New VAT rules after Brexit: Triangulation of goods (part 3 of 3)

Now that we are well into 2021 and the dust has settled on Brexit, we’re all getting used to the new VAT implications between the UK and the EU.

Due to the complexities of the new VAT rules, we have prepared a three-part guide to provide you with details on the new rules when trading with the EU.  This is part three, you can also read:

Part one:  Exporting and importing (including changes to trade with Northern Ireland)

Part two: Buying and selling of services and digital services

Post Brexit changes to VAT – what are the VAT implications when looking at the triangulation of goods between the UK / EU and other countries?

This is where goods pass directly from a business’ supplier to the business’ customer within the EU/UK.  A few common scenarios are outlined below:

SCENARIO 1 – Supplier in the EU invoices company in the UK for goods and the UK company invoices a customer within another EU country – Goods are sent from the EU supplier directly to the customer in the other EU country

 

Brexit VAT triangulation

Previously, it was possible for a supplier in one EU country (say in Poland) to sell goods to a UK business customer (say in the UK) and ship the goods directly to the UK’s business customer in another EU country (say France) and the supply be zero-rated for VAT purposes.  This was on the basis that the supplier in the EU country (in this case Poland) would obtain the EU VAT number of its customer (in this case the UK).  However, now that the UK has left the EU, this will no longer be sufficient in order to zero-rate the supply as the VAT number a business has in the UK, is no longer an EU VAT number.

Therefore, for an EU based business (i.e. the Polish company) to zero-rate a sale to a UK business customer, the goods must either be exported (leave the EU), or it is an intra EU supply in which case the goods must leave the EU country of the supplier (in this case Poland), AND, the supplier must obtain their customer’s EU VAT registration number.

If the UK business is not registered for VAT somewhere in the EU, this requirement is not fulfilled and the supplier in the EU country (say the Polish company) would need to charge VAT in its EU country when invoicing the UK business.  Note that VAT charged in an EU country cannot be claimed on a UK VAT return (only UK VAT can be claimed).

There are 2 options to get round this:

  1. Register for VAT in the same country as the supplier

EU Supplier invoicing UK business

The UK business registers for VAT in the EU country of the supplier.  The supply from the EU would then be a supply to the UK business with VAT charged in its respective EU country.  The UK business could then claim back the foreign VAT on its VAT return in that respective country.

UK business invoicing EU customer

The invoice then raised by the UK business to its EU customer would be a zero-rated intra EU supply.

Example

  • Say, a supplier in Poland invoices the UK business for goods that they have sent directly to the UK’s customer situated in France.
  • The UK business registers for VAT in Poland.
  • The Polish supplier will invoice the UK business with Polish VAT charged.
  • The UK business can claim back the Polish VAT on a Polish VAT return.
  • The UK business can then invoice the customer in France as a zero-rated supply meaning that no VAT is due.

OR

  2. Register for VAT in the same country as the customer

EU Supplier invoicing UK business

The UK business would register for VAT in the EU Member State that the customer is based in.  The supply from your supplier in the EU would be a zero-rated intra EU supply to the UK business based on your EU VAT number where you have registered in your customer’s member state.

UK business invoicing EU customer

The UK business would have a domestic supply within your customer’s member state.  This means that the UK business would invoice the customer in the EU state with VAT charged applicable to the country that the customer is based in.

Example

  • Say, a supplier in Poland invoices the UK business for goods that they have sent directly to the UK’s customer situated in France.
  • The UK business registers for VAT in France.
  • Provided that the UK business supplies its French VAT number to the Polish supplier, the Polish supplier would zero-rate the supply to UK business – the net purchase would be recorded on your French VAT return.
  • The UK business would raise an invoice with French VAT to its French customer and this would be recorded on your French VAT return.

Once registered for VAT in an EU Member State you could then use the triangulation simplification where appropriate using your EU VAT number.

If you are looking to register for VAT in an EU member state, we can recommend a tax adviser within that state, to help with registering for VAT and the ongoing compliance requirements in that country.

 

SCENARIO 2 – Supplier in the EU invoices business in the UK for goods and the UK business invoices a customer OUTSIDE OF THE EU – Goods are sent from the EU supplier directly to the customer based OUTSIDE OF THE EU.

Brexit VAT triangulation

The EU supplier can zero-rate the sale to UK business as the goods would have been exported (left the EU).

You must retain evidence of the export.

 

SCENARIO 3 – Supplier based OUTSIDE OF THE EU invoices business in the UK for goods and the UK business invoices a customer within the EU – Goods are sent from the supplier based OUTSIDE OF THE EU directly to the customer based in the EU.

Brexit VAT triangulation

The supplier based outside of the EU can zero-rate the sale to UK business as the goods would have been imported.

You must retain evidence of the import.

 

SCENARIO 4 – Supplier based within the EU invoices business in the UK for goods and the UK business invoices a customer also based in the UK – Goods are sent from the supplier within the EU directly to the customer based in the UK.

Brexit VAT triangulation

The UK business in the middle will act as importer of record and account for VAT under the postponed accounting (like you would for the reverse charge mentioned above).

The UK business in the middle should then raise an invoice to its UK customer with UK VAT charged as appropriate. This is recorded on the UK VAT in the same way as any other domestic UK supply.

 

SCENARIO 5 – Supplier based within the EU invoices business in the UK for goods and the UK business invoices a customer based in Northern Ireland – Goods are sent from the supplier within the EU directly to the customer based in Northern Ireland.

Brexit VAT triangulation

This scenario is slightly unusual.

The UK business cannot register for VAT in Northern Ireland as it would already have a UK VAT registration – instead you would just use a ‘XI’ prefix for your VAT number rather than GB.

If the goods are delivered directly from the supplier in the EU to the UK business’ customer based in Northern Ireland, then the UK business would have to charge VAT from the same country as the supplier is based (it’s not an intra EU supply as the UK is no longer in the EU and it’s not an export as the goods go direct to Northern Ireland which is in the EU).

If the goods move through the UK and the supplier within the EU has export evidence showing that the goods entered the UK, the supplier based in the EU should be able to zero-rate the supply as an export even if the journey moves through the UK to Northern Ireland – you could get the freight company to invoice you separately for the two legs of the journey.

Alternatively, the UK business could register for VAT in the same country as the supplier within the EU.  The UK business would then be charged VAT within the same country as the supplier, which you could claim on your VAT return within that country.  The invoice you then raise to your customer in Northern Ireland is treated as an intra EU supply from the EU VAT registration that the UK business holds and will be zero-rated.

Alternative option?

If you have the situation where goods are moving from your supplier to your customer also in the EU, you could also consider setting up a warehouse in an EU country and registering for VAT in the same EU country.  This would be similar to ‘Scenario 1’ above, except the goods would actually be sent to your EU warehouse before being shipped to your customer.  Having a presence in the EU may make things easier when trading with your EU suppliers and customers, however, there is, of course, the additional cost of running the warehouse and additional shipping costs.

 

How can I find out more about the post Brexit changes to VAT?

The above cannot directly be relied upon and it is important that you seek confirmation/advice, relating to your business’ specific circumstances.  If you have any further queries about the new VAT rules between UK and EU or would like to know more, please contact us and our specialist tax team will be happy to help you.

There are also new VAT rules when importing and exporting goods  from / to the EU – you can read our guidance for these circumstances (part one) here and for buying and selling services from / to the EU (part two) here.

I would like to be Inspired

Start the conversation

To find out more about any of our services, please complete the form to request a callback.

Alternatively email or call us and speak to one of our expert team.






















    Please tick this box to confirm that you are happy for your data to be used as described in the Inspire Privacy Policy.