT.
o To reclaim import VAT (or use postponed accounting) a business needs to be VAT registered and must consider the general rules applying to VAT recovery. Unrelated to Brexit, problems are common when an importer has not dealt with its VAT registration obligations at the time of the import and the standard documents that allow VAT to be reclaimed are not available.
o Special rules will apply to consignments with a value below £135.
Movement of Goods out of the UK
- An EU EORI number will be required to import the goods into the EU
- Brexit delivers a different status to UK suppliers/shipments when supplying goods to EU customer. For example, movements of goods from the UK to the EU will become exports/imports rather than dispatches/acquisitions.
- Where an EU customer acts as the importer in relation to goods exported from the UK then a UK supplier is unlikely to have an obligation to register for/charge local VAT
- Where a UK supplier acts as the importer into the EU then it is likely to have a local VAT registration liability as it will be viewed as making its supply of the goods to its customer in the EU country where the goods are imported
- In relation to B2C supplies it will no longer be possible for UK businesses to take advantage of distance selling rules when selling B2C to EU countries. This means businesses selling to private individuals in these countries must either do one of the following: o VAT register in each country where supplies are made (there will be no threshold);
o hold stock in one EU country, VAT register in that country and use distance selling rules to sell to other EU countries (see also planned MOSS extension/change to distance selling threshold); or
o place the onus for accounting for import VAT on the customer or another party, such as a postal operator (see also planned changes to import arrangements for goods below €150).
- Originally the EU intended that new provisions would apply from 1 January 2021 including: o a €10,000 “distance selling” threshold;
o the extension of the Mini One Stop Shop for electronic services to cover B2C sales of goods (replacing distance selling rules above € 10,000);
o the removal of the Low Value Consignment Relief (packages with a value of less than €22; and
o a simplification for import consignments with a value of less than € 150.
These changes have been deferred to 1 July 2021 due to the Covid 19 emergency so the trading position as of 1 January 2021 will, subject to any further deferral, change again soon afterwards.
- For at least the first 6 months Intrastat declarations will be required in relation to imports from the EU into the UK.
- For exports from the UK (excluding NI) no Intrastat declarations will be required.
- Intrastat declarations will be required for both shipments to and from NI and the EU (given its continued involvement in the Single Market)
- Suppliers/importers within the EU will not be required to submit Intrastat declarations for goods arriving from/sent to the UK – only NI shipments will be caught.
- Northern Ireland is to retain a special, dual position after the end of the transition period. This is to avoid physical borders between Northern Ireland (NI) and the Republic of Ireland (ROI) (a requirement of the 1998 Good Friday Agreement).
- This complicates matters and means effectively that movements of goods between NI and the rest of the UK will be treated as imports and exports and movement of goods between NI and ROI will continue to move freely without import or export requirements as though NI was still in the EU. This area is still developing and advice should be taken if it impacts on your business.
Provision of Services
- B2B services supplied to the EU will be treated in the same way as B2B services to RoW business customers. There will no longer be a need to report these on an EC Sales List.
- B2C digital services are currently reported using a special single EU filing on a Mini-One-Stop-Shop (MOSS) return. The UK will no longer be able to use EU MOSS after 31 December 2020 and businesses supplying these services in the EU will have to register for the non-union MOSS scheme in another EU country. EU businesses selling digital services into the UK will have to register for UK VAT.
- There are special “use and enjoyment” place of supply provisions that apply when certain services that would otherwise be treated as supplied outside the EU are used in the UK and vice versa. It seems likely that these will also apply when services that would otherwise be viewed as arising in the EU are used in the UK after January 2021. However, HMRC has not yet confirmed this
- Use and enjoyment place of supply rules that operate with the EU are also likely to have a widened impact. EEA countries that have close trade alignment with the EU – such as Norway and Switzerland – are caught so it seems unlikely that the UK will be able to operate outside these provisions.
Claiming VAT Refunds from EU Countries
- Businesses can continue to use the EU VAT refund system to claim a VAT refund on expenses incurred before 1 January 2021 in EU member states, until 11pm on 31 March 2021. They will not be able to use the EU VAT refund system to claim refunds of VAT on expenses incurred in an EU member state on or after 1 January 2021.
- Each EU member state has its own process for refunding VAT to businesses based outside the EU. UK businesses need to use the process for the EU member state where they are claiming a refund for all expenses incurred after the end of the transition period. Find out about each State’s process here.
- The process for reclaiming VAT incurred in other EU countries will change from the electronic EU portal to paper-based forms of the type currently used to claim VAT form RoW countries.