Great Britain (GB) is now subject to “third country” rules in terms of trade with the European Union (EU). Buying and selling goods and services to and from customers and suppliers located in the bloc is now fraught with complicated rules, and the potential cost of getting things wrong is very high. There are reports of EU-based customers shunning UK businesses due to the hassle of complying with import regulations, meaning that revenue is lost permanently.

Note. There are different rules for Northern Ireland (NI).

We’ve gathered case studies from our clients’ real experience to illustrate the steps to follow in a variety of situations.

A GB retailer sells goods on her website to private customers in the EU

Sarah owns a clothes shop in Sheffield and is registered for UK VAT. She also sells goods on her website. She arranges for the goods to be shipped to the private homes of her customers. She has received orders from customers who live in three different EU countries. How does she deal with VAT for these sales?

Pre-Brexit

Until 31 December 2020, Sarah would have charged UK VAT on her EU sales. This would produce a good result if some of her sales were for children’s clothing, which are zero-rated under UK VAT law. This is not always the case in some EU countries. The exception would have been if Sarah’s annual B2C sales in any EU country exceeded either €35,000 or €100,000 on a calendar year basis (each EU country chooses one of these thresholds). She would then have registered for VAT in that country under the “distance selling” rules-and stopped charging UK VAT. She would have charged the VAT rate relevant to that country, completing local returns and paying tax. The distance selling rules are no longer relevant to a GB-based business following the end of the transitional period. They are still relevant to a business based in NI.

Tip

Any GB business registered for VAT in an EU country due to the distance selling rules should have cancelled its registration on 31 December 2020, unless it had another reason to stay registered, e.g. if it holds call-off stock to sell in that country.

Post-Brexit – UK VAT returns

Sarah’s sales are now zero-rated as far as UK VAT is concerned. Since 1 January 2021, any sale of goods where the goods leave GB is zero-rated for VAT purposes, the exception being if they are shipped to NI. There is no difference between EU and non-EU sales as they are all now classed as exports. Sarah will record the sales in Box 6 of her returns, the outputs box.

Arrival in the EU

Sarah’s biggest challenge will be the arrival of the goods in the EU. She will probably use a customs agent or parcel post operator to handle the shipments on her behalf. Her customer will be recorded as the importer, otherwise Sarah will need to register for VAT in each EU country where she sells goods. But Sarah must ensure that import VAT is paid, otherwise the goods will not be allowed into free circulation. She must also check if customs duty is payable under rules of origin, e.g. where the clothes were manufactured outside the EU before they arrived in the UK and are then shipped to the EU. We have heard of many situations where the goods are delayed because of non-payment of VAT on arrival into the EU, often meaning that the customer must contact their local post office and arrange to pay the VAT so they can be released into free circulation. This is not a good result in terms of customer service, so Sarah must closely liaise with her agent to avoid this problem.

TRAP

The VAT value for import purposes includes customs duties. So, for example, £100 of clothes subject to £10 customs duty would be an import value of £110.

EU changes – July 2021

Sarah should be aware of changes taking place in the EU, scheduled for 1 July 2021, as some sales will then be simpler for VAT purposes. From this date, she can register in an EU country of her choice for what will be known as the import one-stop shop (IOSS), paying sales VAT on the goods she sells into the EU rather than import VAT. She will complete a single return each month (irrespective of how many EU countries she makes sales in) and submit it online to the tax authority where she is registered. However, this will only be an option if the shipment value is €150 or less. This will also be the duty threshold that will apply in the EU as well, replacing low value consignment relief, which is a much lower figure of €22.

Tip

It will make sense for Sarah to register for the IOSS in an EU country where English is commonly spoken, e.g. in Ireland, Malta or the Netherlands.

Conclusion

Sarah must ensure that VAT and possibly duty is paid when goods arrive in the EU country where her customers will receive them. She should liaise with her agent on this issue. The VAT rates will be different from the UK, for example, not all EU countries have zero-rating for children’s clothing, and standard rates currently vary between 17% and 27%. This will have a big impact on her profit margin if she sells goods on a VAT-inclusive basis.

A GB business sells goods to a VAT-registered customer in NI which will then sell them to customers in both NI and Ireland.

Spiky Bikes Ltd.is a VAT-registered UK business, which manufactures bikes and sells them to a range of wholesalers in the UK, including NI. It has received an order from Belfast Spiky Bikes Ltd. for 100 bikes, which the latter will sell to retailers in both NI and Ireland. What are the VAT issues with this deal?

Northern Ireland Protocol

England, Scotland and Wales are no longer part of the single market and are collectively described as Great Britain (GB). All movements of goods between GB and the EU are therefore classed as imports and exports. However, NI is still part of the single market in order to create a smooth trading border with Ireland. This means that a business in NI still makes EU acquisitions and despatches of goods when they are bought from and sold to VAT-registered customers in the EU.

Tip

A business in NI involved with EU trade should apply for an “XI” EORI number from HMRC, which it will quote as its unique reference number for the movement of goods in the EU.

TRAP

A business in NI still needs to complete EU Sales Lists for its sales of goods but not services to VAT-registered customers in the EU. It must also complete both Intrastat arrivals and despatch returns if it has exceeded the relevant thresholds. A GB business only needs to complete Intrastat arrivals returns since 1 January 2021, Intrastat despatch returns are no longer needed.

Imaginary border in Irish Sea

There is now an imaginary customs border between GB and NI, somewhere in the Irish Sea. This means that goods moving between GB and NI might be subject to customs duty if they are deemed to be “at risk” of being moved into the EU, which would include Ireland in most cases. However, if goods are manufactured in the UK, as is the case with the bikes made by Bikes Ltd, they will hopefully avoid customs tariffs as part of the UK/EU trade deal, i.e. as there are no problems with rules of origin issues.

Customs declarations

The aim of the new customs border is to prevent goods arriving duty free in the EU from GB by the back-door route of NI. This means that customs declarations and other paperwork is needed for movements of goods between GB and NI. However, UK VAT is still charged as normal as a supply is taking place within the UK.

TRAP

Belfast Spiky Bikes Ltd. will sell some of the bikes purchased from Spiky Bikes Ltd.to customers in Ireland. At the time of shipment from GB, it will be unknown how many of the 100 bikes will go to Ireland, so all of them are at risk of being moved into the EU.

To help with the customs paperwork and procedures of moving goods between GB and NI, Spiky Bikes Ltd. should register with the Trader Support Service (TSS), which is funded by the government as a resource to help ensure there is smooth trading of goods between GB and NI. Follow this link to register for TSS. Spiky Bikes Ltd. will also need to identify the relevant commodity code for its goods. Check how to find out the correct commodity code for your goods.

What about own stock?

It is possible that Spiky Bikes Ltd. might rent a warehouse in NI and make an internal transfer of stock from GB to NI. This also creates challenges.

Example

100 bikes with a total value of £100,000 are transferred from Birmingham to Belfast. Spiky Bikes Ltd. must do a reverse charge entry on its next VAT return, i.e. output tax of £20,000 is declared in Box I and the same amount is claimed as input tax in Box 4. The Box 4 entry is made because the company will sell on the bikes in NI. In other words, taxable rather than exempt sales are being made.

