If you trade in goods or move goods cross border it is worth being aware of common pitfalls and key considerations with respect to VAT and customs duty.
For businesses ordinarily entitled to recover VAT on costs in full, VAT on cross border activity should not form a cost. However this is only the case if you, and potentially others in your supply chain (eg suppliers and customers), comply with the relevant VAT rules. Customs duty always forms a cost and cannot be recovered.
The following are common scenarios that can give rise to a VAT cost if actions aren’t taken:
Maintaining a stock of goods in a warehouse overseas
Many businesses prefer to maintain a stock of goods somewhere in Europe to enable them to supply local markets more quickly. Moving your own stock to a warehouse in another country, (EU or non EU), gives rise to VAT registration obligations in that country. The goods need to be imported or acquired in the country in question and a VAT registration is required to recover the import/acquisition VAT and declare VAT as appropriate on sales from the stock.
When the UK leaves the EU, transactions that are currently intra EU movements of goods between you as a supplier in the UK and your EU customer, will become exports from the UK and imports into the EU customer country. Ideally your customer will act as importer of record in their country as they likely already have the necessary infrastructure to import (VAT registration, EORI etc). However this means they would need to pay customs duty which forms a cost, so they may want to renegotiate commercial pricing with you. Alternatively, they may insist you supply the goods cleared through customs (DDP delivery terms – delivered duty paid).
This means you would need to VAT register in the country in question, get an EU EORI and clear the goods, paying import VAT and customs duty. The import VAT would then be recovered on your VAT return and you would charge local VAT on your sale to the customer. It is worthwhile checking commercial contracts to ensure you are clear on who will import post Brexit.
Online B2C Sales through Marketplaces (e.g. Amazon)
If you sell goods to private individuals in the UK and EU from a UK warehouse, UK VAT is due until you breach the distance selling threshold in each EU country (either Euros 35k or 100k per annum), at which point you must VAT register there and account for VAT at the local rate in your customer’s country. When the UK leaves the EU, EU customers will need to import the goods, meaning they will need to pay import VAT and potentially customs duty before the courier will release their parcel. This can impact on the attractiveness of your business to consumers, so you may want to consider storing goods in an EU warehouse so that sales to EU customers do not require them to pay import taxes.
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This article was written by Julie Park, The VAT Consultancy and was published in our Brexit insights newsletter. You can download a copy of the full newsletter on our latest publications page – Brexit Insights newsletter