In the space available this summary cannot hope to cover all of the VAT changes brought about by Brexit so you should think about your own situation in detail. This short summary aims to cover some of the main variables that have come into play. Of primary importance is that we now have different rules applying to:
- Imports versus exports
- B2C -v-B2B
- Goods -v- services
- If goods, are they dutiable or 0% duty?
- If services, are they digital?
- B2C sales EU -v- non-EU
- Stockholding or duty-paid deliveries
- Goods moving to or from NI
Business selling B2C
B2B traders had UK VAT all fairly easy when compared to B2C traders, who undoubtedly faced the biggest changes. Distance selling and MOSS simplifications were both removed from 1 January 2021 leaving non-UK sellers having to register for UK VAT and UK sellers having to be VAT registered wherever they have a customer. Importantly in both cases without any registration threshold so any sales at all create a VAT registration problem.
As if to make the B2C situation even harder, the rules in the EU changed for UK businesses from July 2021. From this date, for B2C consignments <€150 a UK business can set up a single EU VAT registration and account for VAT under the new Non-Union Import One Stop Shop (IOSS). Instead of import VAT being due on the shipment, ‘supply VAT’ is payable by the seller to the appropriate EU tax authority. This supply VAT will need to be accounted for at the rate applicable in the customer’s EU state via an IOSS VAT return. This system enables VAT to be paid on all EU B2C sales <€150 via one return covering all of the different EU VAT rates but still means there has to be an EU VAT registration somewhere.
Exports of digital services on a B2C basis within the EU no longer fall under the MOSS system as the UK ceased to be eligible to use this provision. For sales since the end of 2020 UK businesses need to either register in one EU member state in order to be eligible to use the VAT MOSS or register for VAT in each member state where they have a customer. Again appointment of a fiscal representative will have increased costs being incurred.
Importing digital services into the UK require non-UK businesses to register for VAT and importantly this is without any turnover threshold applying to cushion low levels of trade.
Imports of goods from the EU are effectively now treated the same as those from the rest of the world (ROW). Potentially import duty, which cannot be reclaimed, is payable in addition to import VAT which applies to both goods coming into the UK and sales of goods into the EU. Who will pay any such duty has become a commercial issue and one where agreeing the Incoterms plays a vital part.
Import VAT on goods coming into the UK
Brexit saw some rare good news in that import VAT no longer has to be actually paid to HMRC when goods are imported into the UK from either the EU or ROW. Instead the Postponed Accounting regime can apply to all imports, which is similar to the old Acquisition Tax accounting system used for EU goods up to 2020. Under PVA import VAT can be declared and recovered on the same VAT return rather than having to pay it upfront and recover it later. This system has largely rendered the current C79 system redundant.
Provided the goods are being imported for business purposes and the importer’s EORI prefixed with GB and UK VAT number are included on the Customs declaration, PVA does not require prior authorisation. all you need to do in instruct the import agent to select PVA as the Method of Payment. The same procedure applies to goods released into free circulation from Customs special procedure such as Customs Warehousing; Inward or Outward Processing Reliefs and other duty suspension regimes.
Essential steps where importing goods:
- Agree incoterms and the commodity code with the supplier
- Establish who will be the importer
- Check if duty is payable and decide how to handle this – via the agent’s deferment account, bonded warehouse, etc
- Check for and obtain any licenses, etc
- Consider if quotas apply and manage timing of shipments to minimise costs
- If non-UK supplier is importer, is value <£135? Who will pay supply VAT, non-UK supplier or OMP?
- Ensure GB/XI EORI is declared on Customs declarations
- Declare Postponed Accounting and reconcile to monthly import statements
- Submit Intrastat declarations
Import Duty and commodity codes
Commodity or HS codes have become a major consideration and are key to minimising possible duty costs. It is vital that you make sure the correct commodity or HS code is being applied, which is a task that should not be left to the agents handling the shipment but addressed in advance by the business.
