UK VAT after the Brexit transitional period

We have set out below a summary of how the existing UK VAT rules are likely to change after the end of the transition period. Please note that this is the situation as at 3 December 2020 and may change subject to further Brexit negotiations. I t will be important to check for updates to the regulations as we approach 1 January 2021

The government aims to keep VAT procedures as close as possible to those that are currently in force, but there will be some changes to procedures for transactions between the UK and EU member states.

If you require specific advice on VAT matters we have VAT specialists who can help you understand your specific requirements

Importing goods from the EU

With effect from 1 January 2021, the government will introduce ‘postponed accounting’ for import VAT on goods brought into the UK, from both the EU and non-EU countries. This will allow UK VAT registered businesses importing goods to the UK to account for import VAT on their VAT return rather than paying import VAT on or soon after the time that the goods arrive at the UK border. Customs declarations and the payment of any other duties will still be required.

Customs and excise duty payments can be deferred to be settled monthly with a duty deferment account. Businesses need to register with HMRC to open a duty deferment account and will need to provide a bank guarantee.

From 1 January 2021 VAT on imported goods with a value of up to £135 will be collected at the point of sale, not the point of importation, meaning UK supply VAT will be due on these consignments. Online marketplaces (OMPs) involved in facilitating the sale of imported goods, will be responsible for collecting and accounting for the VAT, even when the goods are in the UK at the point of sale.

Business-to-business sales not exceeding £135 in value will also be subject to the new rules. However, where the business customer is VAT registered and provides its registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge.

Exporting goods to the EU

Businesses may be able to use the Common Transit Convention (CTC) to complete some customs procedures away from the border and defer import VAT and customs duties until goods reach their final destination.

With effect from 1 January 2021, distance selling thresholds will no longer be available, but all such sales are likely to become zero-rated exports.

UK VAT registered businesses will no longer have to complete an EC Sales List. Instead, those UK businesses exporting zero-rated goods to EU businesses will need to retain evidence to prove that goods have left the UK.

Supplying services to the EU

The supply of services to customers in the EU after Brexit will be treated the same as those to any customer outside the EU.

For UK businesses supplying insurance and financial services, the input VAT deduction rules are due to change with effect from 1 January 2021, as supplies that are currently exempt will become outside the scope with recovery, thereby aligning with the existing rules for supplies of such services to customers outside the EU.

Sales of digital services

After 31 December 2020, all supplies of digital services to consumers in EU member states become liable for VAT in the consumer’s member state. The £8,818 annual threshold for cross borders sales of digital services to EU consumers will no longer apply.

You will have to charge VAT at the rate where your customer is based and declare those sales to the relevant EU member state.

If you want to continue to use MOSS, you must register for the scheme by the 10th day of the month following your first sale after the UK leaves the EU. Businesses will only be able to register after 31 December 2020.

Non-UK businesses will need to declare sales of digital services to UK consumers by registering for VAT in the UK and declaring the sales via a UK VAT return.

UK VAT MOSS

Businesses will no longer be able to use the UK’s MOSS scheme to report and pay VAT on sales of digital services to consumers in the EU.

Businesses that sell digital services to consumers in the EU will instead have to register for the MOSS non-union scheme in one of the remaining 27 EU member states.

EU VAT refund system

A UK business can currently recover VAT incurred in other EU countries using an electronic system. However, once the UK leaves the EU businesses will no longer be able to use that system.

UK businesses will continue to be able to claim refunds of VAT from EU member states, but it will need to be done using the existing refund system for non-EU businesses. The way in which the refund system operates varies across each EU country, so businesses will need to check the precise requirements in each EU country where they incur VAT.

EU VAT Registration Number Validation service

The EU VAT Registration Number Validation service allows businesses to check if a customer or supplier’s VAT number is valid. UK businesses will be able to continue to use the EU VAT number validation service to check the validity of EU businesses, but UK VAT registrations will cease to be included. HMRC has developed a service to ensure that UK VAT numbers can continue to be validated.

Guidance on supplied between GB and Northern Ireland

The position in relation to supplies between Great Britain and Northern Ireland was updated on 8 December 2020.

The Bill will also ensure that EU goods imported into NI from Ireland are not subject to customs duties or processes. It will also ensure the UK’s customs regime applies for goods moving from NI to Great Britain if those goods do not qualify for unfettered access. In simple terms, customs duty will be charged when non-domestic goods move from Great Britain to NI where they are at risk of subsequently being moved into the EU.

What goods are ‘at risk of subsequently being moved into the EU’ will be determined by Treasury regulations. The duty charge itself will be based on whatever would have been charged on the goods if they had entered EU customs territory.

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