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 one, you can also read:
Post Brexit changes to VAT – what are the new rules for buying and selling goods from / to the EU?
EXPORTING – Selling goods to the EU (now referred to as EXPORTING, which was previously only used for goods exported outside of the EU)
If you export to individual consumers:
Import VAT and possibly Customs Duty may be due at the borders in the EU country.
Unless you have arranged to pay the import taxes in advance, the customer may be required to pay.
There is no longer a Distance Selling Threshold, like there was previously for e-commerce sellers of goods to EU countries (under the old rules the Distance Selling Threshold is £70,000). This is the limit where if you sold goods exceeding this amount that you would need to be registered in the individual countries you sold goods to.
What if goods are being sold to consumers in Northern Ireland?
If goods are being sold to consumers in Northern Ireland, the supply is treated as a UK supply and VAT should be charged in the UK.
If you export to businesses:
The supply is zero rated and there is no requirement to obtain the customer’s VAT number or complete an EC sales list (ESL), like you would previously. You must however, retain evidence of the export. There are also time limits on when the export should take place.
When goods reach the business customer in the EU, the customer will need to account for import VAT and possibly import duty, in their respective EU country.
It should be noted that if your business will be making certain declarations or getting a customs decision in the EU you would also need to apply for an EU EORI number. To obtain this, you should contact the customs authority in an EU country. This is separate to the UK EORI number which will begin with GB.
What if goods are being sold to a business customer in Northern Ireland?
If a UK business sell goods to a business customer in Northern Ireland, they are treated as an export, however no export declaration is required, and UK VAT is charged.
IMPORTING – Buying goods from businesses in the EU (now referred to as IMPORTING, which was previously only used for goods imported from outside the EU)
The supplier in the EU will zero-rate the supply to the business customer in the UK. The UK business receiving the goods will account for VAT under the new postponed accounting (deferred system) on its VAT return – effectively the same as acquisition tax / under the reverse charge. This is instead of having to pay import VAT at the point of entry as you have to do at present on imports from the rest of the world.
You do not have to apply to use the postponed accounting for import VAT, you just need to ensure you tick the relevant boxes on the customs declaration.
If you are using the postponed accounting for import VAT, you, as the UK business which imports the goods would record the VAT on box 1 of your VAT return and provided that your business in the UK can claim the VAT on the purchase (i.e. it is for business use, not exempt etc), you can also reclaim the VAT in box 4 of your VAT return. In other words, there is £nil net effect on the VAT due. The net amount will be recorded in box 9 as well as box 7.
You must include your VAT registration number on your customs declaration.
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 buying and selling services from / to the EU – you can read our guidance for these circumstances (part two) here and for the triangulation of goods between the EU and other countries (part three) here.