VAT and Brexit

“Deal or No Deal??”

As Noel Edmunds would say. But what are the implications if the UK exits the EU with no deal in place?

At the moment, the UK has (finally) settled into a trade regime with the EU that has become quite familiar (with one or two areas of possible exception!).

Most transactions in goods or services between businesses established in separate EU Member States are VAT free, allowing for free movement of goods, less administration and, quite frankly, less hassle.

In August of last year, when the possibility of exiting the EU with no deal was very much a  “back-stop” H M Revenue & Customs issued some guidance on what the fundamental changes would be to EU trade in the unlikely event that no deal was reached. This can be found at https: //www.gov.uk/government/publications/vat-for businesses-if-there’s-no Brexit-deal.

The problem is we are now in January 2019 and no deal has yet been reached.

So what does that mean for you if you import or export goods or services?

 

Importing goods from the EU

 As from the 29 March 2019 goods imported from the EU will be treated in the same way as goods imported from outside of the EU. This would normally mean that a UK business would have to pay VAT upon arrival or under a Deferment Scheme- which would necessitate an increase in the level of financial security payable to HMRC and would involve delays in recovering any VAT incurred.

HMRC has therefore said that it will therefore allow UK businesses to account for VAT through their UK VAT returns rather than having to pay the VAT up front or defer it. How long they will allow this to happen is not clear. Interestingly, they will also allow this treatment for imports of goods from outside of the EU- which is a clear advantage.

The completion of Customs declarations and the payment of “any other duties” will still be required and more details on this can be found in the “Trading with the EU if there is no Brexit deal” technical Notice on HMRC’s website. This may well mean that Customs and/or Excise Duty will become payable on goods entering the UK from the EU making them more expensive to purchase.

It is very likely that a UK business importing goods from the EU will need an EORI Number (Economic Operator Registration and Identification scheme number) which is currently required for imports of goods from non-EU countries. HMRC have said they will announce further details on this in due course.

 

Importing services from the EU

 At the moment a UK business does not normally pay VAT to an EU supplier but must “self-account” for any VAT payable and recoverable under the “reverse charge” rules.

This is unlikely to change under current proposals.

 

Exporting goods to businesses in the EU

 The main change here will be the lack of any need for the completion of an EC Sales List.

All UK businesses will need to keep full commercial and official (HMRC) evidence to show that the goods have left the UK and provided they have that, zero-rating may be retained. They are also likely to be required to complete a Customs Declaration when the good leave the UK and the customer is likely to have to pay Customs and/or Excise Duty when the goods arrive in the EU making them more expensive to buy.

Again, and EORI number is likely to be a requirement.

 

Distance Selling

 Currently, if a UK business supplies and delivers goods to “consumers” elsewhere in the EU (ie, private individuals and possibly some charities and not for profit organisations etc) it must apply UK VAT to those sales until a certain turnover threshold is reached when it must then register for VAT in the EU country of arrival.

This rule will no longer apply. All such sales will be zero-rated in the UK (subject to obtaining and retaining commercial and official evidence of removal of the goods from the UK) and it is likely that any EU registrations that have been put in place as a result of the Distance Selling Rules will need to be cancelled.

Goods stored in the EU for sale in that country

 UK businesses who store their goods elsewhere in the EU (for example, in a warehouse) are likely to be required to register for VAT in the EU country concerned.

Exporting services to businesses in the EU

Again, under current rules provided the EU business supplies its’ EU VAT number or alternative evidence of being “in business” no UK VAT need be charged (in most cases). This is unlikely to change.

Mini One Stop Shop (MOSS”)

 At present suppliers of intra-EU digital services to consumers elsewhere in the EU can register for MOSS in the UK as an alternative to having to register in each EU country of delivery. If no Brexit deal is reached, this Scheme will no longer be available to UK businesses.

UK businesses will either have to register for VAT in each EU Member State or register with HMRC for the MOSS “non-Union” Scheme as soon as possible. Further details on the non-Union MOSS Scheme can be found on the HMRC website.

SUMMARY

The HMRC Guidance referred to above gives additional information on other areas that may be affected.

 However, I think it is safe to say that whether we leave the EU with a deal or without one, change is on the way and any business importing from or exporting to the EU should prepare for that change-when we know exactly what it is!

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