Henry and Banwell Chartered Accountants > News > VAT > Brexit Issues – No Deal Scenarios

Brexit Issues – No Deal Scenarios

  • Posted by: Michael Winkelmann
VAT & Imports/Exports

The following table highlights the main implications of a no-deal BREXIT for VAT.  This assumes that as at 31st December 2020 the UK leaves the EC with no favourable terms.

This is an ever changing position so the information below is based on the Government’s published information and my own interpretation of what this will mean for businesses.  It is not a definitive document and the information contained below should be re-checked as we get closer to January 2021.

A useful link for all businesses can be found here: https://www.gov.uk/brexit?gclid=EAIaIQobChMIzJa6ya_D5AIVRLTtCh3aVQQzEAAYASAAEgK07vD_BwE&gclsrc=aw.ds

In summary:

  1. The UK will leave the EU for VAT purposes at 24.00 on 31st December 2020. Until 1 January 2021 all existing systems will remain applicable to imports/exports.  With effect from 1st January then new (and some remaining transitional) rules will apply.
  2. The VAT liability of all general services supplied to non-UK business customers (B2B) will remain as per existing rules although there will no longer be a requirement to include any ‘reverse charge’ legends on invoicing to EC customers. These will remain ‘outside the scope of UK VAT’.

However, general services provided to any consumer (B2C) based outside the UK is subject to the existing VAT rules that apply to non-EC consumers.  This means that (for instance) consultancy, accountancy, tax advice, supplies of staff, advertising, copyrights and rights become outside  the scope of UK VAT, but many other services still remain standard rated.

The usual exceptions relating to financial services (see 4. below), to land related services, accommodation, events, hire of goods, transport services and intermediary services all still apply.

  1. MOSS (Mini One Stop Shop) ceases to apply for sales of digital services and UK businesses will have to apply for Non-Union MOSS VAT registrations (or register direct in each EC Member States where consumers belong). The use of the threshold (£8,818.00) will cease at 24.00 on 31/12/20.

The transition to the non-Union MOSS scheme is expected to be as follows:

    • The final MOSS return made to HMRC under the existing scheme is that ending 31 December 2020;
    • The due date for this return is 20th January 2021;
    • Digital sales made to EC consumers on or after 1 January 2021 will then be subject to EC VAT according to the consumer’s country. UK businesses must therefore either register in each EC Member State where the consumers are based, or register in one EC country to use the non-Union MOSS scheme. The deadline for registering in the EC to use the non-Union MOSS scheme is 10thof the month following the first month in which a supply is made, e.g. if a sale is made to an EC consumer on 2 January 2021 then the UK business should register by 10 February 2021;
    • It is not possible for UK businesses to register for the non-Union MOSS scheme in advance of 1/1/21!
  1. New legislation is with Parliament to allow for specified financial and insurance services that are supplied to all non-UK customers to be treated as ‘exempt with the right of recovery’.  Currently this treatment only applies to supplies made to non-EC customers.  The benefit of this change to UK businesses is that it will improve their right of VAT recovery on costs.  Financial and insurance services made to UK customers will remain exempt.
  2. Supplies under TOMS (Tour Operators Margin Scheme) will cease for non-UK activities. TOMS supplies relate to EC passenger travel, hotels, trips, excursions, tour guides and similar events packaged together for the benefit of a traveller. We expect the UK to maintain TOMS for UK businesses supplying such services that take place within the UK, but it will cease to be applicable for these activities enjoyed within the EC. We assume that UK businesses supplying such activities in an EC country will have to check whether local VAT registrations are required in those EC Member States.
  3. Margin Schemes can continue to be used for goods purchased in NI or the EC, when those eligible goods are sold to customers in NI, in GB or in the EC. However, when a NI business purchases stocks in GB then they will be unable to use the margin scheme for the onward sale.
  4. EC Sales Lists will cease to be required for periods after 31/12/20 although 2020 submissions should still be made into 2021.
  5. Intrastat declarations for Dispatches (goods leaving GB for the EC) will not be required for movements in 2021.

However, Intrastat declarations for Arrivals for goods entering GB from EC countries will have to be submitted until the end of 2021.

Note that shipments of goods entering and leaving Northern Ireland from, and to, the EC will continue to be subject to both Arrivals and Dispatches for Intrastat purposes. This applies to both GB and NI based businesses.  These shipments need to continue to be reported for Intrastat purposes until the end of 2025.

