We take a look at some of the guidance and explain what this might mean for UK businesses trading with the EU
With Brexit approaching like an out of control juggernaut, and a lack of guidance on what the impact of a no deal scenario may be, HMRC have finally released their take on what the landscape may look like for UK businesses relying on international trade.
Firstly, it’s no surprise that the VAT regime will continue in the UK following the UK’s departure from the EU. VAT generates in excess of £100bn each year for the treasury, so it’s longevity post-Brexit is assured!
UK businesses importing from the EU The rules which currently apply to non-EU imports into the UK will start to be applied to EU imports as well. This means that VAT will become due at the point of import into the UK, in the same way as it does currently for non-EU country imports. It is a fair assumption that this situation could well cause a log jam in customs, with goods not being released until the VAT is paid.
With this in mind, the government have agreed that UK businesses can operate postponed accounting for recoverable VAT on goods they import, rather than paying the VAT at the point of import and then reclaiming it later, on a VAT return.
This rule will also apply to non-EU imports, and will potentially convey a cash flow advantage to those businesses importing non-EU goods.
Where parcels are shipped into the UK from overseas businesses, the rules are due to change under a no-deal scenario. Ordinarily, any parcels up to a value of £15 are covered by ‘Low Value Consignment Relief’ (LVCR), and are exempt from VAT being charged on entry to the UK.
Under new plans, a new regime will apply:
Parcels up to £135 in value – overseas suppliers will be expected to collect VAT from the end customer at the point of sale, and then to pay this across to HMRC via a new digital platform.
For parcels over £135 in value – the rules will be the same as for non-EU parcels, with VAT payable by the customer at the point of entry to the UK.
For businesses selling to EU consumers
Distance selling rules will no longer apply. At the moment VAT must be applied at the point of sale, but in a post-Brexit world, it will be possible to zero rate sales to EU consumers, with import VAT and Customs duties payable instead on arrival in the EU.
Sale of goods from UK to a EU business
Not much will change. It will still be possible to zero rate the supply, but the UK business that supplies the goods will no longer need to complete an EC sales list. As above, import VAT and customs duties will be payable on entry to the EU.
If your business has an EU base where you store goods for supply to other EU member states, you will need to register for VAT in the states where sales take place to account for VAT due in those countries.
Setting the VAT rate
You may recall that one of Boris Johnson’s arguments for leaving the EU was that the UK could then set it’s own VAT rate – instead of being dictated to by unelected bureaucrats in Brussels! Hopefully that wasn’t a vote swinger, because in October, the EU gave the flexibility to all EU member states to apply reduced VAT rates on any product or service as they see fit – with the change coming in from 2021, that coincides with the UK leaving the EU after it’s two year transition period, so no advantage gained.
MOSS (Mini One Stop Shop for VAT) is an online service which allows businesses selling digital services to other EU states, to account for VAT on a single return in their home member state.
Following Brexit, UK businesses will no longer be able to use the UK MOSS online portal to submit their returns. Instead, businesses will need to register for the MOSS Non-Union scheme in an EU member state within 10 days of making a sale after 31 March 2019.
The alternative is to register in each EU member state where sales are made. The good news here is that the regime continues, however you will need to re-register in an EU member state to continue using the service.
Article from our Autumn issue of Outsourcing update, download the newsletter