Brexit Update – six months on
The impact of the UK leaving the European Union (EU) on VAT and Customs remains profound. The below highlights some of the major changes to be aware of.
Movement of Goods
Goods coming into the UK from the EU are now treated as imports and movements of goods from the UK into the EU are exports. Customs declarations are required for imports and exports and there may be checks on the goods at the border.
Currently, submission of customs declarations on imports of non-controlled goods into the UK from the EU can be delayed up to six months from the point of import. However, from 1 July 2021 this will no longer be available, with full customs declarations being required at the time of import.
Customs Duty: Duty Rates
The Free Trade Agreement provides for zero tariffs and quotas on goods that originate in the UK or EU.
There are two ways goods are treated as originating:
- The goods are wholly obtained or produced in the UK or EU – no manipulation of the goods in another country except to keep them in good condition.
- The goods have been substantially transformed according to the relevant product specific rules which are detailed in the tariff
If the goods being imported/exported meet the origin rules, it is considered to be 100% originating. Importers are responsible for obtaining proof that the goods meet the origin rules, for example a statement on origin by the exporter or other evidence on the originating status of the goods.
Where goods do not meet the origin rules, the movement of goods into UK or EU will be subject to Customs duty:
- Goods imported into the UK – UK Global Tariff rates
- Goods exported to the EU – EU Common Customs Tariff
Postponed VAT Accounting
Businesses have the option to use postponed VAT accounting to account for import VAT on goods coming into the UK from the EU and rest of world. The key features of the scheme are:
- Import VAT is accounted for on the businesses VAT return instead of being paid at the time of import
- Businesses opt to use PVA on their customs declaration
- Receive a monthly import VAT statement online which replaces the normal C79 certificates, and this is used as the evidence for recovery of the import VAT as input tax.
Under PVA the effect of import VAT is nil – an entry in box 1, a corresponding entry in Box 4 of the VAT return and an entry in box 7 for the value of the import (excluding VAT). This will be extremely beneficial to a business as it provides a cash flow advantage.
Consignments under £135
Low Value Consignment Relief which provided relief from import VAT on consignments of goods £15 or less is no longer available. Instead, new arrangements are in place which applies to overseas sellers for goods to customers in Great Britain. The key features of the new arrangements are:
- Where the value of the consignment is less than £135, VAT on the sale will be accounted for at the point of sale instead of at importation.
- Overseas sellers that sell directly to UK customers will be required to register for VAT in the UK to account for the UK VAT due on the sale – there is no registration threshold for overseas businesses.
- If the goods are sold via an online marketplace, it is the marketplace that will be responsible for collecting and accounting for the VAT.
- Where the consignment value exceeds £135, then normal customs procedures are required.
Import One Stop Shop (IOSS)
From 1 July 2021, the EU has introduced new VAT e-commerce rules which require all commercial goods imported into the EU from a third country to be subject to VAT.
The IOSS was also introduced as a way to simplify the declaration and payment of VAT on the sale of imported goods. The IOSS is available for goods where the consignment value is €150 or less and is supplied to customers in the EU.
Under the IOSS, the seller must charge VAT at the rate applicable in the EU member state in which the goods are delivered. The seller will have a registration in a single EU member state and account for VAT on sales to consumers in all EU member states.
Although the majority of the VAT rules for services are largely the same as they were prior to 1 January 2021, there are a few changes to note:
- From 1 January 2021, B2C services of professional, technical, financial or other intangible nature made to private customers outside the UK are outside the scope of VAT. HMRC has provided examples of such services in section 12 of Notice 741A.
- Financial servicesBefore 1 January 2021 – under the Specified Supplies Order, supplies of financial/insurance services carried the right to deduct input tax only if made to persons belonging outside the EU. From 1 January 2021, this now applies to such supplies made to persons belonging in the EU as well. HMRC has stated that input VAT incurred on these supplies before 1 January 2021 cannot be recovered even if it relates to supplies made on or after 1 January 2021.
- Mini One Stop Shop (MOSS): Prior to 1 January 2021, businesses making supplies of telecommunications, broadcasting and electronically supplied services to private individuals, were able to simplify their EU VAT obligations through the Union MOSS.From 1 January 2021, the UK is no longer a part of the Union MOSS scheme which means that any business registered in the UK for MOSS will either have to re-register for MOSS in an EU member state, or register for VAT in each member state supplies are made in.
As mentioned above, there may be instances where UK businesses are required to register for VAT in an EU member state.
Some EU member states will require non-EU businesses to obtain a fiscal representative to deal with their VAT obligations on their behalf including Hungary, Austria , etc. Other EU member states will not require a fiscal representative such as France, Ireland, etc . The business may also be required to provide a deposit or financial guarantee to cover potential liabilities.
To be kept up-to-date on all VAT and Customs rules, please get in touch.
Author: Gerry Myton, Director – The UK VAT Advisory Limited, Tel: 00 44 7776 178473
- 3. Mini One Stop Shop
- Consignments under £135
- Customs Duty
- Fiscal Representative
- Great Britain
- Postponed VAT Accounting
- Value Added tax