TRAP

Customs declarations are still needed for the stock transfer, even though there is no customer in place for the goods when they cross the Irish Sea.

Tip

Spiky Bikes Ltd. will need an XI EORI number as it is bringing goods into NI. However, it must already have a GB EORI number before it can apply for one. It takes about four days to get an XI number once an application has been sent.

Conclusion

Spiky Bikes Ltd. will charge UK VAT on the bikes shipped to NI, on the same basis as sales to a GB customer. Customs declarations must be made due to the imaginary customs border in the Irish Sea, but the movement will hopefully avoid tariffs. Spiky Bikes Ltd. should register with the TSS for help with the declarations.

A GB business sells goods to another GB business but arranges for them to be directly shipped to a business in an EU country.

Drills Ltd manufactures drills at its GB factory and sells them to UK wholesalers. It has no overseas customers. However, one of its customers, Buy Ltd, has asked Drills Ltd to directly ship an order to its own customer in Ireland. This customer is VAT registered in Ireland. What is the VAT position here?

Who is the importer and exporter?

For any supply of goods that starts in GB and goes to another country (apart from to NI), there can only ever be one exporter. And that person or business will be recorded on the export declarations and paperwork that must be completed when the goods leave the country.

The same principle applies when the goods arrive in the other country, i.e. there can only be one importer which will be recorded on the import declarations that are submitted to the customs authorities in that country.

Tip

In some cases, the importer and exporter will be the same business, e.g. a business might transfer stock from its warehouse in one country to another, so that it is ready
for resale in the other country. This is known as a “consignment stock” arrangement.

Supply chain

Drills Ltd has a contract to supply goods to Buy Ltd. This is a GB-to-GB sale and the goods are standard-rated. Drills Ltd will therefore charge UK VAT on the sales invoice issued to Buy Ltd. The latter company is the exporter of the goods to Ireland, based on a contract with its Irish customer. The supply by Buy Ltd will be zero-rated for UK VAT purposes as an export of goods. Buy Ltd can claim input tax on the purchase invoice it has received from Drills Ltd.

TRAP

It is crucial that Drills Ltd gives shipping documents to Buy Ltd, which it must retain as proof of export to support its zero-rating.

Transport service

Drills Ltd is providing a transport service to Buy Ltd for arranging the shipment of goods between GB and Ireland. It might charge an extra fee for this service which, since 1st January 2021, will be zero-rated because it relates to the movement of goods between GB and a country outside the UK. Until 31 December 2020, transport services supplied to a UK business were only zero-rated if they related to the movement of goods between the UK and a non-EU country.

Arrival in Ireland

When the goods arrive in Ireland, the declared importer will either be Buy Ltd or the Irish customer. The import value for duty and VAT purposes will be the amount charged by Buy Ltd to the Irish customer.

The advantage of the Irish customer being the importer is that they will hopefully be VAT registered in Ireland and have an EU EORI number. The payment of Irish VAT can either be deferred on arrival if Ireland adopts postponed VAT accounting or paid upfront and claimed as input tax on its next return. Both options assume that the Irish customer is making taxable supplies, i.e. there is no potential input tax block with partial exemption.

If the Irish customer refuses to act as importer and insists on taking ownership of the goods only when they arrive at their premises, Buy Ltd is making a supply of goods in Ireland and will need to register for Irish VAT, also getting an EU EORI number. This takes extra time and creates a cost that is best avoided if possible.

Tip

Fortunately, Ireland does not insist on a non-EU business having a local tax representative when it registers for VAT. This is not the case for many EU countries.

Twist to the tale

What would be the position if Buy Ltd only took ownership of the goods when they arrived in Ireland? In this situation, Drills Ltd would effectively be the exporter and Buy Ltd would need to register for VAT in Ireland and be declared as the importer. It would then raise a domestic sales invoice and charge Irish VAT for the onward sale to its customer in Ireland. However, this outcome is unlikely to happen in practice.

Conclusion
Drills Ltd is making a domestic sale of goods and will charge UK VAT Buy Ltd will be declared as the exporter when the goods leave GB, making a zero-rated sale for UK VAT purposes. It makes sense for the Irish customer to be declared as importer when the goods arrive in Ireland, otherwise Buy Ltd will need to register for VAT and EORI in Ireland, which will create extra costs.

Follow up material: VAT Notice 744B

A UK business sells goods located in one EU country to a business in another EU country.

Acorn Ltd is a VAT-registered UK business. It has a Dutch subsidiary company, Acorn Holland Ltd, that rents a warehouse and owns stock in the Netherlands and is VAT registered there. Acorn Ltd has received an order for goods from Italy Lighting Ltd, based in Rome, but the goods will be shipped from the Netherlands to Italy, i.e. an intra-EU movement of goods. What is the VAT position here?

Before the end of the UK’s transitional deal with the EU on 31 December 2020, this type of deal would have been straightforward for VAT purposes because of a simplification measure known as “triangulation”. In other words, A invoices B for a sale of goods and B invoices C, but the goods go directly from A to C. The conditions of triangulation were that A, B and C were in different EU countries and were all VAT registered in their countries. In this situation, A made a zero-rated sale to B, and B made a zero-rated sale to C. The VAT was then dealt with by C – accounting for acquisition tax on their own VAT return and claiming input tax.

The UK’s departure from the EU means that triangulation is no longer an option for a GB-based business.

However, triangulation is still relevant to a business based in NI because it is still a member of the EU’s single market.

Triangle is broken

The first challenge is to consider the VAT position of Acorn Holland Ltd. The company is making a sale of goods to a non-EU business and the goods never leave the EU. The company must therefore charge Dutch VAT on its sale invoice.

If Acorn Holland Ltd directly invoiced Italy Lighting Ltd, this would be a zero-rated sale for Dutch VAT purposes because it would be able to include an EU VAT number on its sales invoice relevant to the country where the goods are shipped, i.e. Italy. The Italian customer would then deal with the VAT on its Italian VAT return by doing a reverse charge entry.

Dutch VAT registration?

The commercial reality is that Acorn Ltd is either taking ownership of goods in the Netherlands, to sell on to the Italian customer or, less likely, taking ownership of the goods in Italy.

Acorn Ltd must therefore register for VAT in either the Netherlands or Italy – we’ll assume the Netherlands. It is making taxable supplies of goods in that country where it takes ownership and sells them on. Its onward sale to Italy Lighting Ltd will be zero-rated as an intra-EU sale of goods – the customer accounting for the reverse charge in Italy on its own VAT return.

Tip

Acorn Ltd will be able to claim input tax on any expenses it incurs in the Netherlands if it is registered for VAT there.

Commission arrangement?

Is there another way of structuring the deal? It might be possible for Acorn Holland Ltd to directly invoice Italy Lighting Ltd for the goods, which would be a zero-rated sale as explained above. Acorn Ltd could then raise a commission invoice to Acorn Holland Ltd for its share of the profits. This commission will be outside the scope of UK VAT under the general B2B rule that applies to most services. The place of supply is the Netherlands and Acorn Holland Ltd will account for the VAT on its own return by doing a reverse charge entry.

