VAT rules relating to imports and exports to and from the EU will change.
Prior to Brexit and during the transition period
The UK was part of the EU VAT regime. This means a UK business didn’t have to register for VAT in each EU country, and instead applies a common set of rules in relation to VAT.
UK businesses were able to use various VAT simplifications such as distance selling thresholds and online VAT refund process.
Starting from 1st January 2021, UK businesses will treat EU countries like they already do countries outside the EU.
Trade with EU countries will be referred to as imports and exports – again, in line with trade with non-EU countries.
Note that the rules for Northern Ireland differ, and will be explained separately later on.
VAT on exports
Northern Ireland VAT and customs
Prior to Brexit/end of the transition period, VAT-registered businesses applied VAT through the EU reverse charge on intra-community acquisitions.
For goods imported from anywhere in the world, they have to account for import VAT. And as of 1 January 2021 this will include the countries within the EU.
The above applies only the value exceeds £135. For imports beneath this amount, there’s still a need to account for VAT but you must use the new e-commerce rules (even if the goods were not traded via e-commerce).See Imports £135 below
The VAT is applied at the VAT tax point
The VAT can be paid at the tax point if you wish, in which case monthly C79 reports should be obtained from HMRC, but most businesses are likely to make use of the postponed VAT accounting system. This is similar to the existing reverse charge mechanism, whereby VAT is accounted for as input and output VAT on the same VAT Return.
When it comes to VAT on services, sales of cross border purchases of services from one business to another (B2B) will remain subject to tax in the country of the customer (with some exceptions).
Therefore, the tax is generally accounted for as reverse charge in the destination country by the recipient of the service.
VAT on imports £135 and under
Online marketplaces (OMPs), where they are involved in facilitating the sale, will be responsible for collecting and accounting for the VAT.
VAT on imports with a consignment value of £135 or lower will have VAT applied at the point of sale, rather than applied as import VAT at customs. For B2C transactions this UK VAT will be charged and collected by the seller but for B2B transactions the VAT will be revere charged to the customer.
Essentially, this means foreign sellers sending goods into the UK will need to charge UK VAT and apply to be part of the UK VAT system when supplying goods with a value of £135 or less to end consumers (that is, non-VAT-registered individuals).
Businesses who receive goods of £135 or less will have to account for the VAT as part of the reverse charge procedure, declaring the VAT on their next VAT Return. Normal rules apply for the tax point, which is to say, it will usually be the invoice date.
Additionally, the recipient business should ensure the seller knows their VAT number, or the seller will have no choice but to treat it was a B2C sale and apply VAT.
The UK measures mirror those due to be rolled out in the EU from July 2021 under the EU 2021 VAT e-Commerce Package.
VAT on exports
Exporting goods to EU countries is treated like that to non-EU countries, which is to say, they should be zero-rated for UK VAT.
This will apply regardless of whether you’re exporting goods to a consumer (B2C), or to a business (B2B). In other words, there’s no longer any need to observe distance selling regulations, or to verify the VAT status of the recipient business.
This could mean businesses selling B2C to the EU need to register for EU VAT and appoint fiscal representatives depending on the requirements of the countries in which they sell.
When it comes to purchasing services, rather than goods cross-border, things continue much as they did before 1 January 2021.
Under the place of supply rules, B2B sales of services will continue to be generally subject to tax in the country of the customer and administered through reverse charge, with some exceptions. B2C sales of services will continue to be generally subject to tax in the country of the seller, again with some exceptions.
However, UK businesses that use the Mini One-Stop Shop (MOSS) system will need to register for the non-union MOSS and will no longer benefit from a €10k threshold before having to apply the place of supply rules.
This means many more businesses may be liable to VAT in the countries they sell digital services to and will need to register for non-union MOSS.
Northern Ireland VAT and customs after 1 January 2021
Northern Ireland isn’t like the three other countries that comprise the UK.
It will use the Northern Ireland Protocol to avoid a customs border (known as a hard border) between Northern Ireland and the Republic of Ireland (ROI).
There are different rules for the supply of goods and services:
Northern Ireland will remain part of the EU customs and VAT regime when it comes to trade with the Republic of Ireland and the rest of the EU. From a VAT perspective, sales and purchases will continue to be treated like domestic. There won’t be import VAT due on movements.
Services are excluded from the Northern Ireland Protocol, so sales of services between Northern Ireland and the Ireland/EU from 1 January 2021 will be treated like Third Country supplies.
Trader Support Service
The UK government will run a new Trader Support Service.
Negotiations are still taking place between the UK and EU to decide how goods will be moved between Northern Ireland and the UK with regard to customs and VAT. The rules above could be altered.
Conclusion on customs and VAT after Brexit
New customs and VAT requirements need attention.
You should immediately review supply chains and assess the potential implications, such as
seek help with customs
talk to the suppliers of any invoicing or accounting system you use and changes needed after Brexit
register for EORI numbers,
register for UK VAT if you are based outside the UK
make changes in VAT reporting obligations and payments.
What we can do for you:
VAT Representative, Rappresentante fiscale IVA
VAT Letter Inbox
VAT Returns and Filing