Get your VAT fighting fit for Brexit
The Brexit process has been marred by uncertainty and it still remains unclear what our future relationship with the EU, our biggest trading partner, will be. Steve McCrindle, a VAT expert at Haines Watts, looks at a few VAT and Customs matters that business owners should consider through the transition.
The current transition period is due to end on 31st December, 2020. However, the Government has informed the European Commission that the UK will neither accept or seek an extension to this.
Whether a deal is agreed or we exit on World Trade Organisation terms, it’s clear there will be consequences when it comes to VAT, border control and Customs duty, which, in most cases, will be immediate. This will impact all businesses that trade with the EU.
With only a few months left until the transition ends, businesses need to plan and prepare for all outcomes. While the devil will be in the detail when it comes to the changes, these are some areas that need to be considered.
Supplies of Goods and services and value added tax (VAT)
The movement of goods between Great Britain (GB) (not the UK) and the EU is set to change substantially from January 1, 2021. I use GB because if the Northern Ireland Protocol is executed it will mean Northern Ireland will be treated differently to the rest of the UK. Therefore, it is vital that business owners that trade with Northern Ireland are aware of the consequences post-Brexit.
Exports and imports will replace EU dispatches and acquisitions. Although zero-rating for the export of goods will still exist if the relevant conditions are met. As things stand, any goods that are imported are liable for import VAT and potentially Customs duty.
Postponed VAT Accounting for Imports to be introduced
To help lessen this impact, HMRC is going to scrap the current physical charging of import VAT and instead, import VAT will be accounted for by adjustments on VAT returns under a new process called postponed VAT accounting (PVA).
PVA is an automatic process that can help minimise cash outflow for business owners. It will apply to all imports, both from the EU and countries outside the EU. Although there may be different regulations and a process for goods arriving into the UK where the value doesn’t exceed £135.
Status-quo for VAT on services
To avoid double or no taxation, the UK looks set to continue to apply VAT place-of-supply rules in line with the EU VAT Directives, with few changes to the VAT treatment of services envisaged.
What does all this mean for businesses? Well, as examples, business owners will need to think about the business’ liability to be registered for VAT within the EU or alternatively, if they can deregister within the EU. This will be especially important for businesses that provide electronically supplied services to consumers in the EU and also suppliers of goods in GB/UK to non-VAT registered customers in the EU.
New Border Controls
The UK Government confirmed in February that the Brexit transitional arrangements were no longer required and that full Customs controls will be implemented for goods coming into the UK from the EU from January, 1, 2021. However, mainly due to the impact of the Coronavirus crisis, the new requirements will now be introduced in three phases between January and July next year. The Government has also issued a new UK import and export guide to border controls.
During the first phase, businesses importing standard goods will have up to six months to complete Customs declarations. Once the declaration is submitted, any duty will then be due on the goods and the new UK global tariffs (UKGT) will apply. Of course, there will still be checks on controlled goods such as tobacco and alcohol.
From April, the second phase will commence. All imports of products of animal origin, whether that’s meat, honey, milk, egg products or pet food, will need pre-notification and health documentation. This also includes plants and plant products too.
The third phase will kick in from July and any business moving goods will need to make declarations at the point of importation. Customs duty will then be due at this time.
Goods moving between EU Member States are not currently subject to Customs duty and this will remain for UK-EU trade until 31 December 2020. It will only change from January 1, 2021. Businesses will need to plan for Customs duty compliance and also for any financial impact this additional cost will have.
All businesses will need to review their supply chain to ensure they comply with the VAT, border control and Customs duty consequences and requirements post January 1, 2021 and this should be done as soon as possible. Business owners need to prepare for both the administrative and financial impacts– on their businesses over the next few months.