TRAP

The commercial challenge here is that Acorn Holland Ltd might not have a sales contract or account with Italy Lighting Ltd. This could raise questions from the customer as to why a Dutch company is issuing a sales invoice, when it expected an invoice from a UK company.

Unfortunately, outcomes that produce a sensible VAT result can sometimes cause commercial problems.

Conclusion

Acorn Ltd must register for VAT in the Netherlands, as it seems to be buying stock in that country and selling it on. This outcome could be avoided if the goods are sold directly by Acorn Holland Ltd to Italy Lighting Ltd, with the UK company charging its Dutch subsidiary a commission, which would be outside the scope of UK VAT as a B2B supply of services.

Further read:

HMRC Brexit Guidance

VAT Notice 741A

Goods are shipped from the UK to a Polish business, but the invoice is issued to a French company.

Berry Ltd sells picture frames and is VAT registered in the UK. It has taken an order from French Frames Ltd based in Paris, but the customer has asked that the goods are directly shipped to their business customer based in Poland. French Frames Ltd will pay a higher price for the goods because of the delivery arrangement. What are the VAT issues?

Triangulation withdrawn

As explained in earlier case studies, this arrangement would have had a simple VAT outcome before 1 January 2021 because of the EU simplification process known as triangulation. The sales invoice from Berry Ltd to French Frames Ltd would have been zero-rated, as would the onward invoice from French Frames Ltd to its VAT-registered customer in Poland. The Polish customer would have accounted for the VAT.

Tip

Triangulation is no longer an option for a GB business, so the challenge is to consider the supply chain and how VAT evolves at each stage.

The sale by Berry Ltd is zero-rated for UK VAT purposes because the goods are being exported from GB. Since 1 January 2021, there is no difference between a sale of goods to an EU or non-EU country, i.e. it will be a zero-rated export applies in all cases. The sale is recorded in Box 6 of the UK VAT return as an output. The company must retain proof of export to support zero-rating.

Tip

Don’t forget that since 1 January 2021 a GB based business will no longer have any entries in Boxes 2, 8 and 9 of its VAT returns. These boxes were only relevant to EU trading until 31 December 2020. The exception is a business based in NI, which will still use these boxes as a member of the EU’s single market.

Goods arrive in Poland

The main challenge is to consider the VAT and duty issues when the goods arrive in Poland. This is an import of goods into Poland from outside the EU, subject to Polish VAT on arrival.

TRAP

Customs duty might also be payable if the goods were manufactured outside the EU when they arrived in the UK before being exported to the EU, due to the “rules of origin”.

The best outcome for Berry Ltd would be for the Polish customer to be recorded as the importer when the goods arrive in Poland, paying the VAT and claiming input tax on their next Polish VAT return. The invoice raised by the French company to the Polish customer will be outside the scope of French VAT because the goods never enter or leave France. This means that the Polish customer does not need to do a reverse charge calculation on its VAT return because the supply does not relate to an intra-EU movement of goods.

Tip

It is important to recognise that a customer buying goods will only be charged VAT once on any supply. If an outcome produces two VAT charges, then something has gone wrong! In this situation, the Polish customer only pays import VAT when the goods arrive in Poland.

What happens if the Polish customer refuses to act as the importer when the goods arrive in Poland? This will mean that the supplier must be recorded as the importer and will need to pay import VAT on arrival. So, French Frames Ltd must register for VAT in Poland, claim input tax on the import, making an onward sale of goods to the Polish customer which will be subject to Polish VAT. This is complicated and an administrative burden, hence why it is much simpler it the Polish customer agrees to be the importer.

Tip

The better option might be for Berry Ltd to deliver the goods to French Frames Ltd in Paris, i.e. an import of goods into France, with French Frames Ltd paying French VAT and claiming input tax. Its onward sale to the Polish business will then be zero-rated as an intra-EU deal. The Polish VAT problem has gone away.

Conclusion

The deal will work well as long as the Polish business agrees to be declared as the importer when the goods arrive in Poland. It can pay Polish VAT and reclaim input tax on its domestic VAT return. But if the customer refuses, it will mean a Polish VAT registration is necessary for   

French Frames Ltd, which might make the deal unprofitable. It might be better for the goods to firstly be delivered to France instead.              

Follow up material:   

HMRC Brexit guidance: exports

HMRC guidance: rules of origin

A business transfers stock to an EU business, which “calls off” the stock when it is required 

Ice Cream Ltd is based in GB and manufactures ice cream products. It regularly transfers stock to Belgium, where it is stored at the premises of its Belgian customer Cornet Ltd, which is registered for VAT in Belgium. The latter “calls off” stock when it is needed, and Ice Cream Ltd issues a sales invoice. How does VAT work in this situation?

If a UK business holds stock in an EU country, this has always required the business to be registered for VAT in that country so that it can charge domestic VAT on future sales when orders are received. This situation is known as a consignment stock arrangement.

However, there were different rules in place until 31 December 2020 if the goods were being sold to a EU customer whose identity was known at the time of arrival into that country, known as a call-off stock arrangement. The customer had to be VAT registered in the EU country where the goods were sent. It meant that the UK business did not need to register for VAT there. The customer instead dealt with local VAT on their own returns, i.e. accounting for acquisition tax and claiming input tax each time it called off stock.

 TRAP 

This is an EU simplification process, intended to avoid the need for a business to register for local VAT with a call-off stock arrangement.

But it is no longer available to a GB business since 1 January 2021, except for businesses based in NI that transfers call-off stock to the EU. NI is still part of the EU’s single market.

Ice Cream Ltd must now make an import declaration and pay Belgian VAT when the goods arrive, i.e. because this is an import of goods into Belgium from outside the EU. It owns the goods when they arrive. Ice Cream Ltd will need an EU EORI number.

 Tip 

There will be no UK VAT on the transfer because it is an export of goods out of GB, i.e. it is a zero-rated sale.

Ice Cream Ltd must register for VAT in Belgium and charge Belgian VAT to Cornet Ltd each time a call-off is made. The sales invoices will record its Belgian VAT number so that Cornet Ltd can claim input tax. But Ice Cream Ltd can also reclaim the import VAT it paid when the goods arrived in Belgium.

In effect, stock has been transferred from Ice Cream Ltd.’s UK VAT number to its Belgian VAT number and is then sold on to Cornet Ltd.

Ice Cream Ltd will also be able to claim input tax on any other expenses it incurs in Belgium, if the VAT is correctly charged by the Belgian supplier and a claim is not restricted by any input tax blocks which apply there.

Tip

Many services supplied to Ice Cream Ltd by Belgian suppliers will not be subject to Belgian VAT under the general B2B rule that applies for most services. This means the place of supply will be the UK and Ice Cream Ltd will do the reverse charge on its own VAT returns.

TRAP

Ice Cream Ltd must check if a condition of registering for VAT in Belgium is that it must appoint a local tax representative to liaise with the Belgian tax authorities. Some EU countries insist on this.

