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VAT EU exit transitional provisions – latest guidance

HMRC published much awaited guidance just before Christmas, on transitional rules for certain transactions and movements of goods.  Note that this guidance was published before the trade deal agreed with the EU.

Goods

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Arrival in Great Britain

If a movement of goods from an EU supplier, to a customer registered for VAT in Great Britain, starts before the end of the transition period, but the goods arrive in Great Britain after the transition period, that transaction will be an acquisition and acquisition VAT should be accounted for where applicable.

If goods sent by an EU supplier have arrived in Great Britain before the end of the transition period, but the time of acquisition is not until after the end of the transition period, acquisition VAT will still be due as though the acquisition took place before the end of the transition period.

However, if a customer registered for VAT in Great Britain, has accounted for VAT on the acquisition of goods before the end of the transition period, as the EU supplier has raised an invoice, but the goods do not start their movement to Great Britain after the end of the transition period, the goods could be subject to both acquisition and import VAT.

Where this is the case, the customer in Great Britain is required to account for import VAT on its return using postponed import VAT accounting.  This will mean that the customer can reduce the amount of import VAT by the amount of acquisition VAT.  If the acquisition VAT is equal to, or greater than, the import VAT, the import VAT entry is reduced to nil.

Under this scenario, if a customer in Great Britain cannot use postponed import VAT accounting, the customer will have to pay import VAT when the goods arrive in the UK, which it will be able to deduct as input tax, subject to the normal rules, on the VAT return.  At the time the import VAT is deducted, the customer will also be able to deduct, as input tax, an amount of VAT equivalent to its liability for the acquisition VAT, for which it will have accounted.  This alternate method carries force of law.

Installed goods

Where goods in a supply of installed goods transaction, have moved to Great Britain before the end of the transition period, but the time of acquisition takes place after the end of the transition period, the whole supply is treated as an acquisition.  It will not matter if the installation took place before or after the end of the transition period.

Under a supply and install contract, it is possible for there to be more than one time of acquisition, for example, an invoice for a deposit and then a final invoice on completion and the goods may arrive in the UK in more than one shipment.  Where this is the case, there will be a single supply of an acquisition, since the goods arrived in Great Britain before the end of the transition period.  However, goods that arrive in Great Britain where the movement begins after the end of the transition period will be an import.  As above, if a business has accounted for VAT on the acquisition of goods before the end of the transition period, due to the supplier raising an invoice, but the goods begin their movement to Great Britain after the end of the transition period, these goods could be subject to both acquisition and import VAT.

Distance selling

If an EU supplier has declared UK VAT on goods under the distance selling rules, before the end of the transition period, but the goods are sent to the Great Britain after the end of the transition period, these goods will be an import and subject to import VAT.  If the relevant goods are of a value exceeding £135, or do not fall within the provisions for goods supplied from overseas and the goods are dispatched after the end of the transition period, an adjustment can be made to VAT already accounted for, subject to conditions.

Warehousing

If goods enter a warehousing regime in Great Britain before the end of the transition period and are removed after the end of the transition period, the VAT treatment is determined by the rules that applied when the goods entered the warehouse.

Leaving Great Britain

If the movement of goods from Great Britain to a VAT registered customer in an EU member state, starts before the end of the transition period, but the goods do not arrive until after the end of the transition period, the treatment will be a dispatch.  If the movement of goods begins after the end of the transition period the treatment will be an export.

Retail Export Scheme (RES)

The RES will no longer apply in Great Britain after the end of the transition period.  However, claims can continue to be made for goods purchased before the end of the transition period and existing rules will continue to apply in relation to those goods.

Call-off stock

Where stock falls under the EU simplification for call-off stock, the supplier does not need to register for VAT in the member state of destination, account for acquisition VAT and then make a domestic supply.  Instead, the customer accounts for acquisition VAT, once the goods are called-off.

The transitional rules retain the pre-end of transaction period rules for call-off stock, where that stock is already in Great Britain at the end of the transition period.  If, after a period of 12 months after the goods have arrived in Great Britain, the goods have not been called off to either the original customer or another customer(s), the supplier must register for VAT in the UK and account for acquisition VAT on them.  Any subsequent supply of the goods will be a UK domestic supply.

Fulfilment Houses

From April 2018, UK fulfilment houses storing imported goods belonging to businesses situated outside the EU, have been required to apply and gain approval from HMRC to operate, under the Fulfilment House Due Diligence Scheme (FHDDS).

At the end of the transition period, the FHDDS will also apply to Great Britain fulfilment houses, that store goods from anywhere outside the UK which are owned by non-UK businesses.  Therefore, Great Britain fulfilment houses that previously only stored goods from EU member states, will now have to register for the FHDDS.

Services

General

The main rules that determine where supplies of services are taxed have not changed, however, some legislative changes have resulted in the place of supply or the liability of supplies changing in limited circumstances, for example, certain professional services to non-business customers. 

Financial services

After the end of the transition period, the exempt with refund VAT treatment of certain supplies of financial services, will be extended to customers in the EU.  Therefore, input tax incurred after the end of the transition period, that is used to make certain supplies of financial services to customers belonging in EU member states after the end of the transition period, will be recoverable.

Input tax incurred before the end of the transition period, used to make certain EU supplies, after the end of the transition period cannot be recovered.

Residual input tax incurred before the end of the transition period, will still be recoverable by reference to all outputs of the longer period in which it is incurred, even where that longer period includes certain EU supplies made after the end of the transition period.

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