Andy Ilsley

Written by: Andy Ilsley

Andy Ilsley


Brexit and the impact on VAT

A ‘no deal Brexit’ means a number of things, but critically it means customs-controlled borders, which introduces additional processes and procedures for businesses that move goods between the UK and the EU. In the absence of any business planning to address this change, the movement of goods may be significantly delayed; but what do you need to know? 

Imports – customs declarations 

Businesses that receive goods from either the UK and EU will need to make customs declarations and pay customs duty and either pay, or account for, import VAT. The UK Government recently confirmed they will introduce a postponed accounting approach for import VAT on all imports that will allow import VAT to be accounted for on a VAT return. Similar facilities are allowed in some but not all EU member states.

However, HMRC has introduced a transitional simplified procedure primarily aimed at businesses that have not previously been involved with the customs process and transport goods through the English Channel ports, which will allow products to flow into the UK from the EU with reduced requirements for customs declarations. 

It should also be noted that these procedures are not automatic and need to be applied for. 

Mini one-stop shop (MOSS) registrations 

Businesses that account for VAT on electronically supplied services under the MOSS regime will have to restructure their registrations. If the MOSS registration is currently in the UK, then it will need to be moved to another EU country and a separate standalone VAT registration in the UK will need to be established. 

If the MOSS registration is currently in an EU country other than the UK, then a standalone registration in the UK is all that is needed. 

VAT registrations 

Many businesses are making the strategic decision to relocate inventory, or stockpile product, in both the UK and other EU countries. Wherever inventory is being held will likely require a standalone VAT registration. 

Triangular trade 

If you are involved in EU triangular trade that includes the UK, then it is likely you will have additional VAT registration and reporting obligations. 

The EU simplification for triangular trade operates where three separate EU countries are involved in the supply of goods. It typically involves an intermediate supplier purchasing goods from one country and drop shipping them to its customer in a different country (supplier, intermediate reseller and customer are all in different EU countries). The simplification effectively means that only the final customer accounts for VAT. Once the UK is outside of the EU it will not be able to take advantage of the simplification rule, which could result in one of the parties involved in these triangular arrangements, most likely the intermediate reseller, needing to register for VAT in another country. 

Reclaiming EU VAT  

If you have a UK business that has incurred VAT in another EU country, the normal process for recovering this VAT is to make a claim through the online UK portal. The normal deadline for making these claims is 30 September. Due to Brexit, this has been brought forward to 29 March. After this date, the claim process reverts to a manual system available to non-EU claimants. 

Distance selling 

If you have a UK business that sells products from the UK to end consumers in the EU, then you are likely currently managing those sales under the distance selling rules that require you to charge VAT based on the VAT rate applicable in the destination EU country. Following Brexit this will no longer apply, and your product sales will be subject to import clearance regulations into the EU and will need to be factored into your pricing structure. A similar reverse implication arises for products originating in the EU and being shipped to UK customers. 

An alternative is to require all your customers to individually pay import duty expenses as part of the transaction. This effectively names them as the consignee/importer on each product shipment.

VAT accounting and compliance 

A great many rules and procedures will change and will affect the way transactions between the UK and other EU countries are managed. This VAT logic is typically configured into accounting software, and with Brexit, these rules will need to be reconfigured. These changes will also affect the need to complete EU reports such as intrastat declarations and European Commission sales lists. 

Practical actions you can take now to improve your readiness for a no-deal Brexit will be discussed at RSMi's forthcoming webinar. 

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Brexit - into 2021

There is no doubt that Brexit will have far-reaching impacts, with reverberations felt across every sector. Many in the business world will understandably be concerned.

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