Nil registration threshold

A nil VAT registration threshold applies if a business makes taxable sales in any EU country where it is not permanently established. In other words, Ice Cream Ltd only gets a domestic registration threshold in the UK, not in any EU country. It must therefore register for VAT in Belgium, irrespective of its sales volume.

Conclusion

Ice Cream Ltd must declare the goods as the importer when they arrive in Belgium and register for Belgian VAT It can claim import VAT on its Belgian VAT return and will charge local VAT on sales invoice issued to Cornet Ltd each time it takes ownership of the ice cream. It will also need an EU EORI number to enable the goods to clear customs in Belgium when they arrive.

Follow up material:

EU EORI Number

UK EORI Number

An EU business sells goods valued below £135 to private UK customers via its website and an online marketplace.

French Taps Ltd is based in Paris and sells taps to GB businesses and private customers, sometimes directly through its own website and on other occasions through an online marketplace (OMP). It also makes sales to customers in NI. All shipments are less than £135 in value. How will French Taps Ltd, the OMP and UK customers deal with the VAT in this situation?

 New rules since 1 January 2021

HMRC was concerned that a lot of goods were being posted into the UK from overseas and avoiding VAT, e.g. the parcel posted directly to a customer’s home address. To reduce this loss of VAT, overseas sellers must now register for UK VAT and charge sales VAT to their customers for all shipments of goods up to £135. However, if the goods are sold through an OMP, the OMP will charge the customer VAT instead and declare this tax on its own returns. In the latter case, the sale from the overseas seller to the OMP will be zero-rated for UK VAT purposes.

 Tip

If an overseas business only sells goods through an OMP, it will not need to register for UK VAT if the goods are shipped from overseas, rather than held as stock in a UK warehouse.

Charging sales VAT?

French Taps Ltd is making both direct sales to GB customers and sales through an OMP It must therefore register for UK VAT for the direct sales. As explained above, there is an opportunity for the company to avoid registering if it only sells goods through OMPs because the OMP will charge sales VAT instead. French Taps Ltd must therefore decide if the profit it makes on direct sales is sufficient to justify the extra work and cost involved in registering for UK VAT.

 TRAP

This situation assumes that the stock starts in France and is shipped to GB when an order has been received. If French Taps Ltd holds stock in GB, ready to meet orders, then it must register for UK VAT anyway.

Customer is VAT registered

If the customer buying taps online is VAT registered in the UK, then it will not be charged sales VAT by either French Taps Ltd or the OMP. It must provide its VAT number at the time the order is placed, and this must be shown on the commercial invoice issued by either French Taps Ltd or the OMP, with an instruction that the reverse charge must be carried out by the customer.

 Tip

The customer will account for output tax in Box 1 of its next VAT return, and claim the same amount as input tax in Box 4 if the goods are being used for taxable supplies, i.e. no partial exemption restriction etc.

 NI sales

A movement of goods from France to NI is an intra-EU supply because NI is still part of the EU’s single market. So, French Taps Ltd will charge French VAT on the sale of taps to private customers in NI for all shipments of goods, even if they exceed £135. If the customer in NI is registered for UK VAT, then the sale by French Taps Ltd will be zero-rated as far as French VAT is concerned, with the NI customer accounting for acquisition tax and claiming input tax on its own VAT return.

 Tip

The VAT-registered customer in NI will make entries on its VAT return in Boxes 2 and 9 for EU acquisitions and claim input tax in Box 4, subject to normal rules. A GB business no longer uses these two boxes since the end of the EU transitional deal on 31 December 2020.

 TRAP

French Taps Ltd might need to register for UK VAT under the EU’s distance selling rules, if sales to NI customers (132C) exceed £70,000 on a calendar year basis.

 Conclusion

French Taps Ltd must register for UK VAT as an overseas seller and charge sales VAT on its direct sales of taps from France to GB. For sales made through an OMF the latter will deal with the VAT instead on its own return. If a customer is VAT registered in the UK, it will not be charged VAT on its goods if it provides its UK VAT number at the time of placing the order.

Follow up material:

Changes to VAT Treatment of Overseas Goods Sold to Customers from 1st of January 2021

A UK business imports goods from the EU: getting the import procedures right

 Widgets Ltd is VAT registered in GB and has always imported goods from both EU and none-EU suppliers. What are the differences with its import procedures after Brexit and what must the company do to ensure goods move quickly into the country?

 Previous rules 

Until 31 December 2020, there was a big difference in the VAT treatment of EU and non-EU goods arriving in the UK. Only goods coming from outside the EU were defined as “imports”. Upon arrival, VAT (and usually duty) was payable on these goods by the importer, and they claimed input tax in Box 4 of their next VAT return, subject to the normal rules for input tax deduction. The evidence to support the claim was a C79 certificate issued by HMRC.

 In the case of arrivals from EU countries, known as “acquisitions”, no VAT was payable at the border because the UK was part of the EU’s single market. The EU supplier didn’t charge VAT from their own country if the UK importer was registered for UK VAT VAT-registered buyers in the UK accounted for VAT on their own returns instead, with self-accounting entries in both Box 2 and Box 4.

 Tip

Goods purchased from EU suppliers also required the UK buyer to complete Intrastat declarations if total acquisitions exceeded £1.5 million in a calendar year. That requirement remains in place for 2021 at least.

 New procedures

Since 1 January 2021, there has been no difference between EU and non-EU arrivals of goods into GB, and they are classed as imports in both cases. This means that Widgets Ltd will make a customs declaration when all goods arrive and must also pay VAT and sometimes customs duty as well. It is likely that the company will use a freight forwarding agent to deal with the import procedures, although it might handle the paperwork in-house if it has the relevant knowledge and expertise or is willing to acquire these.

 Tip

 To help with the cost of training and gaining knowledge about new import and export procedures, Widgets Ltd could apply for a government grant of up to £2,000 from the SME Brexit Support Fund.

 Importer of record 

For any arrival of goods in GB, from anywhere in the world, there will be a declared importer of record who is responsible for submitting accurate customs declarations and other paperwork to HMRC. The importer is also responsible for paying any VAT and duty. As Widgets Ltd imported goods from outside the EU before 1 January 2021, it will be familiar with customs and tariff procedures, and will hopefully have an established relationship with a freight forwarding business or customs agent. This means that the procedures already established for non-EU imports are extended for EU imports. 

TRAP

Duty and VAT are not the only issues which need to be considered for imports of goods from the EU. Depending on the goods, there could be health and safety certificates needed, labelling and marking issues might be relevant along with other product-specific regulations.

 EORI number

Any GB importer must have a GB EORI number issued by HMRC, which is always quoted on the import documents as the primary reference. The application process is straightforward. It only takes about 15 minutes to apply, and the number is issued within five working days, and is sometimes quicker.

 Tip

It is possible to get an EORI number without being VAT registered.

The UK’s trade deal with the EU removed tariffs for most imports and exports. However, if the goods were manufactured outside the EU, they could be subject to duty when they arrive in GB. For example, if goods were manufactured in China and shipped to France, before being imported into GB by Widgets Ltd, issues with rules of origin will be relevant, and duty might be payable.

