VAT post-Brexit: what businesses should know

26th January 2021

By Steve South, Partner

On 24 December 2020 the UK finally reached a post-Brexit trade agreement with the EU. Here’s our accountancy advice on the changes that may impact businesses regarding VAT.  

The UK left the EU VAT Territory on 31 December 2020 and England, Wales and Scotland are no longer subject to EU VAT legislation. Goods that are sent by businesses to – or received from – the EU are now treated as exports and imports along with the rest of the world trade.

 A GB Economic Operators Registration and Identification (EORI) number is now needed for both.

Buying goods from overseas

Acquisitions (purchases of goods from EU member states) are now classed as imports. This means that VAT is no longer declared in Box 2 of the VAT return. A new system called ‘Postponed Accounting’ has been implemented, which covers most imports received except low-value consignments as detailed below. Under Postponed Accounting, import VAT can be deferred and declared to HMRC in Box 1 of the VAT return for the period of importation. The VAT can be reclaimed in the same return, in Box 4, subject to the normal rules for reclaiming input tax, often called reverse charging. By choosing Postponed VAT Accounting at the time of Import, VAT does not have to be paid to clear the goods through customs and therefore provides both a cash flow timing advantage whilst minimising the administration burden and time to import goods.

Where the VAT-exclusive value is below £135, this is considered a low-value consignment. These are no longer subject to import VAT but UK VAT will be due at the point of sale instead. If the goods are sold via an online marketplace (OMP), the OMP is responsible for charging VAT to the customer. If not, the overseas seller must register and charge VAT in the UK, unless the customer is VAT-registered. If the customer is registered they can declare the VAT due on behalf of the seller, with a reverse charge.

Businesses that submit intrastat declarations for goods arriving in the UK from the EU need to carry on doing so for 2021.

If you have a Government Gateway you will be able to access a Postponed VAT Statement online.

Selling goods to customers overseas

Dispatches (zero-rated sales of goods to business customers in EU member states) are classed as exports along with rest of the world trade. They are zero-rated as long as certain conditions are met.

Dispatch intrastats and EC sales lists with the exception of Northern Ireland sales (see below) are no longer required.

Distance sales (sales of goods to non-business persons in the EU) are also treated as exports. The EU distance-selling regime and thresholds don’t apply to UK suppliers.

Services

If you’re supplying services that are treated as supplies from the UK to consumers outside the UK, your services are supplied where your customer belongs and so are outside the scope of UK VAT. There are some exceptions to this mainly linked to services relating to land and property in the UK.

UK businesses are no longer required to complete an EC Sales List when supplying services to businesses located in the EU.

One of the more significant changes on Services is for those selling digital services to and from the EU. UK businesses will no longer be able to use the VAT MOSS system in the UK and the current EU-wide VAT threshold for supplies of digital services to consumers ceases to apply to UK businesses. This means that EU VAT will be due on all supplies of digital services to EU consumers, regardless of the value of the sales.

B2C digital service suppliers need to register for a non-EU VAT MOSS scheme operated by a tax authority in a member state of their choice.

If you trade with the EU:

VAT on goods moving between Great Britain and Northern Ireland

Northern Ireland left the EU but from 1 January 2021 it maintains alignment with the EU’s rules for VAT and Customs in respect of goods.

For services, Northern Ireland follows the VAT rules applicable to the rest of the UK.

Goods

Northern Ireland maintains alignment with the EU VAT rules for goods, including on goods moving to, from and within Northern Ireland. However, Northern Ireland is, and will remain, part of the UK’s VAT system.

From 1 January 2021, VAT will continue to be accounted as it is currently on goods sold between Great Britain and Northern Ireland. This means that the seller of the goods will continue to charge its customers VAT and should show this on its invoices. The VAT charged will be accounted for as output VAT on the VAT return in the same box as it is now. The seller will not be able to claim this back as input VAT.

Where the customer receives an invoice from the seller showing that VAT has been charged, it may use this as evidence in order to reclaim the VAT as input VAT, subject to the normal rules.

However, there are a small number of exceptions to this where goods are:

  • declared into a special customs procedure when they enter Northern Ireland or Great Britain – in which case the customer or importer will be liable to account for the VAT.
  • currently subject to domestic reverse charge rules, including on sales of gold or gas and electricity to a VAT-registered business. In this case, the customer will continue to account for the VAT on the goods.
  • subject to an Onward Supply procedure.
  • sold by an overseas seller through an online marketplace, when the online marketplace will be liable to account for the VAT on the goods.

More on this here: https://www.gov.uk/government/publications/accounting-for-vat-on-goods-moving-between-great-britain-and-northern-ireland-from-1-january-2021/accounting-for-vat-on-goods-moving-between-great-britain-and-northern-ireland-from-1-january-2021

Registering for VAT

Northern Ireland is, and remains, part of the UK’s VAT system. There will be no requirement for a new VAT registration for sales of goods in Northern Ireland. You should continue to account for VAT on all sales across the UK through your single UK VAT return, which will contain the same boxes as before.

Services

UK VAT rules related to transactions in services will apply across the whole of the UK. HMRC will continue to be responsible for the operation of VAT and collection of revenues in Northern Ireland.

Accounting Systems

Many system providers such as Sage and Xero have implemented new vat codes to capture and reconcile more readily the reverse charge vat under postponed accounting.

About the author

Steve joined Wise & Co in 1989 where he trained and qualified as a chartered accountant. He is now a general practice partner, as well as the firm’s IT partner. Steve’s experience spans a range of industry sectors and businesses of varying sizes. VAT and property remain of particular interest to him and he has advised many investors and developers alike on VAT planning and recovery. He has also been involved with many mergers and acquisitions and has assisted clients with the sale of their businesses.

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