With the support of 2020 Innovation, we’ve summarised the main questions being asked by business owners across the UK about Brexit, with practical answers. If you, like many of us, are struggling to make sense of the staggered communications about specific points of the deal, we hope the below offers some help! Please note, these answers are based on information known as at 25th January 2021 – there are still uncertainties about how some provisions will operate. If you have a specific question relating to Brexit, one of our team will be happy to help – see below for contact details.
Answers to questions about registering for VAT
Would you recommend a non-VAT registered business to register from 1st January if exporting and importing from the EU?
There are definitely going to be some advantages of being VAT registered in terms of ease of paperwork, but it is a decision which has to be made on a case-by-case basis – please speak to us if you are unsure about doing this for your business.
I provide business to business (B2B) services to the EU – do I need to register for VAT in any of the EU countries?
If you are already VAT registered as a B2B service provider, then the reverse charge process will apply but there will be a need to register for VAT if supplying to non-VAT registered businesses in the EU.
Would the supplier of an IT related service from the UK to EU (Sweden) be required to register for VAT in Sweden?
As with many of these areas, there is not a straightforward answer to this question. If you are supplying to a VAT registered Swedish business, then the reverse charge process applies. If you are supplying to consumers, then the place of supply is the UK, so UK VAT applies. There are special rules for supply of professional services to consumers where the place of supply shifts to the consumer’s place of residence but if that is in the EU, their B2C (business to consumer) apply so it appears no VAT is due anywhere.
The only situation where you would have to register in Sweden would be if you are supplying services to non-VAT registered businesses. There is no threshold so this would need to be done as soon as services are supplied.
If you are a VAT registered and supply B2B (business to business) services in the EU, the VAT return in now the only reporting requirement.
Sale of services to Switzerland. Vat or not?
As Switzerland is not within the EU, there would be no change on the VAT treatment of services being made to this jurisdiction post-Brexit. The normal rules would be followed for place of supply and the consequent impact of that.
Answers to questions about manufacture of goods
If a UK business makes a business to business (B2B) supply to say Ireland, where the goods are first purchased from another EU country, is it better to have the goods shipped direct from the EU country to Ireland and will that mean the UK business registering for VAT in Ireland and having an Economic Operators Registration and Identification (EORI) number?
Some of the problems with goods transiting through the UK relate to the rules of origin provisions in that it is only possible to export goods tariff free from the UK if they originate in the UK which is not the case if they have been imported into the UK from the EU. This is an unexpected outcome of the provisions and it appears that the situation is currently trying to be resolved. The perception at the moment, if nothing is resolved, is that direct shipping from the EU country to Ireland would be preferential with the added complexity that would bring.
In relation to "origin of goods purchased", what is the process for clients who buy materials from the EU and make the final product in the UK?
This is one of the most complex areas of the rules and many businesses are finding that they are caught out by some of the nuances of the provisions. In order to be of UK origin in the type of situation outlined above, the components have to be substantially transformed into a new end product. There is detailed guidance published by HMRC on these issues including this link: https://www.gov.uk/government/publications/rules-of-origin-for-goods-moving-between-the-uk-and-eu
Answers to questions about invoicing
What will be the procedure for UK invoicing for services to, say, Belgium, which was previously covered by the Reverse Charge procedure?
Reverse charge procedure for supplies to VAT registered businesses in the EU will remain the same for services supplied. For goods, there will be import VAT in the EU country but no UK VAT to be paid.
For European invoices – do we now still not charge VAT but do we still have to put the EU VAT numbers on the invoice?
It seems logical that you would continue to do this for supply of services as it will be relevant but it is unclear whether the same will apply for goods so it is probably best to continue to do so.
For any invoices being sent to EU customers - we still show no VAT on the invoice, do we have to show the EU VAT number on the invoice? And, when we post this on our software, it only goes in box 6 but not on box 2 and 4?
See answer in the next section on VAT Returns re the EU VAT number. It would appear to be correct that it does not go in Box 2 and 4 but only in Box 6.
What is the time limit for exporting goods outside the UK and getting zero rating?
