Brexit: The changes likely to catch your businesses out

Goods costing £135 or less that are exported to UK consumers will now be subject to VAT charges – a significant change that is likely to catch many businesses out, UHY Hacker Young has warned.

Speaking at the accountancy firm’s Brexit VAT and Customs webinar Sean Glancy, VAT and indirect taxes partner at UHY, said the change was “counter-intuitive” and has gone under the radar.

He said: “Non-UK businesses must now register for UK VAT if they sell goods B2C and the customer is based in the UK. This requirement applies to consignments under £135 in value and there is no registration threshold. This is counter-intuitive and not something you would expect; you would think this charge would be placed on goods costing more than £135.

“This means if an online store in the US, for example, sells a T-shirt for $20 and ships the product to a UK customer, they are required to register and account for UK VAT. The EU will also introduce this measure from 1 July with a €150 threshold.

“With the Brexit transition period ending 1 January 2020, these are significant new obligations for businesses inside and outside the UK. It would have been sensible to align the changes to the EU, but the UK has failed to do so. Now, it will put further pressure on smaller businesses that are already trying to cope with fundamental economic disruption caused by the pandemic.

“While we’re not yet sure how HMRC will police this, it is a significant change that has gone under the radar and is likely to catch many businesses out, so it is vital companies look into how the rule will affect them and what they can do to counteract it.”

The webinar discussed the initial implications of the new EU-UK Trade and Cooperation Agreement and what this means for businesses, with Sean stating that B2C cross-border transactions is another area that has not been well highlighted since the document was released.

He said: “With the advent of Brexit, UK businesses selling goods to private customers in the EU have lost the benefit of distance-selling simplifications. This means they have to register and account for VAT in each country they deliver goods to.

“These obligations will be simplified on 1 July 2021 when the EU introduces a one-stop shop for VAT accounting for these types of transactions but until then, there is a potential obligation for UK businesses selling goods B2C to register in 27 member states.

“The risk here is that a UK business moving goods to consumers in, for example, Germany, Italy and Austria would have to register for VAT in all of these countries. If that multiplies across Europe, that is a lot of registrations, time, resource, and cost.

“We have been working with a number of clients on a fairly simplistic solution. For example, if we have a UK business that is registered as a taxpayer in the Netherlands, the company is able to export goods from the UK into the Netherlands using its importer record – taking the business back to almost pre-Brexit conditions, which is where we have intra-EU supplies.

“So, instead of 27 registrations to multiple countries, you end up with one, which is really helpful and eliminates that need for additional time, resource and cost.”

As part of the webinar, Barbara Scott, chair of the Customs Practitioners Group, spoke about customs consequences, including the implementation of UK duty rates and changes to the rules of origin.

She said: “Despite warnings there would be changes in how we trade with the EU from 1 January, many businesses had taken little or no action.

“Unfortunately, a new trade agreement for implementation was issued within just a week and over a holiday period. There should have been a bedding-in period to enable businesses to digest the new agreement, consider how the changes would affect their supply chains and enable them to start making plans.

“Instead, supply chains are falling apart and businesses, as well as individuals, are incurring unnecessary and irrecoverable costs, which I can’t see improving in the short term. We are now left with businesses across the country trying to understand how to implement these new procedures.”

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