Once we leave the Single Market, VAT could be harder to deal with than customs. VAT after Brexit can become messy.
As our hopes of a Brexit deal fade into the distance, UK businesses only have a few months to make huge changes to their VAT accounting systems.
As of the 1st of January 20201, any business that imports goods from the European Union will have to work with VAT changes that are specific to each country.
For example, if you were importing goods from France, paying VAT might not be as simple as you’d think. This is because non-EU businesses that cannot make use of a reverse charge in France will need extra support. This support can come in the form of a French tax representative who allows them to operate. The representative will be a liability for an undeclared or unpaid VAT that is due.
The problem with finding a French tax representative, for example, might not be easy. This is because the tax representative will have unlimited liability. This can cause issues even if there are transactions that take place on behalf of the UK company that the representative is unaware of. It could, therefore, be impossible to get the right type of insurance or the correct coverage. This is because an insurance company might not want to cover a risk that you cannot calculate.
There are also other issues that a business will have to deal with. For example, VAT rates and their thresholds vary between countries. Let’s imagine you want to send goods to Spain. You will need to register for VAT and pay the Vat regardless of your turnover.
Risks Associated with VAT
When it comes to importing and exporting goods from the EC, a few issues have been identified.
- There appears to be no understanding about who will both clear and pay any import VAT. This refers to the VAT on goods that are going out of or coming into the Economic Community. There is always the risk that VAT costs could be irrecoverable. In addition to this, many businesses could find that they have to pay demurrage fees if their goods cannot be removed in time.
- If a supply is made between an EC VAT-registered business and there is a zero-rating, VAT will apply for non-EC VAT-registered business. If a UK supplier is one of three parties, there would be triangulation. Goods that are moved from and to the UK that are margin scheme goods and they are part of a second-hand dealer chain will now become known as normal, non-margin scheme supplies.
- Any place of supply rules that are drawn off later and sold could result in the supplier being liable for VAT in the county where their stock is held.
VAT Complications
If a UK business were to sell goods to the Economic Community, they can zero-rate the sale. However, the company that receives the goods will have to pay the import VAT. In addition to this, they might need to clear the goods. This means that the VAT charge is unlikely to create what is known as a “Sticking cost”. This is because the business receiving the goods should be able to recover it.
However, we are now finding that some EC businesses will no longer act as an importer. This could result in suppliers in the UK having to register for VAT in other countries. They might have to do this so they can continue to trade with other EC customers.
Any EC business that trades in the UK might have to register in the UK. This could potentially have a large impact on supply chains. Any transactions which would have been a part of the triangulation simplification rules may need to receive a VAT payment from an unregistered business in the UK.
There are huge changes coming, including the introduction of a one-stop-shop for those who supply services and goods to customers in the Economic Community. As a result, UK businesses will supply goods to their end consumers located in the EC. Any services that are supplied will be done so via a version of VAT MOSS (Mini One-Stop-Shop).
VAT After Bexit: Cross Border VAT Claims
When it to cross border Vat claims, any UK firm that pays VAT in EU countries can claim it back. However, this arrangement is only likely to last until the end of March 2021. Unfortunately, there is not yet anything in place that will allow for claims to be made. This is under the terms of the Withdrawal Agreement.
If you can avoid it, it would be wise not to leave making a claim on VAT until after the 31st of March 2021. If you wait, you might not be able to claim it back. This is regardless of whether you are a UK business claiming VAT in the EU, or a French business claiming VAT in the UK.
VAT After Brexit: Postponed VAT
Her Majesty’s Revenue and Customs is removing the charges on import VAT. As an alternative, the import VAT will now be accounted for in a different way. It will come in the form of adjustments on a businesses VAT returns. This is part of a new process that is known as “Postponed VAT accounting”.
Postponed VAT accounting is a process which is automatic and can help to minimise cash outflow. PVA will apply to imports from outside and inside the Economic Union. There may, however, be different processes and regulations for goods that arrive into the UK and have a value of no more than £135.
VAT After Bexit: How To Prepare
UK and EC businesses that are trading in the UK will now need to determine how they will clear and pay import VAT as well as duty. This is on goods that are entering the UK as well as goods that are being moved from the UK to the Economic Community.
The terms of delivery will have to reflect these changes. It might, therefore, be ideal for UK businesses to register for VAT in EC countries. This is so that the goods can be cleared and import VAT can be paid along with duty. It may also mean that suppliers in the EC will need to register for VAT in the UK so their customers are not left with the burden.
Many UK and EC businesses have waited too long. They have been hoping for a trade deal. However, it does look as though a trade agreement might not be made. This means that those businesses only have until January 2021 to make those huge changes to their accounting systems.
Businesses will now need to seriously think about how they will clear the goods they have going to and coming from the EC. They will also need to consider how they will do this. In addition to this, businesses will also need to pay careful attention to how the changes can affect cash flow.
VAT After Brexit: Guidance
Unfortunately, there is not much guidance with regards as to what businesses should do. Many businesses that are located in the EC assume that the cost should be covered by the UK suppliers.
While there is some useful advice published on HMRC’s website, it only appears to talk about VAT in the UK. It fails to mention any implications on EU VAT for any UK businesses.
This means that HMRC is unable to provide UK businesses with any import VAT-related guidance with regards to goods that are sent from the UK to EU countries. It also fails to mention whether VAT registration is required and if the costs can be recovered.
It appears that the UK will use the place-of-supply rules that are in line with VAT directives. This may well mean that businesses will need to consider their liability for VAT within the European Union. However, they may consider whether they can deregister. This is an important consideration for any business that provides electronically-supplied services to its customers in the European Union. It’s also important for those who supply goods in the UK and Great Britain to customers in the EU who are not VAT registered.
Customer Service – UK-Accountant