This is not a new provision and has applied historically for exports outside the UK. The time limit is 3 months from the date of sale.
Answers to questions about VAT Returns
My understanding is that supplies of services to EC countries (particularly accountancy services under sch. 4A), are now outside the scope of VAT i.e. similar to services provided to USA, Australia etc. However, I have also been told that the value of these services needs to be entered on box 6 of the VAT return (total sales). Is this correct i.e. how can something outside the scope of VAT be entered on a VAT return?
It has always been expected that you put all of the sales in Box 6 whether or not they are VATable because a supply has still been made.
In HMRCs guidance they suggest that exports should be zero rated. Surely, they fall outside the scope of VAT and therefore should be shown with no VAT thus not appearing on the VAT return?
Exports are zero rated (as they would be to non-EU countries before Brexit) and so have to be disclosed in Box 6 on the return as mentioned above.
Does Postpone VAT Accounting (PVA) mean you can reclaim on your VAT return and then when you receive you then pay?
Postponed accounting means that you don’t have to pay VAT before goods can proceed through Customs. The goods can be delivered and the amounts accounted for through the VAT return.
What are the VAT return entries for some of these goods transactions? On goods and delayed import charge it will go in box 1 to pay duty, no reclaim in box 4 when over the £135 and then original cost in box 7? If I have an Economic Operators Registration and Identification (EORI) number and VAT number on the customs docs? Is this correct?
When using Postpone VAT Accounting (PVA), you put the VAT due in box 1 (information taken from online monthly statement if available), the amount reclaimed in box 4 and then the original cost in box 7 (excluding the VAT). The EORI number and VAT number of the customs documents will enable postponed accounting to apply and, presumably, generate the monthly statements.
I have noted that for business to consumer (B2C) services subject to override per Sch 4A such that general rule doesn’t apply - per UK legislation place of supply is where the customer is based and thus outside scope of UK VAT. Should I exclude from box 6 of VAT return? Also place of supply from EU perspective is where supplier is based and thus outside scope of VAT in customer’s jurisdiction?
This still has to be included in Box 6 as this is total supplies, whether taxable or not. It is our understanding that the EU rules have not changed so that it would also be outside of the scope of VAT in the customer’s jurisdiction.
If a UK VAT registered business imports goods from the EU and uses a customs agent, does the UK company need to apply for deferment account (DDA) or is the import duty/import VAT included in the VAT return?
Both systems will continue to operate but a VAT registered business importing goods will be able to account for the import VAT on the VAT return so there will be no need to apply for a deferment account.
Answers to questions about value of goods
Is Postponed VAT Accounting (PVA) available for all goods imported (over £135), or is it just for goods for use in the business? Or resale also?
Postponed accounting will only apply where the goods are being imported by a VAT registered business as you will have to supply an Economic Operators Registration and Identification (EORI) number and VAT registration number to release goods before import VAT is paid. There are also some cases where PVA cannot be used.
Is there a limit equivalent to the £135 UK limit for imported goods in the EU?
The VAT-free consignment limit of €22 will end on 1 July 2021 when all imports into the EU will become subject to EU VAT and at that stage there will be introduction of special arrangements for import VAT on consignments valued up to €150. This is part of the package of measures which include the introduction of the One Stop Shop EU VAT return. The Customs Threshold will also rise to this figure.
Answers to questions about import duty
If a product is imported from China and UK duty paid then simply re-exported to Europe, is there duty payable again?
This is a hugely complex area but there seems to be an issue with exporting of goods tariff free to Europe if the place of origin is outside the UK which does seem to suggest that there could be duty payable twice on items sold through the UK in this way.
There are some rules covering temporary importing where duty is not paid initially but this does cover a limited category of goods and circumstances so may not be generally applicable.
Answers to questions about delivering goods to the EU
Do lorry drivers also have the 91-day problem?
It appears that UK drivers can get a visa to enable them to spend more than 90 days in the EU within any 180-day period.
Answers to questions about distance selling
Do the Distance Selling rules still apply post 1 January 2021?
