7th December 2020
On 31 December 2020, the UK is set to leave the European Union. With this will come some significant changes to the way UK businesses handle VAT. If your business transacts with EU customers or supplier then it is important that you review the upcoming changes.
The Government has produced a tailored checklist to review any changes that you and your business might need to make and you can review their detailed guidance here https://www.gov.uk/transition
The below summary is accurate as at the date of publication. With the Brexit negotiations ongoing, there is still some chance of a trade deal that might impact some of the advice given below. We will keep you updated with any developments, but please get in touch if you have any concerns or queries as how your business will transact with the EU from 01 January 2021.
Supplies of goods
EORI number
Whether you are buying or selling goods from/to the EU you will require an EORI number to complete the necessary customs declarations.
If you already have an EORI number, please check that this is prefixed with ‘GB’, otherwise you will need to reapply.
Apply for an EORI number here https://www.gov.uk/eori
Exports of goods
From 01 January 2021, supplying goods to the EU will be a zero rated export from the UK. Under the pre-Brexit rules, no VAT was charged on the transfer of goods between EU countries, however the new rules require that the ‘importer of record’ (the person/business responsible for VAT and customs paperwork) now has an EU deemed supply. If historically your business has been the importer of record then from 01 January 2021 this would require you to register for VAT in that EU country, pay import VAT, and charge domestic VAT on the supply.
To avoid that burden, a UK business can ensure that the EU customer is the importer of record. The customer will then be liable for the import VAT. For business to business sales this is likely to be reasonable, but for business to consumer sales, EU consumers may be discouraged from the sale if the VAT burden becomes theirs.
From 01 July 2021, the EU is implementing two schemes that will facilitate reporting e-commerce sales to the EU and save registration in each EU member state to which a business exports. Until then, and from 01 January 2021, a UK business has to decide whether to leave the VAT liability as the responsibility of the customer; arrange with a shipping carrier for them to handle the VAT; register in each EU state to which a business transacts; or, not sell to EU customers.
From 01 July 2021, where sales to EU consumers are through an online marketplace, the VAT and duty responsibility may end up lying with the online marketplace.
Exports to the rest of the world will continue as they do now, at the zero rate.
Import of goods
Following Brexit, UK businesses will be able to adopt Postponed Accounting on imports. The import VAT payable on imports from the EU and the Rest of the World will be processed on the business’ VAT Return. The business will pay and recover the VAT on the same VAT Return and save the cashflow issue of paying the import VAT at customs and only later recovering it.
It is necessary for the goods to be used in the business and to provide an EORI number and VAT number on the customs declarations.
Supplies of services
Supplies of services are split between supplies to businesses (B2B) or to consumers (B2C).
Business to business (B2B) supplies
The current general rule is that the supply takes place where the customer belongs. Where the supply is a cross border supply between the UK and the EU, the supply is zero rated by the supplier and the customer processes both the input and output on their VAT Return via the Reverse Charge mechanism.
Post-Brexit, the rules will remain the same. The supply is where the customer belongs and the supplier will accordingly zero rate their supply.
Business to consumer (B2C) supplies
The current general rule is that the supply is where the supplier belongs. Where the supplier is UK registered, any supplies to consumers belonging in the EU are charged at UK VAT rates.
Post Brexit, the rules change quite significantly, and from 01 January 2021 a UK supplier will zero rate any supplies of services to EU consumers. The supplier is not required to register or charge domestic VAT in the country of the consumer’s belonging.
Exceptions
There are a number of exceptions to the general rules for supplies of services and these cover: land related supplies; transport; events; broadcasting; telecommunications; digital services; and the hiring of goods. Please get in touch if you think any of these might apply and we can discuss any further changes.
VATMOSS and digital services
Digital services are defined as being either broadcasting, telecommunications, or electronically supplied services. Electronically supplied services encompasses any e-service that has no or only minimal human interaction. This would include, for example, the sale of digital content from a website; the sale of PDFS, pre-recorded videos, or software; and, downloads of games or music. These supplies are deemed to take place in the country of the consumer’s belonging and a supplier needs to pay the domestic rate of VAT.
The VATMOSS scheme helps ease the burden of reporting and paying EU domestic VAT on digital services by submitting just one Return to HMRC.
The expectation within the industry is that there will still be a way to process this through HMRC, but the guidance from HMRC at the moment states that from 01 January 2021 UK businesses will no longer be able to access VATMOSS through HMRC. Your final Return will cover sales only up to 31 December 2020 and needs to be submitted by 20 January 2021.
For sales made from 1 January 2021, you’ll need to register for either:
If you currently make supplies of digital services please get in touch with a member of the team to discuss what the next steps are for your business.
Thompson Jenner is here to assist you in interpreting the rules applicable to your business. Please get in touch with Marcus Worthington, or your usual contact in order to discuss how we might be able to help you.