  1. Supplies of goods shipped outside of GB will become zero rated without the need for retention of any EC VAT number of the customer i.e. sales to consumers in the EC will be zero rated, rather than SR as at present. This is not the same for goods leaving from NI as existing EC rules will apply.
  2. EC distance selling rules for goods will cease, as goods sold to EC consumers will become zero rated when shipped from GB as exports. Remember that those goods will then have to be imported into the EC.

In July 2021 the EC will introduce an ‘OSS’ (One Stop Shop) which will enable non-EC (so GB) suppliers to VAT register in a chosen Member State and account for local VAT if wished. Alternatively, the EC consumer will be responsible for paying the shipping agent/transport provider for local VAT and duties and these providers will have to pay the taxes direct to the local Tax Authority.

However, we believe that goods sold to EC consumers from NI based businesses will still be capable of being sold under distance selling limits until perhaps 2025.

  1. A GB business will still need to VAT register in an EC Member State if it imports its own goods into the EC for onward sale, if it buys goods in the EC for sale within the EC, or if stocks of own goods are still stored in the EC. In some EC Countries a local VAT registration must be via a resident agent or fiscal representative from 2021.
  2. Simplifications for ‘triangulation’ will no longer apply to GB based businesses. Any GB businesses currently using the triangulation rules will need to VAT register in another EC Member State. Triangulation is the purchase of goods from an EC supplier in one country but where the goods are shipped direct to another VAT registered EC business customer in another EC country.

Those businesses based in NI will continue to be eligible to use triangulation simplification measures.

  1. Free circulation of goods will cease for supplies of goods between GB and the EC. This means that all goods entering GB (whether from EC Member States or from 3rd countries) will be liable to UK import VAT (following existing UK VAT liability rules).

As long as a VAT registered GB importer declares its EORI number on the initial customs entry (at the time that the goods enter GB) then it can declare the import VAT on the VAT return covering the arrival of the goods into GB.  It can then reclaim this import VAT on the same return, subject to normal rules on VAT recovery.

This measure will not only apply to purchases from the EC but also to third country imports.

Declarations will need to be made as follows:

    1. Box 7 for the value of all imports from any supplier outside the UK;
    2. Box 1 for the value of import VAT calculated on the import of goods declared in Box 7.
    3. Box 4 for the value of recoverable import VAT declared in Box 1.

A monthly import statement (like the current C79) will be available to download which will show the total of import VAT paid in the prior month.

  1. Excise and customs duty will also be payable on some goods entering from the EC. Tariffs are likely to be similar or the same as those classified at gov.uk/trade-tariff subject to WTO terms.
  2. Non-UK businesses selling goods online and which are shipped into the UK will have to VAT register in GB if a single parcel is beneath a value of £135. If the non-UK businesses is using an Online Marketplace (OMP) then the OMP is required to charge UK VAT and to act as the Seller.  The OMP becomes jointly and severally liable for the VAT. If the UK customer is VAT registered and has given its GB VAT number to the OMP, or to the non-UK seller, then it will not be charged UK VAT.  Instead it will account for import VAT as per 13. above. There will be no customs duty on consignments for less than £135.
  1. The current Low Value Consignment relief will be scrapped so all shipments of goods will become liable to normal UK VAT at importation. Currently parcels with a value of less than £15 are imported VAT free into the UK.
  2. Northern Ireland Protocol – VAT registered businesses based in NI will be given a new designatory EC VAT reference (possibly NI??). This will enable those businesses to buy and sell goods in the EC using existing EC simplifications and measures, rather than importing or exporting goods.

In addition to some of the measures applicable to NI that are included within the above paragraphs it is important to note the following:

    • Supplies of services from or to NI from GB suppliers will be treated as currently, in that they remain subject to UK VAT as domestic transactions;
    • Supplies of goods from GB to NI remain liable to UK VAT at normal domestic rates;
    • However, movements of own goods from GB to NI will become subject to UK VAT at normal domestic rates and require the owner to make a ‘self-declaration’ within their GB VAT Return. This VAT will be recoverable as input VAT, subject to normal rules;
    • Movements of own goods from NI to GB are not liable to any VAT (as at present);
    • Special rules will apply to supplies of goods between VAT Group members if it entails the goods moving from GB to NI.

NO DEAL BREXIT IMPLICATIONS TABLE FOR VAT

TOPIC Implications What to do
Services From 1/1/21:  
Supplies of services covered by the basic rules to non-UK customers Follow existing rules, so most services should be outside the scope of UK VAT for B2B.

B2C sales are only outside the scope if they are of a specific nature (consultancy, accountancy, advertising etc).