 It is important that Widgets Ltd discusses duty issues with its EU suppliers to establish which party has a liability to pay. The same issue is relevant to fees charged by agents for dealing with customs declarations, i.e. will they be payable by Widgets Ltd as the customer or by its EU suppliers? The answer will depend on the terms of trade agreed between the two parties.

 Widgets Ltd will be the importer of record and responsible for submitting customs declarations when the goods arrive, also paying VAT and possibly duty. It must have a GB EORI number.    

It could handle the customs declarations itself, but it is more likely that it will want to appoint a customs agent to do so.

 Follow up material:

Information about the SME Brexit Support Fund

HMRC list of customs agents

Get an EORI number

A business Imports Goods from EU and non-EU Suppliers. How does it complete its UK VAT return?

Widgets Ltd  from Case Study 8 is about to complete its March 2021 VAT return. What entries will be included as far as its imported goods are concerned and how will these be different to the previous quarter?

Postponed VAT Accounting

For imports of goods into GB from 1 January 2021, the company hopefully opted for PVA for all shipments, for both EU and non-EU arrivals. This election is made on each shipment and means that the cash flow challenge of paying VAT at the border and claiming input tax on a VAT return up to three months later is removed. The VAT payment is postponed and instead declared on the importer’s next return by doing a reverse charge entry in Box 1 and Box 4. The net amount of the import is entered as an expense in Box 7.

Example

John imports £10,000 of tools from France and elected for PVA when they arrived in Dover.

He will account for output tax of £2,000 in Box 1 of his next return, claiming input tax of the same amount in Box 4, assuming they are used for his taxable business activities.

Tip

If a freight forwarding agent forgets to elect for PVA, or does not have the authority to do so, then VAT must be paid at the border before the goods can be released, and input tax will be claimed on the importer’s next VAT return. This procedure applied to non-EU imports before 1 January 2021.

Customs Declaration Service (CDS)

Widgets Ltd needs to know how much VAT has been postponed on its imported goods so that it can make correct entries on its March return in Boxes 1 and 4. It must register online with HMRC’s CDS facility. It can then login during the middle of a calendar month in order to download postponed VAT statements for the previous month’s imports. In cases where VAT was paid, i.e. there was no election for PVA, then C79 certificates can be download as evidence to claim input tax in Box 4 of the return.

Postponed VAT statements for March should be available by the middle of April.

Delayed declarations

An agent or importer can defer making a full customs declaration for imported goods coming from the EU until 1 July 2021. This is to help the flow of goods into GB following the end of the EU transitional deal. In this situation, Widgets Ltd must still make Box 1 and Box 4 entries on the return that coincides with the import date, but this will be an estimated figure because the statements will not be available from the CDS until the full declaration has been made. An adjustment can then be made on a future VAT return to correct the estimates.

Tip

The sales invoice issued by the overseas business will be the main document needed to estimate the VAT where the declaration has been deferred until July.

Trap

If goods purchased by Widgets Ltd are zero-rated under UK VAT law, e.g. books and children’s clothes, there will be no reverse charge entries in Box 1 and Box 4; instead the net value of the expense will be recorded in Box 7. Some goods might also be subject to 5% VAT, e.g. smoking cessation products, so the reverse charge will be based on a 5% calculation.

VAT return check

An important outcome of post-Brexit procedures is that a GB business will always have three boxes on its return with zero entries. Boxes 2, 8 and 9 were specific to EU trading until 31 December 2020. An important check for Widgets Ltd will be to ensure these boxes are all blank before it submits its digital VAT returns to HMRC. If there are positive entries in any of these boxes, the VAT codes for sales and purchase invoices must be rechecked.

Tip

If Widgets Ltd has a base in NI and buys goods from EU suppliers, then Box 2 and Box 9 entries will still be relevant because NI is still part of the EU’s single market.

Conclusion

Widgets Ltd will make reverse charge entries in Boxes 1 and 4 of the return for all imports where PVA was selected when the goods arrived. The entries will be based on figures shown on monthly postponed import VAT statements that are downloaded from HMRC’s CDS facility.

Follow up material

• Eligibility for PVA 
• Customs Declaration Service (CDS)

An EU parent company wants to set up a separate subsidiary company in the UK to deal with its GB imports.

Hats GrnbH is based in Germany and supplies goods to VAT-registered retailers in the UK. Many are small outlets with no experience of importing goods. The directors have decided to form a UK subsidiary company called Hats Ltd to act as importer and sell the goods to the retailers. How will this arrangement work to ensure VAT issues are dealt with correctly by all parties, and is there a better alternative?

Since 1 January 2021 this type of arrangement has become very popular. The purpose of the structure is so that the final GB customer receiving the goods does not have to act as the declared importer when they arrive at the border. This is a responsibility that many UK businesses would feel uncomfortable about, as they have been used to their EU goods arriving at their front door with no paperwork challenges or issues. The risk now for the EU supplier is that customers might decide to take their business elsewhere, e.g. to a UK supplier.

Tip

This challenge is not a problem for supplies to NI from the EU because it is still part of the EU’s single market. Goods can therefore move freely from the EU to NI without any customs declarations or duty payments.

The supply chain

Hats Ltd will have to register for UK VAT. It might have a GB warehouse to store goods, which would be its correspondence address with HMRC, i.e. as its principal place of business. Alternatively, it might register for UK VAT as a non-established taxable person (NETP) and record the German head office address of Hats GmbH as the contact point.

The goods will go directly from Germany in most cases to the GB premises of the customer. This will save on transport costs and is the direct option. However, Hats Ltd will be declared as the importer of record when the goods arrive in GB – it will be responsible for the payment of VAT and duty, and the completion of accurate customs declarations to ensure the goods are released into free circulation without any problems.

Tip

Hats ltd must apply for a GB EORI number and should ask its freight forwarding agent to elect for postponed VAT accounting on every shipment of goods. The VAT is then declared on each VAT return rather than paid at the border, which is a cash-flow advantage.

Invoicing arrangements

Hats GmbH will issue a sales invoice to Hats Ltd, and this will be zero-rated as far as German VAT is concerned because it relates to an export of goods outside the EU. Hats GmbH must keep proof of export to confirm the goods have left Germany in case there is a query from the German tax authorities. A sales invoice will be issued by Hats Ltd to the GB retailer, This invoice will be subject to 20% UK VAT, which the retailer will claim as input tax.

Trap

Hats Ltd will need to be aware of the legislation for children’s clothes; hats for children are zero-rated under UK law.

Is a subsidiary company necessary?

Does Hats GmbH really need to form Hats Ltd? No, there is no problem with Hats GmbH registering for UK VAT as a NETP and being declared as the importer of record. The advantage of this option is that the number of businesses in the supply chain is reduced from three to two. In addition, GB customers might prefer this option because they probably have contracts and sales ledger accounts already set up with Hats GmbH. It would cost time and money to amend these to Hats Ltd.

