A VAT guide for businesses in case of a ‘no-deal’ Brexit

The government has released plans for what will happen, should the UK leave the EU on 29 March 2019, without reaching an agreement on the details of a future trading relationship; effectively a ‘no-Brexit’ deal.

Hopefully, the mutual interests of both parties involved will help in securing a negotiated outcome, however, a ‘no-deal’ situation remains a possibility. The following plans have been issued, should both parties fail to reach an agreement:

• The current VAT system in the UK will remain after it leaves the EU, as this provides vital funding for public services. Current VAT rules relating to domestic transactions will continue to apply.
• In a ‘no-deal’ scenario, the government will aim to keep VAT systems and procedures as similar as possible to current systems, with the main purpose of providing continuity for businesses. However, the VAT rules that apply to transactions between the UK and other EU countries will change, particularly when importing goods from the EU, exporting goods to the EU, supplying services to the EU and interacting with EU VAT IT systems.

Importing goods from the EU

The released plan outlines that the government will introduce postponed accounting for import VAT on goods brought into the UK, meaning that UK VAT registered businesses will be able to account for import VAT on their VAT return, rather than paying it when the goods arrive in the UK. The purpose of the postponed accounting system is to improve cash flow, so that businesses will no longer have to pay import VAT at the time of arrival and wait until their next VAT return to reclaim it.

This will apply to goods brought in from both EU and non-EU countries. Importers will no longer be required to pay import VAT when their goods arrive into the UK. The new rules will not affect any of the other import taxes. Such taxes will remain payable at the time of import.

VAT on goods entering the UK as parcels sent by overseas businesses

Low value consignment relief will be abolished and all parcels coming into the UK will be subject to UK VAT. These measures bring the UK in line with the rest of the world. The seller will be responsible for charging UK VAT to the UK customer at the point of sale. There is a requirement for such businesses to register for VAT in the UK and account for VAT via a technology based solution. It is proposed that each seller will be given a unique identifier. These guidelines are for parcels with a value of less than £135. This scheme will ensure that VAT can be collected on such transactions without becoming a burden to UK customers and businesses. The service will be available from early 2019, enabling businesses to familiarise themselves prior to registering.

Parcels with a value in excess of £135 will be subject to import VAT and duty (and any other import taxes) at the time of import.

VAT on vehicles imported into the UK

UK businesses will continue to use the NOVA (notification of vehicles arrivals) system to notify HMRC that a vehicle has arrived in the UK from abroad. Import VAT will be due on the importation of vehicles from the EU.     

Exporting goods to EU consumers

Distance selling will no longer apply to UK businesses. The sale of goods to consumers will be treated as an export and will be zero rated provided certain conditions are met. Under current EU rules, the import taxes will be due on arrival into the EU Member State.

UK businesses exporting goods to EU businesses

Such transactions will be treated the same as goods entering the EU from non-EU countries – the sale will be zero rated but the customer will pay import VAT and customs duties when the goods arrive. There will no longer be a requirement to complete an EC Sales List.

The zero rating will apply providing that the seller retains proof of export and the goods are exported within specified time limits. UK businesses should check the relevant import VAT rules in the EU Member State to ensure that their customers understand the new rules.

UK businesses selling their own goods in an EU Member State to customers in that Country

This covers all UK businesses that are using fulfilment centres and such like in the EU. Such businesses would be required to register for VAT in each Member State concerned and charge VAT at the local rate in that Member State.

Place of supply rules for UK businesses supplying services into the EU

The current VAT ‘place of supply’ rules will continue to apply to UK businesses. These rules determine the country in which you need to charge and account for VAT.

For B2C supplies of digital services, the place of supply will be where the customer resides. This means that UK businesses may have a liability to register for VAT in the EU States where digital services are being sold directly to the individual.

It is anticipated that there may be changes to the input tax deduction rules for businesses supplying insurance and financial services to EU customers. HMRC will advise on this in the coming months.

EU Tour Operators Margin Scheme

HMRC are working closely with tour operators to minimise the impact should the UK leave the EU with ‘no-deal’.

Interacting with EU VAT IT systems

In the event of a ‘no-deal’ outcome, the UK will no longer be part of EU VAT IT systems.

MOSS – There will be the introduction of the MOSS Non-Union Scheme and businesses will register for that via a Member of the EU.

EU VAT refund scheme – Businesses can continue to claim VAT refunds from other EU Member States but they will use the process for non-EU businesses. This claim process varies from State to State.

Using VIES on the EU Commissions website to validate EU VAT numbers – This database will continue to be accessible by all businesses. HMRC are in the process of developing a tool to ensure that UK VAT numbers can be verified.

Although the UK government manifests to be in the process of arranging trade deals with EU Commission, it is important that businesses understand the potential impact of a ‘no-deal’ Brexit and start to take the relevant mitigation steps.

There has been strong opposition from the EU’s chief Brexit negotiator Michel Barnier to the main parts of the PM’s proposal for a future trade deal. Does this mean that a ‘no-deal’ Brexit is looming?

Should you have any questions about this blog, please do not hesitate to contact me.