Brexit & VAT How can VAT get even more complicated?

From January 2021 businesses that import goods from Europe will have to take country-specific Brexit VAT quirks into account.

brexit vat changes

Hopes of a deal are diminishing and businesses now only have months to make the major changes they need for their VAT accounting systems.

From January 2021 businesses that import goods from Europe will have to take country-specific quirks into account.

For example, Domestic VAT legislation states that non-EU businesses that are not subject to a reverse charge in France need to appoint a French tax representative and the representative will be liable for any unpaid or undeclared VAT.

The VAT rate you pay will depend on the country as the VAT rates and threshold vary country-to-country. If you purchase goods from Spain, for example, you will have to register and pay VAT regardless of turnover.

vat brexit changes

Risks

There is a risk of irrecoverable VAT due to the lack of consideration of who will clear and pay import VAT on goods coming in and out of the UK to the EC. This could lead to businesses losing customers.

Place of supply rules will mean that the supplier may become liable to register for VAT in the country where the stock is held if the stock is delivered to an EC/UK storage facility (not a Customs Warehouse).

General Complications

Customers in the EC in receipt of goods from the UK will need to pay import VAT and possibly duty to clear the goods in the EC but UK suppliers will be able to zero-rate the sale of the goods. This should mean that the recipient will be able to reclaim the VAT but many businesses are still refusing to be importers.

EC businesses who carry out business in the UK may also be liable for VAT registration.

Under the terms of the Withdrawal Agreement from 31 March 2021 UK businesses will no longer be able to claim the VAT back on EC purchases like they can now. This means businesses should claim their VAT back at the earliest opportunity as from 31 March 2021 you will not be able to reclaim any 2020 VAT on EC purchases.

vat changes brexit

Postponed VAT

HMRC are scrapping the charges of import VAT and instead, VAT will be adjusted on VAT returns under a new process called Postponed VAT Accounting (PVA). It is hoped that this will minimise cash outflow for businesses and will apply to all imports both from the EU and countries outside the EU.

However, there may be different regulations and a process for goods arriving into the UK with a value of less than £135.

How can you prepare?

It may be that UK businesses wish to register for VAT in other EC countries to clear the goods and pay import VAT and duty. It may also be necessary for EC suppliers to register for VAT in the UK to ease the pressure on their customers. Companies must consider who and how they clear goods to and from the EC and the cash flow implications of these changes – delivery terms should reflect this.

Businesses need to think about the liability to be VAT registered within the EU or if they can deregister. This will be especially important for companies who electronically supply services to customers in the EU and suppliers of good in the UK to non-VAT registered customers in the EU.

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