Tip

If the directors decide to sell goods directly from Hats GmbH to the retailers, then Hats Ltd will no longer be making taxable supplies in the UK and should therefore deregister from VAT.

Conclusion

Hats Ltd will register for UK VAT and obtain a GB EORI number so that it can be declared as the importer when the goods arrive. It will elect for postponed VAT accounting and be responsible for customs declarations. However, the directors should consider if a subsidiary company is necessary. A better arrangement might be for Hats GmbH to register for UK VAT as a NETP instead and sell goods directly to the UK retailers.

Follow up material

• Guidance for Non-Established Taxable Persons (NETP)

An EU business sells goods valued below £135 to private UK customers via its website and an online marketplace.

French Taps Ltd is based in Paris and sells taps to GB businesses and private customers, sometimes directly through its own website and on other occasions through an online marketplace (OMP). It also makes sales to customers in NI. All shipments are less than £135 in value. How will French Taps Ltd, the OMP and UK customers deal with the VAT in this situation?

New rules since 1 January 2021

HMRC was concerned that a lot of goods were being posted into the UK from overseas and avoiding VAT, e.g. the parcel posted directly to a customer’s home address. To reduce this loss of VAT, overseas sellers must now register for UK VAT and charge sales VAT to their customers for all shipments of goods up to £135. However, if the goods are sold through an OMP, the OMP will charge the customer VAT instead and declare this tax on its own returns. In the latter case, the sale from the overseas seller to the OMP will be zero-rated for UK VAT purposes.

Tip

If an overseas business only sells goods through an OMP, it will not need to register for UK VAT if the goods are shipped from overseas, rather than held as stock in a UK warehouse.

Charging sales VAT?

French Taps Ltd is making both direct sales to GB customers and sales through an OMR It must therefore register for UK VAT for the direct sales. As explained above, there is an opportunity for the company to avoid registering if it only sells goods through OMPs because the OMP will charge sales VAT instead. French Taps Ltd must therefore decide if the profit it makes on direct sales is sufficient to justify the extra work and cost involved in registering for UK VAT.

Trap

This situation assumes that the stock starts in France and is shipped to GB when an order has been received. If French Taps Ltd holds stock in GB, ready to meet orders, then it must register for UK VAT anyway.

Customer is VAT registered

If the customer buying taps online is VAT registered in the UK, then it will not be charged sales VAT by either French Taps Ltd or the OMP. It must provide its VAT number at the time the order is placed, and this must be shown on the commercial invoice issued by either French Taps Ltd or the OMP, with an instruction that the reverse charge must be carried out by the customer.

Tip

The customer will account for output tax in Box 1 of its next VAT return, and claim the same amount as input tax in Box 4 if the goods are being used for taxable supplies, i.e. no partial exemption restriction etc.

NI sales

A movement of goods from France to NI is an intra-EU supply because NI is still part of the EU’s single market. So, French Taps Ltd will charge French VAT on the sale of taps to private customers in NI for all shipments of goods, even if they exceed £135. If the customer in NI is registered for UK VAT, then the sale by French Taps Ltd will be zero-rated as far as French VAT is concerned, with the NI customer accounting for acquisition tax and claiming input tax on its own VAT return.

Tip

The VAT-registered customer in NI will make entries on its VAT return in Boxes 2 and 9 for EU acquisitions and claim input tax in Box 4, subject to normal rules. A GB business no longer uses these two boxes since the end of the EU transitional deal on 31 December 2020.

Trap

French Taps Ltd might need to register for UK VAT under the EU’s distance selling rules, if sales to NI customers exceed £70,000 on a calendar year basis.

Conclusion

French Taps Ltd must register for UK VAT as an overseas seller and charge sales VAT on its direct sales of taps from France to GB. For sales made through an QMF the latter will deal with the VAT instead on its own return. If a customer is VAT registered in the UK, it will not be charged VAT on its goods if it provides its UK VAT number at the time of placing the order.

Follow up material

• Guidance on the £135 threshold 

A UK business sells digital services to both business and private customers in the EU. What has changed since 1 January 2021?

Online Ltd is a VAT-registered UK business. It operates a website where subscribers pay a fee to access the information and available material. Subscribers are both business and non-business customers, based in both the UK and EU. How will Online Ltd deal with VAT and what has changed since 31 December 2020?

Business customers

The good news is that the general B2B rule for services did not change when the UK officially left the EU. The place of supply continues to be where the customer is based for most services. In other words, only supplies made by Online Ltd to UK customers will require VAT to be charged. Charges to non-UK business customers will be outside the scope of VAT. In the case of services sold to EU business customers, the customer will do a reverse charge on their own VAT returns, as has always been the case.

Tip

A common question is whether sales invoices issued by Online Ltd to EU business customers post-Brexit should still quote the customer’s VAT number and include a note on the invoice along the lines of: “No UK VAT has been charged – reverse charge applies on your VAT return.” The answer is “no”, but it is good practice to include the customer’s VAT number on the invoice as it is the best evidence of their B2B status.

Trap

EC Sales Lists are no longer submitted by a GB-based business for sales of goods or services. But a business in NI must still complete them for its sales of goods because it is still part of the EU’s single market.

Non-business customers

If Online Ltd sells digital services to EU customers who do not have a VAT number, it must now register for the EU’s non-Union MOSS scheme. It can choose any country it wants to register. Digital services comprise supplies which are classed as broadcasting, telecommunication or electronic (BTE). The company will charge the rate of VAT that applies in the customer’s country for that service. The VAT collected in each country is then declared on a quarterly MOSS return submitted by Online Ltd to the tax authorities in the country of registration.

Note. An electronic service is one that heavily relies on the Internet for its delivery, with minimal human intervention. Access to a website would come within this definition.

Tip

It makes sense for Online Ltd to register for the non-Union MOSS scheme in a country that speaks good English, e.g., Ireland, Malta or the Netherlands.

What is different post-Brexit?

Before 31 December 2020, a UK business did not need to register for what was then called the Union MOSS scheme if its annual sales of BTE services to EU customers 132C were less than £8,813. It could charge UK VAT as normal on these sales. It was only when this threshold was exceeded, which is the sterling equivalent of €10,000, that a MOSS registration was needed. But a zero threshold applies to a non-EU business making BTE sales in the EU, meaning that many more UK businesses, such as Online Ltd, will need to register for the non-Union MOSS scheme.

Trap

If a business makes no relevant BTE sales in a quarter, it must still submit a nil MOSS return. This is important because the registration might be withdrawn if there is non-compliance with the procedures.

EU VAT rates

It is important that Online Ltd does not assume that all its BTE sales in the EU will be taxed at the standard rate of VAT that applies in the customer’s country, e.g., Sweden 25%, Germany 19%, etc. Many countries have lower rates on, for example, the sale of e-books. A UK business must research the correct rates to ensure that VAT is not being overpaid.

Trap

Many EU countries temporarily reduced their VAT rates because of the coronavirus crisis, e.g., Ireland. So, it is important for a seller to be clear when the old rates are restored so that VAT is correctly declared.

