In the event of a Brexit “no deal” scenario postponed accounting for import VAT on goods to be introduced
carolineheath 23 August 2018 No comments
Postponed accounting for import VAT will be introduced if the UK leaves the EU without a deal on 29 March 2019. The government has confirmed that this will apply both to imports from the EU and non-EU countries. This would generate a cash-flow benefit for those businesses that currently have to pay import VAT on goods coming from non-EU countries. The government has also announced that Low Value Consignment Relief (LVCR) would no longer apply to parcels arriving in the UK. Overseas businesses sending parcels valued at up to £135 will be required to register for and charge UK VAT.
New government publication
The government has published a series of 25 documents setting out information for businesses and citizens to understand what they would need to do in a “no-deal” scenario to enable them to make informed plans and preparations. The VAT for businesses if there’s no Brexit deal document summarises the main VAT issues that will affect UK businesses trading with the EU in goods and services if the UK leaves the EU without an agreement.
In the document the government states that it will aim to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses. However, if the UK leaves the EU with no agreement, then there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU member states which are outlined below.
Accounting for import VAT on goods imported into the UK
In a no deal scenario the current rules for imports from non-EU countries will also apply to imports from the EU. In this event, the government will introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able 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. This will apply both to imports from the EU and non-EU countries.
Customs declarations and the payment of any other duties will still be required and more detail on these processes can be found in the Trading with the EU if there’s no Brexit deal technical notice. Guidance setting out further detail on accounting and record keeping requirements will be issued in due course.
VAT on goods entering the UK as parcels sent by overseas businesses
If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses.
The government set out in the Customs Bill White Paper (published October 2017) that Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK from the EU. This latest publication confirms that if the UK leaves the EU without an agreement then LVCR will no longer apply to any parcels arriving in the UK, this aligns the UK with the global direction of travel on LVCR. It means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing).
For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HMRC digital service and account for VAT due. The digital service will include an online registration, accounting, and payments service for overseas businesses.
On goods worth more than £135 sent as parcels VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries.
UK businesses exporting goods to the EU
UK businesses exporting goods to the EU will need to plan for the customs and VAT processes which will apply at the EU border. Businesses are advised to check with the EU or Member State the rules and processes which would to apply to their goods.
UK businesses exporting goods to EU consumers
If the UK leaves the EU without an agreement, distance selling arrangements will no longer apply to UK businesses and they will be able to zero rate sales of goods to EU consumers.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU.
UK businesses exporting goods to EU businesses
If the UK leaves the EU without an agreement, VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists.
As UK VAT registered businesses will not be required to complete an EC sales list, there will be changes to how these sales are recorded. Those UK businesses exporting goods to EU businesses will need to retain evidence to prove that goods have left the UK, to support the zero-rating of the supply.
Place of supply rules for UK businesses supplying services into the EU
If the UK leaves the EU without an agreement, the main VAT ‘place of supply’ rules will remain the same for UK businesses.
Particular points to note though include:
- For UK businesses supplying digital services to non-business customers in the EU the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU Member State within which the customer is a resident.
- For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed. Businesses will be updated with more information in due course.
UK VAT Mini One Stop Shop (MOSS)
If the UK leaves the EU without an agreement, businesses that sell digital services to consumers in the EU will be able to register for the MOSS non-union scheme.
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. Non-EU businesses can also use the system by registering in an EU Member State.
If the UK leaves the EU with no agreement, businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU.
Businesses that want to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU Member State. This can only be done after the date the UK leaves the EU. The non-union MOSS scheme requires businesses to register by the 10th day of the month following a sale. Businesses will need to register by 10 April 2019 if they make a sale from the 29 to 31 March 2019, and by 10 May 2019 if they make a sale in April 2019.
Alternatively, a business can register in each EU Member State where sales are made.
EU VAT refund system
If the UK leaves the EU without an agreement, UK businesses will no longer have access to the EU VAT refund system. UK businesses will however continue to be able to claim refunds of VAT from EU member states but in future will need to use the existing processes for non-EU businesses. This process varies across the EU and businesses will need to make themselves aware of the processes in the individual countries where they incur costs and want to claim a refund.
EU VAT Registration Number Validation – accessed via the EU Commission’s website
If the UK leaves the EU without an agreement, UK businesses will be able to continue to use the EU VAT number validation service to check the validity of EU business VAT registration numbers. UK VAT registration numbers will no longer be part of this service though and in the event of no agreement HMRC is developing a system so that UK VAT numbers can continue to be validated.
Whilst the government states that these are plans for a contingency it does not expect to happen, further information and instructions specifically tailored to cover the actions that businesses would need to take in a ‘no deal’ scenario will be published in the coming months.
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