Sarah Barron – VAT Senior Manager
Recent weeks have seen an increase in communications from HMRC giving guidance on the impact of the UK leaving the EU without any transitional arrangements being agreed. The deal brokered, but not ratified, at the end of 2018, contained transitional arrangements which, for VAT would have meant that very little would change immediately. Whilst it is still possible that transitional arrangements in some form may be agreed, the default position is that if we leave without a deal, we will immediately become a third country for VAT and duty purposes.
We have set out below ten things which may affect UK businesses doing business with customers in the EU.
With the continuing uncertainty surrounding matters, businesses should check that they would be able to react to the changes at short notice.
Greater detail is available in the HMRC guidance published.
What VAT changes will there be if there’s no deal?
1. For most UK businesses there will be no change to VAT
The VAT regulations as they relate to wholly UK transactions will remain unchanged.
2. Goods imported from the EU
These will be subject to the same regime as currently applies to imports from non-EU countries. There will be a change to the timing of payment of Import VAT. This will be included on the relevant VAT return rather than paid at the time of import. Businesses should consider applying for an EORI number now (if not already held) and Transitional Simplified Procedures (TSP), which should help to simplify Customs procedures.
3. Goods entering in parcels
VAT will be payable on all goods entering the UK by way of parcel deliveries. For parcels valued at less than £135, overseas sellers will have to register and charge UK VAT, reporting that VAT using a new digital service.
4. Goods exported to EU consumers
Sales of goods to retail customers will be zero rated, subject to the normal rules, but import VAT and duty will be due in the country of arrival.
5. Goods exported to EU businesses
Sales of goods to business customers will continue to be zero rated, with import VAT and duty usually payable by the party identified as the Importer.
6. Selling goods from a warehouse in the EU
Current EU rules will still apply and require a UK business to be VAT registered in any country where they hold a stock of goods for sale from that warehouse.
7. VAT charges for services will remain largely unchanged
The place of supply rules for services will continue to apply with some limited exceptions
8. Supplies of digital services to EU consumers
VAT will still be chargeable in the country where the customer belongs . Suppliers will have to register to use the non-union Mini One Stop Shop (MOSS) scheme to report that VAT.
9. EU VAT refund system
Businesses incurring VAT in EU countries will still be entitled to claim that VAT back, subject to the normal restrictions. Going forward the claims will need to be made using the process for non-EU businesses. Timings and evidence requirements differ from the EU refund system. It is advisable to submit a claim using the current online system before 31 October, for EU VAT incurred to date.
10. VAT number verification using the VIES system
UK businesses will still be able to use the system to check VAT numbers for EU customers, but not for UK customers. HMRC is developing a system for checking UK numbers.
If you have any concerns about how your VAT may be affected by Brexit, please contact Sarah Barron or any member of Menzies VAT Advisory team