Conclusion

If B2G digital sales are made to EU customers, Online Ltd must register for the non-Union MOSS scheme with an EU country of its choice. There is no sales threshold with the scheme. VAT will be charged at the rate that applies in the customer’s country and declared on a quarterly MOSS return. The rules for B2B digital supplies are unchanged post-Brexit.

Follow up material: Register for the non-Union MOSS scheme

A UK business provides professional services to B2B and B2C customers in several EU countries.

ABC Accountants is based in Leeds and specialises in giving inheritance tax advice to firms from accountants and private individuals. Its customers are in both the UK and EU. What issues must it consider to ensure that VAT is correctly charged on its services?

B2B general rule is unchanged. Since January 2010 the place of supply for most B2C services depends on where the customer is based. So, if the customer is “in business” and outside the UK, then a UK business does not charge VAT on its fees. The place of supply is the customer’s country and, in the case of sales to EU customers, the customer will account for the VAT on their own returns by doing a reverse charge calculation, i.e. accounting for output tax and claiming input tax on the same return.

The good news is that the general B2B rule is unchanged following the UK’s departure from the EU. Accountancy and tax services are covered by the general rule, so ABC will not charge UK VAT to any of its business customers, EU or non-EU.

TIP
A common question is whether ABC should still include the customer’s VAT number on its invoices for EU B2B sales. The answer is that it is no longer compulsory, but it is good practice to do so because the VAT number is the best evidence of the customer’s business status.

B2C professional services

The general B2C rule for services is that the VAT charge depends on where the supplier is based, i.e. ABC will charge UK VAT as the starting point. This general rule is also unaffected by the UK’s departure from the EU.

However, there is an important change from 1 January 2021 for many professional services that are specifically listed in the legislation.

Until 31 December 2020, a UK business did not charge VAT on these services if the B2C customer was “outside the EU”. From 1 January 2021, that rule changed to “outside the UK”. In such cases, the VAT place of supply is again based on where the customer is resident, meaning ABC’s services will be outside the scope of UK VAT where the customer is in the EU.

Tip
The services where the “outside EU” rule changed to “outside UK” are listed in VAT Notice 741A, section 12. They include, for example, services of consultants, lawyers, accountants and engineers.

Use of enjoyment rule

ABC will no longer charge UK VAT on its services supplied to B2C customers living in the EU as they are outside the scope of VAT under UK law. And there is no VAT registration needed in the other EU country because of the general rule explained above, i.e. the place of supply for B2C services is where the supplier is based, i.e. the UK in the case of ABC. So, no UK or EU VAT is charged.

The outcome is that the services of ABC are not subject to either UK or EU VAT. However, that is not the end of the story. Each EU country can select specific services where the general place of supply rule is overridden, and the VAT charge depends instead on where the service is “used and enjoyed”.

Example

Suppose Denmark applies a use and enjoyment rule that B2C accountancy services provided by a non-EU business are subject to Danish VAT if the customer is based in Denmark, i.e. the services are consumed in Denmark. This will mean that any non-EU business providing accountancy services to B2C customers in Denmark will need a Danish VAT number and charge Danish VAT at 25%, completing Danish VAT returns. ABC would therefore have to register for Danish VAT.

TRAP
A business making supplies that are taxable in an EU country does not get a local registration threshold unless it is based there. So, for example, only a Danish-based business would get a threshold in Denmark. A zero threshold applies to sales made by a non-Danish business in Denmark, including ABC.

Each EU member state can choose the services to which it applies a use and enjoyment clause – there is no consistent list across the EU. At the time of publication, we are not aware of any EU countries that apply a use and enjoyment override for accountancy and tax services but that might change in the future. The directors of ABC will need to ensure there are no extensions to the use and enjoyment rules that could affect the VAT treatment of their B2C sales in the EU.

TRAP

If ABC had to register for VAT in an EU country, it would need to consider the costs of this process, for example the possible requirement to appoint a local tax representative, completing VAT returns, etc.

Conclusion

The B2B and B2C general rules were unchanged after the end of the UK’s transitional deal with the EU. But most professional services are no longer subject to UK VAT for B2c supplies to EU customers. No EU registration or charging of local VAT will be needed unless an EU
country applies a use and enjoyment clause to the services in question.
Follow up material

Follow up material: VAT Notice 741A

Performance services carried out by a UK business for both UK and EU customers

Maria is an opera singer who lives in the UK and is VAT registered. She will perform for three private individuals at venues in Belgium, France and Italy. She also has a contract to perform in France and will invoice a UK production company for this concert. How will Maria deal with VAT and what changes will affect her for the EU concerts from 1 July 2021?

Place of Supply B2C

There is a range of services in the legislation where the VAT charge depends on where it takes place rather than any other basis if the customer in not in business, i.e. B2C rather than B2B. These services relate to cultural, artistic, sporting, scientific, entertainment and educational supplies and similar activities. Maria’s services would be classed as “entertainment”. They are often described as performance services. The rules for these services have remained the same since the end of the UK’s transitional deal with the EU on 31 December 2020.

Tip

For a list of performance services, see VAT Notice 741A, section 9.

TRAP

Fees for admission to an event are also taxed where they take place, e.g. ticket sales for a concert or show. This means that a UK business organising a concert in the EU and charging for tickets will need to register for VAT in that country.

Place of Supply B2B

For B2B supplies, these performance services default to the general rule for B2B services, i.e. the key issue is where the customer is based. This means that Maria will charge 20% VAT on her invoice to the UK production company, even though she will be performing in France. If the business customer was based in the EU, she wouldn’t charge UK VAT, with the customer accounting for VAT in their country with the reverse charge.

Tip

Maria might incur French VAT on expenses, e.g. hotel or car hire fees. She would need to claim this VAT with a paper claim submitted directly to the French tax authorities, commonly known as a 13th Directive claim.

Any claim to recover overseas VAT in an EU country must consider any local input tax blocks in that country, e.g. some countries block claims on hotel and subsistence expenses.

VAT registration in EU

Maria is making taxable supplies in three different EU countries for her B2C concerts. She will need to register for VAT in each country and charge local VAT to the concert host, based on the rate that applies in that country. She will account for this tax on a local VAT return and pay it to the tax authorities at the end of the period.

Tip

If Maria will only make one supply in each EU country, she can deregister when she has submitted her return and paid the relevant VAT. The advantage of the local registration is that Maria has the chance to claim input tax on her VAT return. This is an easier process than claiming VAT with a 13th Directive claim.

What will change on 1 July 2021?

The EU will be introducing new procedures to account for and pay VAT from 1 July 2021. An important change is that the mini one-stop shop principle of submitting a single return to one EU tax authority for all B2C sales of broadcasting, telecommunication and electronic services is being extended to the performance services. In other words, Maria will be able to register for what will be called the one-stop shop (OSS), rather than have separate registrations in each EU country where she performs. This should be a very worthwhile simplification measure.

Tip

Maria can register for the OSS in any EU country she wants. It will make sense to choose a country that speaks good English, e.g. Ireland, Malta or the Netherlands.

