The UK finally reached an agreement on the terms of departure from the EU at the eleventh hour, which became effective at GMT 11 pm (ironically) on 31st December 2020. But was does this mean for UK businesses in respect of the charging, reclaiming and reporting of VAT relating to EU trade?
With any legislative change, there is usually good news and bad news, and sometimes this depends on the nature of your business and whom you trade with. The agreement on tariffs has certainly been welcome news for the majority, but the implications for VAT are not necessarily so straightforward.
The VAT changes discussed here are most relevant to GB VAT registered businesses that are importing and exporting to the remaining 27 member states. The guidance excludes Northern Ireland as separate arrangements are in place and are covered by the NI Protocol which will remain in place until 2025. The impacts are grouped into the effects of importers, exporters, and the service sector.
Exporters
The good news…
Business (B2B) sales of goods to EU countries from 1st January 2021 are treated in the same way as exports to anywhere else. For UK VAT purposes the sale is zero-rated and VAT should not be charged. There is no longer a requirement to determine your customers’ VAT status for B2B sales (although you will need their EU EORI number) and the distance selling rules no longer apply to B2C sales.
The bad news …..
Although consumer (B2C) sales are also zero-rated for UK VAT purposes they will be subject to VAT in the country to which they are supplied. Unless you are registered for VAT in that country and deem yourself as the importer as well as the exporter then the liability for payment of this VAT may sit with the consumer (subject to the incoterms used). For non-VAT registered customers, this, therefore, represents an increase in the price of the product you sell as they are unable to recover this (unlike B2B customers).
There are further rules around the sale of goods from online market places and for digital services. Various options exist in these instances and further changes come into force on 1st July 2021. Please talk to Q Accountants for more specific advice in this area.
No more EC sales lists.
Businesses are no longer required to submit monthly returns detailing the supply of goods and services to VAT registered businesses in the EU.
Importers
The good news for VAT registered importers: postponed VAT accounting.
Prior to 1st January 2021, any goods imported into the UK from outside the EU were subject to an import VAT which was payable at the point of entry into the UK.
For large purchases this often caused cashflow issues as the reclaim of the VAT could not be made until the next VAT return was due. The new regime allows for the VAT to be included on your VAT returns as both VAT on sales and VAT on purchases (as well as showing the net purchase value on the VAT return) and will apply to all imports including those from the EU.
Postponed import VAT statements can be obtained from HMRC but Q Accountants can help with this and obtain these for you to ensure VAT returns comply with the new regulations.
The good news…
Delayed customs import declarations. For a six month period until 30th June 2021 importers can delay customs declarations and hence the payment of customs duties, providing they are authorised to use simplified declarations.
No more Intrastat reporting (eventually)
The EU will no longer need to capture information on sales, weights, and commodity codes to track the movement of goods within the EU. However, the UK government are still keen to capture information on the value of goods being imported into the UK from the EU so have decided to keep Intrastat reporting for imports only for 2021.
The bad news…
Imports from EU countries are subject to import VAT on entry to the UK. The impact for non-VAT registered businesses in the UK is an increase in the cost of the product being imported as the VAT cannot be recovered.
Service Businesses
The VAT treatment for providing and receiving services within the EU remain largely unchanged.
For B2B services, the rules are different to the supply of goods as the place of supply is deemed to be in the country of the customer and in such cases are outside the scope of UK VAT.
The good news…
The place of supply for services previously rendered to B2C customers in the EU was deemed to be in the UK. This has changed to be in line with B2B and hence VAT is no longer chargeable. This represents a genuine potential saving to customers who were previously charged UK VAT but could not reclaim this.
For more information on the place of supply rules, see our previous article.
