The Chartered Institute of Taxation (CIOT) and the Institute of Chartered Accountants in England and Wales (ICAEW) have issued the first in a series of fact-sheets on the impact of the UK’s withdrawal from The European Union. The main purpose of the first fact-sheet is to outline the purpose and effect of The Taxation (Cross-border Trade) Act 2018, which received Royal Assent on 13 September 2018.
The government has published the first 25 of a series of technical papers on how the UK will be affected by Brexit if on 29 March 2019 no deal with the EU has been reached. The “no deal” scenario is possible if the UK government and the EU cannot agree terms and the UK therefore becomes a third country at 11pm GMT on 29 March 2019 without a Withdrawal Agreement or a framework for a future relationship in place between the UK and the EU.
A no-deal Brexit could mean lorry queues building up at ports as the previously smooth import and export of goods in the Single Market ends, to be replaced by new customs checks. Goods which are meant to arrive ‘just in time’ or are perishable, could be subject to delay, affecting stocks, production and ultimately sales.
Below is a summary of the main VAT issues. More detail on trade, import and export procedures can be found here.
VAT before 29 March 2019
Under current VAT rules:
- VAT is charged on most goods and services sold within the UK and the EU.
- VAT is payable by businesses when they bring goods into the UK. There are different rules depending on whether the goods come from an EU or non-EU country.
- goods that are exported by UK businesses to non-EU countries and EU businesses are zero-rated, meaning that UK VAT is not charged at the point of sale.
- goods that are exported by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds.
- for services the ‘place of supply’ rules determine the country in which you need to charge and account for VAT.
VAT after 29 March 2019 if there’s no deal
The UK will continue to have a VAT system after it leaves the EU. The VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now.
If the UK leaves the EU on 29 March 2019 without a deal, the government’s stated aim will be to keep VAT procedures as close as possible to what they are now. However, if the UK leaves the EU with no agreement, then there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU member states.
UK businesses importing goods from the EU
In a no deal scenario the current rules for imports from non-EU countries will also apply to imports from the EU. Customs declarations would be needed when goods enter the UK (an import declaration). This means customs duty may also become due on imports from the EU customs checks may be carried out and any customs duties must be paid – import VAT would be payable on such goods.
If the UK leaves the EU without an agreement, the government will introduce ‘postponed accounting’ for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and also non-EU countries. More detail on these processes can be found in the ‘Trading with the EU if there’s no Brexit deal’ technical notice. More guidance setting out further detail on accounting and record keeping requirements will be issued in due course.
Goods entering the UK as parcels sent by overseas businesses
VAT will become due on goods sent as parcels from overseas busniesses. If the UK leaves the EU without an agreement then Low Value Consignment Relief (LVCR) will no longer apply to any parcels arriving in the UK. For parcels valued up to and including £135, the Government states that a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HM Revenue & Customs (HMRC) digital service and account for VAT due.
For goods worth more than £135 sent as parcels VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries.
Exporting goods to the EU
UK businesses would need to plan for customs and VAT processes, which will be checked at the EU border. So they should check with the EU or relevant Member State the rules and processes which need to apply to their goods.
Exporting goods to EU businesses –VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses, but will not be required to complete EC sales lists. UK businesses exporting goods to EU businesses will need to retain evidence to prove that goods have left the UK, to support the zero-rating of the supply. The required evidence will be similar to that currently required for exports to non-EU countries with any differences to be communicated in due course.
Import VAT at the rate due on the Member State and customs duties will be due when the goods arrive into the EU. UK businesses nwoudl need to check the relevant import VAT rules in the EU Member State concerned.
Exporting goods to EU consumers -if the UK leaves the EU without an agreement, the VAT distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate sales of goods to EU consumers.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties becoming due when the goods arrive into the EU.
Supplying services into the EU from the UK
If the UK leaves the EU without an agreement, the main VAT ‘place of supply’ rules (which determine the country in which you need to charge and account for VAT) will continue to apply in broadly the same way that they do now, with areas of potential change flagged below.
Digital services to non-business customers – the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU Member State within which your customer is a resident.
Insurance and financial services – if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed.
Tour Operators -businesses that buy and sell on certain travel services that take place in the EU use the Tour Operators Margin Scheme. HMRC state that they will continue to work with businesses to minimise any impact.
VAT Mini One Stop Shop (MOSS)
MOSS is an online service that allows EU businesses that sell digital services to consumers in other EU member states to report and pay VAT via a single return and payment in their home Member State. Non-EU businesses can also use the system by registering in an EU Member State.
If the UK leaves the EU with no agreement, businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU.
Businesses that want to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU Member State. This can only be done after the date the UK leaves the EU. The non-union MOSS scheme requires businesses to register by the 10th day of the month following a sale. You will need to register by 10 April 2019 if you make a sale from the 29 to 31 March 2019, and by 10 May 2019 if you make a sale in April 2019.
Alternatively, a business can register for VAT locally in each EU Member State where sales are made.
EU VAT refund system
If the UK leaves the EU without an agreement, then UK businesses will continue to be able to claim refunds of VAT from EU member states but in future they will need to use the existing processes for non-EU businesses.
EU VAT Registration Number Validation – accessed via the EU Commission’s website
If the UK leaves the EU without an agreement, UK businesses will be able to continue to use the EU VAT number validation service to check the validity of EU business VAT registration numbers. UK VAT registration numbers will no longer be part of this service. HMRC is developing a service so that UK VAT numbers can continue to be validated.
Businesses in Northern Ireland importing and exporting to Ireland
There is no detail on trade between Northern Irleand and Ireland except that the paper states that in a no deal scenario, the UK would ‘stand ready to engage constructively to meet our commitments and act in the best interests of the people of Northern Ireland’.