November 18, 2020 VAT after Brexit: A summary of the latest
When the UK leaves the EU after Brexit, most of the UK VAT rules that applied to non-EU countries will simply apply to EU countries. This may create additional administrative burdens, especially for UK businesses who export to the EU or make significant purchases in EU countries. We take a look at the latest government advice for VAT after Brexit.
Current rule refresh
- VAT is charged on most goods and services sold within the UK and the EU.
- VAT is payable by businesses when they bring goods into the UK. There are different rules depending on whether the goods come from inside or outside the EU.
- Goods that are exported by UK businesses to non-EU countries and EU businesses are zero-rated, meaning that UK VAT is not charged at the point of sale.
- Goods that are exported by UK businesses to EU consumers have either the UK or EU VAT charged, subject to distance selling thresholds. Goods sold to non-EU countries do not have VAT.
- For services, the ‘place of supply’ rules determines the country in which you need to charge and account for VAT.
New rules for VAT after Brexit
Imports by UK Businesses
After Brexit, the current rules (i.e. account for VAT on import) that apply to non-EU imports will apply to EU imports. However, from 1 January 2021 there will be ‘postponed accounting’ for all (both EU and non-EU) imports. This means import VAT is payable in your next VAT return, rather than at the point of import. Essentially, this will mean that the import tax is paid and then reclaimed as part of the same VAT return (similar to the reverse charge). Duties may also be deferred to monthly payments as well, but only under certain guarantee conditions. With under £135, so long as the buyer provides a valid VAT number, the reverse charge can be applied.
Imports by UK Consumers
From 1 January 2021, VAT on imported goods with a value up to £135 will be collected at the point of sale, not on import. The seller will be responsible for registering, collecting, and accounting for VAT even if they are an overseas seller. For consignments over £135 VAT can be collected by the vendor or paid by the consumer upon import.
Exporting goods to the EU
Exporting will be significantly affected by leaving the customs union, and the admin created will likely be a burden for businesses in the period after Brexit. VAT registered businesses will still apply zero-rate goods sold to EU businesses in the same way they currently do for other countries. However, EU businesses will have to treat UK imports the way they would non-EU imports (i.e. pay VAT on import). This has the potential to create issues for UK businesses that export goods to EU states, as VAT will need to be paid at the border of the EU state – potentially requiring the use of local VAT representative.
Businesses may be able to use the Common Transit Convention to complete customs and VAT payments until the goods reach their final destination. Distance selling rules will no longer apply. This means that all goods will now be subject to import taxes, meaning e-commerce sellers will have to register for VAT in European countries. There will no longer be an obligation to complete an EC Sales List – businesses must still keep records to show goods have left the UK and therefore are not subject to VAT.
EU VAT refunds
The UK will no longer be able to recover VAT incurred in other EU countries using the electronic system. This means UK companies will have to register in the relevant member state that they want to claim the refund from. This will be subject to the local member state requirements and may cause significant administrative burdens for companies that export to multiple states.
Supplying services to the EU
This will be broadly the same as the current rules for supplying services to countries outside the EU (the ‘place of supply’ rules). This means that UK businesses supplying digital services to non-business customers will be subject to VAT where the customer resides. VAT registered businesses supplying services to other VAT registered businesses will still be able to zero-rate these sales (with the customer accounting for these via reverse charge). The rules around the supply of insurance and financial services within the EU will align with the current rules for non-EU countries, meaning that these will be outside of scope.
UK VAT Mini One Stop Shop (MOSS)
MOSS is an online service that allows EU businesses that sell digital services to consumers in other EU member states to report and pay VAT via a single return and payment in their home member state. This will no longer be available.
Summary of VAT after Brexit
|VAT before Brexit
|VAT after Brexit
|Business importing from EU
|Reverse charge mechanism
|Deferred to the next VAT return
|Consumer importing from EU
|Payable at the rate in the EU supplier’s country
|Exporting to the EU
|Zero-rated to EU businesses with a VAT number VAT charged to consumers subject to distance selling thresholds
|Goods will be zero-rated, but VAT will be due in the country of import.
|EU VAT refunds
|Access to the electronic system. All EU reclaims in one place
|No access to this system, claims must be made in individual member states
|Services to the EU
|For non-business customers – VAT is chargeable For business customers – accounted for via the reverse charge mechanism
|VAT will be due where the customer resides Sales will be zero-rated
|Mini One Stop Shop (MOSS)
|Eligible for access to the union member MOSS.
|UK businesses will have to register for the non-union MOSS in a member state.
How we can help
Elemental’s team of in-house tax and VAT specialists can help you cut through the regulation. We have experience across a wide range of business types and sizes, meaning we can provide expert advice and services that will ensure a smooth and compliant transition for your business after Brexit. Find out more about our accounting services or contact us for more information on how we can help.