 
Land related services Current rules apply. Supplier likely to have to be VAT registered in EC country where land belongs.  
Admissions to Events Current rules apply. Supplier of event likely to have to be VAT registered in EC country where event is held.  
TOMS Will cease to apply to EC trips/activities.

Will remain in place for GB based activities.

Local EC VAT registrations may be required in the EC country where enjoyment takes place.  Need to check with the local EC Member State.
B2C Digital Sales of Services MOSS no longer applicable.

VAT still due in consumer’s EC Country so supplier will have to register for Non-Union MOSS.

Cannot apply until after 01/01/21.  Must register by 10/2/21 to account for VAT on sales made in January 2021.
Insurance and financial services All ‘specified’ services to EC customers become ‘exempt with the right of recovery’ and thus recovery of input VAT possible rather than being exempt income. Will need to review partial exemption methods post-BREXIT to ensure new rules are catered for. Better VAT recovery on costs for financial and insurance suppliers.
EC Sales Lists for GB suppliers

 

No longer required NI businesses must still complete them!

 

 

TOPIC Implications What to do
Goods

 

From 01/01/21:  
Call off stock, consignment stock, supply and install, and triangulation simplifications All easements will disappear for GB businesses.  Suppliers in NI will still benefit and will be given ‘EC’ VAT prefix to existing VAT numbers. All GB businesses will need to VAT register in an EC Member State where:

·      They retain stocks there; or

·      They buy goods in that country for sale in that country or for shipment to another EC country; or

·      They supply materials for installation in that country (supply and install).

Goods exported from GB into EC Will need to be imported into the EC Member State Ensure all contracts clarify who is the importer of those goods (ideally the customer);

The importer will need to pay import VAT when the goods enter the EC and any pay customs duty or excise duty appropriate to those goods;

Goods will need to be ‘cleared’ into free circulation within the EC so a shipping agent or appropriate person will need to complete all appropriate paperwork;

Import/export licences may be required for some goods.

 

Goods sold for delivery to any destination outside the UK Become zero rated sales. No need to retain evidence of EC VAT number of business customer.
EC Sales Lists No longer required for GB businesses. Ensure accounts packages that automatically complete these are amended – VAT codes in software will need to be changed.
Intrastat Returns Required for Arrivals of goods into GB until the end of 2021.

 

NI businesses have to declare Intrastat returns for both Arrivals and Dispatches until 2025.

Not needed for Dispatches for GB sellers.

 

NI businesses need to continue to submit both declarations.

 

TOPIC Implications What to do
Goods From 01/01/21:  
Margin Scheme for Art, collectors’ items and 2nd hand goods For GB businesses:

 

When goods sold to EC buyer, margin will become ZR not SR.

 

Margin Scheme expected to be amended to allow use of scheme for imported 2nd hand goods (as it is currently for works of art).

  • Goods sold under the scheme would have to be imported into the EC;
  • Buyer has to declare import VAT therefore the purchase becomes more expensive.
  • Margin scheme accounting systems will need to be amended.
  • Temporary movements to art fairs will need to ensure import VAT is suspended and appropriate licenses obtained.
  • Likely that goods imported from EC Buyer would be eligible for sale under the scheme, but business may need to opt into margin scheme as with current 3rd country imports. No confirmation of this seen yet!
Goods shipped from EC into GB Now ‘imports’ not ‘acquisitions’
  • Account for import VAT through UK VAT return (in Box 1 of VAT return);
  • Shipping agent or import agent needed to clear the goods into UK;
  • IMPORTER MUST BE ‘EORI’ REGISTERED and declare EORI number on customs clearance documents;
  • Payment of customs duties dependent on tariff classification of goods which must be identified at import;
  • Possible licences and quotas required depending upon the type of goods.

 

TOPIC Implications What to do
Goods From 01/01/21:  
Postal Goods under £135 If UK customer is VAT registered and provides OMP or overseas seller with a valid GB VAT number then it accounts for import VAT.
  • Customer accounts for import VAT in Box 1 of VAT return;
  • Likely that this will only work if customer’s EORI number is on the parcel!
  If UK Customer not VAT registered Then SUPPLIER or OMP required to VAT register in UK through a new digital online service and to then declare UK VAT on sale value. Import VAT is not paid separately.
EC VAT Refunds Online system no longer applicable Will have to make paper application to EC Member State as a ‘3rd country reclaim/13th VAT Directive claim’. These cover a different reporting period (July to June) and must be made in the local language of the country.