Maria must register for local VAT in the countries where she is singing for B2C customers. She will charge local VAT and then deregister if she will make no more sales there. She can avoid having many different EU registrations from 1 July 2021 by registering for the new OSS with an EU country of her choice.

Follow up material: VAT Notice 741A

A UK builder provides land-related services to business and private customers in Ireland and NI.

Pete is a plumber, registered for UK VAT He has agreed to do some work in NI and Ireland for a UK building company. He will do some private work for individual householders in both countries when he is there, as a separate source of income. What are the VAT issues he must consider to get his reporting right?

Place of supply

If the usual place of supply rules applied to building services, then Pete would charge 20% UK VAT to the building company, i.e. on the basis that his customer is based in the UK. However, there is an override to the general B2B rule for services involving land and buildings. In such cases, the place of supply depends on where the property is located, i.e. NI and Ireland in the case of Pete’s services.

A land service also includes some non-construction services as well. So, the same VAT outcomes would apply for an estate agent, architect or surveyor, as for a decorator or bricklayer.

NI is part of UK for services

NI has continued to adopt EU VAT rules for supplies of goods since the end of the EU transitional deal on 31 December 2020, as it is still a member of the EU’s single market. However, it always follows UK VAT rules for services. Therefore, Pete will charge the UK company 20% VAT for his work carried out in NI because the place of supply is NI, which is part of the UK. He will also charge 20% VAT to private individuals there as well – assuming the work is not subject to 0% or 5% VAT.

TRAP

Pete will need to be careful if he ships building materials between GB and NI because of the imaginary customs border in the Irish sea. He should contact the Trader Support Service (TSS) to see if customs declarations might be needed.

B2B services in Ireland

Pete is providing land-related services in Ireland, which is not part of the UK, so these services are subject to Irish VAT. The starting point is that he will need to register for Irish VAT with the Irish tax authorities. He might do this himself or use the services of a professional. However, it is possible that the UK company he is working for is already VAT registered in Ireland because they are also making land supplies there. If so, Pete will not need to register for Irish VAT for this work because his customer can deal with the VAT instead by doing reverse charge entries on their returns in Ireland.

This outcome is possible because Irish VAT law applies what is known as a “reverse charge extension” for land services. In other words, this avoids the need for an overseas builder to register for Irish VAT if their customer has an Irish VAT number. However, not all EU countries have adopted this extension and will require the builder to register there instead.

Example

Pete invoices UK Builder Ltd for £10,000 for work carried out in Ireland. He will quote the customer’s Irish VAT number on his sales invoice and make a note along the lines of: “No UK VAT has been charged – place of supply is Ireland – reverse charge on customer’s Irish VAT return.”

Tip

If Pete incurs expenses in Ireland, and has paid Irish VAT, he will be able to reclaim this tax with a 13th Directive claim submitted directly to the Irish tax authorities, subject to local input tax rules. This is a paper return and must be sent with original tax invoices.

Unfortunately, there is no get out of jail card for Pete as far as his work for non-VAT-registered customers in Ireland is concerned. They are obviously not able to account for Irish VAT because they are not registered. Pete must register for Irish VAT and charge Irish VAT on these sales.

TRAP

The domestic registration threshold in Ireland is only available to a business which is established in that country. A zero threshold applies to an overseas business making supplies of goods or services there. So, Pete will need an Irish VAT number irrespective of how much work he carries out.

Pete will charge UK VAT for his work in NI because the province applies UK VAT rules for services. He should check if the UK building company has a VAT number in Ireland so that the reverse charge can apply to his fees. But he will need to register for VAT in Ireland if he makes supplies of building services to non-VAT-registered customers, e.g. private individuals.

Follow up material

• Register for the TSS 
• Guidance on reclaiming EU VAT
• How to reclaim EU VAT under the 13th Directive process

A UK business is using an EU subcontractor to assist with consultancy business in a different EU country.

Jane lives in London and is registered for UK VAT.  She has secured a consultancy contract with a German-based business called Lieber GmbH; her work will be done there. She will use the services of a subcontractor based in Denmark, who will invoice her business for their fees. What is the VAT position with this third-party arrangement?

Post-Brexit changes

There are only two changes to this arrangement following the end of the UK’s transitional deal with the EU on 31 December 2020:

• EU Sales Lists. These will no longer be completed by either the Danish supplier issuing invoices to Jane, or for Jane’s invoices to Lieber GmbH.

• Invoicing requirements. Jane is no longer required to meet EU invoicing requirements.

Tip

As a practical measure, it is recommended that Jane should still include the German customer’s VAT number in Germany on her sales invoices, and a note about the customer making the reverse charge on their German VAT return. This will help the customer to deal correctly with German VAT. Her fees will not be subject to UK VAT because the place of supply for B2B consultancy services is where the customer is based, i.e. Germany.

The Danish subcontractor is also making a B2B supply of consultancy services, based on a contract they have with Jane. The place of supply as far as EU VAT law is concerned is the UK, i.e. outside Denmark. So, no Danish VAT will be charged on their sales invoices.

However, Jane must do the reverse charge on her UK VAT return because she is buying a service from abroad where the place of supply is the UK. This outcome is unchanged post-Brexit because UK legislation has always been based on “services received from abroad” rather than “services received from the EU”.

Example

The Danish subcontractor has invoiced Jane for consultancy services of £10,000. No Danish VAT has been charged (correctly). Jane will apply the reverse charge to this invoice, i.e. she will account for output tax of £2,000 in Box 1 of her next VAT return, claiming the same amount as input tax in Box 4. She will include the net amount of £10,000 in both Box 6 and Box 7, i.e. the outputs and inputs boxes.

Tip

A priority for any UK business buying services from abroad is to ensure that EU suppliers, such as the Danish subcontractor, do not start charging local VAT because the UK is no longer in the EU. The fact that a UK business no longer has an EU VAT number is irrelevant.

TRAP

Jane must not include the net amounts paid or received in Box 8 or 9 of her VAT return. These boxes will always be blank for a GB business now that we have left the EU and they were only relevant to supplies of goods anyway. Box 2 will also be blank.

What about VAT paid on expenses in Germany?

The Danish subcontractor and Jane will both be working in Germany, so will pay domestic VAT on expenses, e.g. hotel bills, food and drink, car hire. The Danish business can claim this VAT by making an online EU claim via the Danish tax authorities, which is then forwarded to the German authorities and will hopefully be repaid. But Jane will need to make a non-EU 13th Directive claim directly to the German tax authorities on a paper form.

TRAP

Jane and the Danish subcontractor must both consider any local input tax blocks that might apply in Germany for certain categories of expenditure, like the input tax block we have in the UK on business entertaining costs not related to staff.

The VAT outcomes would not change if Jane lived in NI rather than GB. This is because NI follows UK rather than EU laws as far as services are concerned. So, there is no difference between Jane living in Belfast or London.

Conclusion

Invoices raised by the subcontractor to Jane, and Jane to Lieber GmbH, will not include domestic VAT, with the reverse charge being declared on the UK and German VAT returns instead. EC Sales Lists are no longer needed now that the UK has left the EU UK businesses should ensure they are not charged overseas VAT in error.