VAT Changes from 1 January 2021

Brexit VAT updates

**As the Brexit transition period has now been completed, this post has now been updated** 

Due to the complexities of the new VAT rules, we have prepared three new posts to provide you with guidance on the new rules when trading with the EU:

Part one: Exporting and importing goods (including the changes to trading with Northern Ireland) 

Part two:  Buying and selling services and digital services

Part three: Triangulation of goods

 

As Brexit negotiations continue, we still don’t know exactly what the situation is going to be for UK businesses who import or export goods to or from the EU, but all experts agree that – deal or no deal – there will be VAT changes from 1 January 2021.

The UK left the EU on 31 January 2020 and we are currently in a transition period up until 31 December 2020.

UK VAT registered businesses will need an EORI number that starts with GB  in order to import or export goods to or from the EU. If you don’t already have this, you should apply for it as soon as possible.

Here’s a couple of helpful links:

Are you ready? https://www.gov.uk/transition

Who can help? https://www.gov.uk/guidance/appoint-someone-to-deal-with-customs-on-your-behalf

We also advise that if you haven’t done so already, to talk to your business customers and suppliers in the EU and agree on what actions need to be taken so that business is as uninterrupted as possible.

Here’s a summary of the main changes, as with all the guidance that has been issued regarding the EU, it is subject to change depending on final conversations that are being had on Brexit.  We also expect further detailed guidance to be released in due course.

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 customers

  • Import VAT and possibly customs duty may be due.
  • Unless you have arranged to pay the import taxes in advance, the customer may be required to pay.
  • There will no longer be a Distance Selling Threshold, like there is currently 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.
  • If goods are being sold to consumers in Northern Ireland, the supply is treated as a UK supply and VAT is due.

If you export to businesses

  • From 1 January 2021, the supply is zero rated and there is no requirement to obtain the customers VAT number or complete an EC sales list, like you would currently.  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.
  • If you 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.

There’s further guidance here on exports, including a checklist to work through.

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).

  • From 1 January  2021, the supplier in the EU will zero-rate the supply to you in the UK.  You, as the UK company / customer, receiving the goods) will account for VAT under the new postponed accounting (deferred system) on your 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, as the UK business which is importing 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 return. 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.
  • From 1 January 2021, overseas retailers supplying goods to UK customers which are imported into the UK will account for VAT as follows:
    • Consignments of no more than £135 in value will be subject to import VAT at the point of sale and overseas retailer or, if used, online market place will be liable to account for this
    • Consignments exceeding £135 in value are subject to the normal rules at import, i.e. the overseas retailer will need to declare them to customs and pay import VAT, etc.

There’s further guidance here on imports, including a checklist to work through.

Supply of services to the EU

To consumers:

  • From 1 January  2021, UK suppliers of digital services to EU consumers should register in an EU member state of their choice to file a non-Union MOSS (mini one stop shop) return.

OR

  • Register for VAT in every member state where they have customers.
  • Otherwise, there are few changes to supply of services (currently!) and the reverse charge rules for B2B transactions will still apply as they do currently.

 

**As the Brexit transition period has now been completed, this post has now been updated** 

Due to the complexities of the new VAT rules, we have prepared three new post to provide you with guidance on the new rules when trading with the EU:

Part one: Exporting and importing goods (including the changes to trading with Northern Ireland) 

Part two:  Buying and selling services and digital services

Part three: Triangulation of goods

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