During the past two months, to highlight the immediacy of the end of the Brexit transition period, HMRC has been issuing letters to VAT-registered businesses that currently trade with the EU, highlighting the actions they need to take to continue trading with the EU from 1 January 2021.
Although targeted at VAT-registered businesses, the only specific reference to VAT in the letters is the reminder that businesses will be able to use postponed VAT accounting to account for import VAT, on their VAT return, for goods imported from anywhere in the world. An online monthly statement will be provided by HMRC which will show the total import VAT postponed for the previous month. The VAT due on imports for the period should be included in Box 1 and (to the extent it is recoverable) Box 4 of the return, and Box 7 should include the total value of all imports of goods for the period.
It should be noted that, for goods imported by an overseas seller in consignments not exceeding £135 in value, the point at which VAT is collected will be moved from the point of importation to the point of sale. This will mean that UK supply VAT, rather than import VAT, will be due on these consignments, and if the customer is a UK VATregistered business, a reverse charge process will apply.
As far as selling to the EU is concerned, business to business (B2B) sales of goods will now become exports – zero-rated in the UK but creating a liability for import VAT and duty on the part of the customer, if the latter is regarded as being the importer into the EU. However, arrangements can be put in place which will avoid payment of import VAT where goods are imported into certain member states and subsequently transported to the customer in another.
For sales to private individuals in the EU, distance selling rules no longer apply and UK businesses will need to zero-rate these sales as exports. The purchaser in the EU country will have to pay local VAT and also duty to their own government – either that, or the supplier will need to register in every EU country where sales are made (although the EU is proposing to introduce an Import One Stop Shop (IOSS) system from 1 July 2021, similar to the current VAT MOSS scheme). A possibility to consider here is that of creating an EU presence, obtaining a VAT registration in that member state alone and moving stock to that location to fulfil the distance sales – in this way, the current distance selling rules could still be used.
There will be limited changes to the VAT treatment of services for B2B transactions after the UK leaves the EU VAT regime. The reverse charge process will still apply, however the UK may deviate from some of the current ’use and enjoyment’ rules. For UK sellers of digital services to EU consumers, the UK will no longer be a member of the EU Mini One-Stop-Shop (EU MOSS) single VAT return scheme, so affected UK businesses will therefore have to register in any other EU state, as a non-Union business, in order to continue to file their VAT declarations for EU e-service sales.