You either register for VAT in each EU country or let the customer pay the import VAT. Before Brexit there were distance selling thresholds which meant that you didn’t have to register if sales were below a certain limit but this no longer applies for UK businesses. Most small businesses will presumably opt for customers to pay the import VAT. These rules will be amended from 1 July 2021.
How do UK based distance sellers deal with VAT from 1 January 21 to 30 June 21, before the IOSS system starts to operate in the EU?
Please see the answer above. Most small businesses will presumably opt for customers to pay the import VAT. These rules will be amended from 1 July 2021 when the VAT moves to the seller on imports to consumers. Whilst this theoretically means you have to register for VAT in each country, a one stop shop system, similar to MOSS will be implemented. UK businesses will be able to register for IOSS in another EU country.
Answers to questions about online businesses
If a business imports goods from India, USA and other non-EU countries, then sells those on via the internet will there be tariffs charged?
If selling via the internet into the EU, then it would appear that tariffs may be charged on sales to the EU even where import duty has already been paid in the UK as such items will not have a place of origin in the UK, unless these fall within the temporary importation rules.
Should Amazon business to consumer (B2C) sellers engage a customs agent?
The rules are complex and it may be that this is the best option for many although no doubt the practicality of doing this will depend on the shortage of customs agents and the level of business (and the consequent costs).
I believe online marketplaces are responsible for both VAT and duty – will this have been covered on revised terms and conditions?
Anyone who is selling via an online marketplace will need to make sure that they are happy that the procedures are being dealt with correctly. Whilst this will be true (hopefully) for large platforms such as eBay and Amazon, this may not be the case for smaller platforms, therefore check any updated terms and conditions.
Answers to questions about Northern Ireland
If providing services to Ireland (EU) from Northern Ireland have the rules changed?
The rules for services apply across the whole of the UK. It is only goods which continue to be aligned with EU VAT rules in relation to movement of goods from Northern Ireland.
Please could you clarify - UK to NI sales of goods for the NI market only are still under normal UK VAT rules, not exports purchases from NI of NI origin are also not imports?
It is our understanding that under the Northern Ireland protocol, EU VAT rules will continue to apply in Northern Ireland in respect of goods.
Where 8th directive still applies to Northern Ireland, will the HMRC portal still accommodate this for EU VAT refunds on goods post 1 January 2021?
The HMRC guidance is clear that Northern Ireland businesses can still use the EU VAT refund system so it is assumed that the portal will remain open although the guidance does suggest you contact HMRC if you cannot access the system.
Has there been any development on the second-hand margin scheme and the impact that it has on Northern Irish car sellers where non-VAT qualifying vehicles are purchased from Great Britain?
There was a statement in the House of Commons on 14 January 2021 which states that the Government are exploring options to minimise the impact of the use of the second-hand margin scheme for motor vehicles sourced in Great Britain. Guidance will be issued in due course as to how to deal with this, and the Government are going to seek derogation from EU VAT rules to allow the margin scheme to apply in relation to motor vehicles sourced in GB. Any legislation to enact such a derogation will be retrospective to 31 December.
Answers to questions about Common Market or European Economic Community (EEC) sales
- Has the EEC sales list gone from 1 January 2021?
- Do we still have to submit Intrastat returns / ECSL?
- Is Intrastat required for EU import of goods through to 31 Dec 2021?
- What are the changes on EC sales list if I provide payroll services for a shop in Belfast?
The EC sales list is no longer relevant other than for businesses in Northern Ireland. However, Intrastat returns about goods being imported from the EC have to be continued until 31 December 2021 for all UK businesses, with it continuing after that stage for NI businesses.
It is very unlikely that HMRC will seek penalties if transactions are dealt with incorrectly due to difficulty in ascertaining information, as long as any errors are rectified as soon as the error is identified. We will endeavour to keep you updated on practical actions to take as new rules or agreements are made between the UK and the EU. If you need any assistance from our team in the meantime, please do not hesitate to contact us via mail@lwaltd.com or call 0161 905 1801 in Manchester and 01925 830 830 in Warrington.