The UK has applied its ‘Global Tariff’ which is available on-line and indicates the duty rates applicable to each commodity code. Important to remember is that the UK duty rates that apply to imports into the UK from the EU are not necessarily the same as the duty rates that apply to those same goods going into the EU from the UK – so costs and profits can be affected
As well as managing import VAT via PVA it is also possible to postpone the immediate payment of import duty by holding the imported goods in a duty suspension regime such as a bonded warehouse. While the storage costs are at a premium, cash flow can benefit where significant values of dutiable goods are being imported into stock.
Imports by non-UK businesses have become a huge issue, with UK VAT registrations generally compulsory.
Vital factors to decide are the identity of the importer and whether the supply is B2C. Incoterms adopted for the shipment dictate when ownership in the goods passes to the UK customer – whether that is before or after the goods are clearing into the UK. If a non-UK business owns the goods and acts as the importer it has no option but to register for UK VAT. Contrast B2C consignments of <£135 where import VAT is not due and instead output VAT must be paid by the seller either via a UK VAT registration (without any turnover threshold) or via an Online Market Place (OMP) handling the sale and looking after the VAT filing obligation.
Any business selling goods into the EU is obliged to complete the same paperwork as used to apply to UK exports to the ROW. Here too issues arise from the Incoterms applied to the sale. Key questions are who is defined as being responsible for the import declaration in the destination country? and who is liable for payment of import VAT and duty? If these obligations rest with the UK seller, for example as would be the case with DDP shipments from the UK, then there is an obligation for the seller to register for VAT in the customer’s home EU state.
Using the correct commodity or HS codes is not only important for dictating whether import duty is payable on an import either into the UK or into the EU, it also identifies if a license, permit or other such requirement applies to the goods.
Import quotas are also administered by following the commodity codes of the goods subject to restrictions. License, certification, labelling, marketing and similar obligations must be met before the goods will be allowed to leave the UK. Similarly departure of the goods from the UK will be delayed unless export declarations have been filed in advance of the goods arriving at the port. While these declarations are usually handled by the handler or agent via the National Export Scheme, the accuracy of the declaration remains the responsibility of the exporter.
Essential steps before exporting goods:
- Check the customer will make the import declaration and pay import VAT & duty
- If the UK supplier acts as importer, a VAT registration will be required including in some non-EU destinations
- Agree the Incoterms and check against who will be importer
- Consider the correct commodity code
- Check and obtain any licenses quotas, etc in advance
- Check the tariff rules in the destination country
- From July 2021 if B2C EU sales and value is <€150 then IMOSS could be used
- Establish whether any trade deals apply
- Ensure that export declarations precede goods arriving at the port
- Obtain & retain export evidence
Retaining evidence of export is vital in order to justify not charging UK VAT on goods exported from the UK.
This has always been an absolute requirement. If not met HMRC will remain entitled to treat the sale value as including VAT and demand 1/6th of the sale be paid over to them as output VAT.
- Any trade involving Northern Ireland needs to be sheltered under the Trader Support Scheme (TSS) https://www.gov.uk/guidance/trader-support-service, registration which will result in a new EORI number being allocated with a prefix of XI.
- Movements in either direction between the EU and Northern Ireland will be subject to Intrastat declarations until 2025. We also have new provisions coming in under the Windsor Framework.
- Other EU-wide simplifications have also ceased to apply to UK businesses including contracts involving installation and triangulated supplies. These situations, along with services treated as relating to land, continue to create an obligation for the supplier to register for VAT where the supply is treated as taking place.
As ever with VAT, the devil is in the detail. Cross-border VAT risks are numerous but of primary concern is being obliged to register for UK VAT if your business is based elsewhere. from a UK view it now much harder to export goods without hitting delays and incurring additional costs.
Written by Melanie Lord – Director of AVS VAT. We solve all kinds of shapes and sizes of VAT and Customs problems so please get in touch if you need help.