VAT & Brexit
On the “ever evolving” subject of VAT & Brexit, we set out below some questions which you may have from reading / listening to the news recently and the terminology which is being used…
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The following “Questions and Answers” set out at a very high level the impact of the end of the Brexit Transitional period in terms of goods and services currently supplied by UK businesses to other EU member states. The main question is:
Question: There is still the possibility of a trade deal between the UK and the EU being agreed and adopted before 1 January 2021. Clearly, I should wait until the trade deal is announced before my business takes any steps?
Answer: Definitely not. Even a comprehensive trade deal will only cover such aspects as the removal / reduction of tariffs, the absence of quotas on UK origin goods and customs and other regulatory procedures on movements of goods. Businesses must urgently review their processes to be sure that they are ready for the changes that take effect on 1 January 2021.
Yes, however it depends. Where the supplier is importing goods into the UK and therefore acting as “Importer of Record”, there is likely to be a UK VAT registration obligation from the start, with the Overseas Trader’s Unit of HM Revenue and Customs (“HMRC”).
An “Acquisition” pre 1st January 2021 in the UK, refers to the intra-EU movement of goods i.e. widgets, by a UK VAT registered business from another VAT registered supplier, in a different member state. In such a case, the UK business accounts for UK VAT at the appropriate rate in the UK, via its UK VAT return.
Alternatively, a ”Dispatch” from a UK VAT registered business to a business VAT registered in another EU member state refers to the intra-EU movement of goods going the other way. For VAT purposes, the business customer, rather than the supplier, should treat the supply of goods in a similar way to that previously set out above.
These terms, will be used by UK businesses trading in goods with both EU and non-EU member states alike and will apply from 1st January 2021. Pre 31st December 2020, UK businesses trading in goods with non-EU member states, were only said to be making “Imports” and “Exports”.
This is the term used to describe the situation when goods are sold from a supplier in one EU member state e.g. the UK, to a consumer in another member state e.g. Germany, who is not VAT registered e.g. a private customer. Sales made to these customers are charged at the VAT rate applicable in the supplier’s country, until a specific threshold is breached.
With effect from 1st January 2021, this simplification will no longer be available to UK businesses such that an overseas VAT registration may be required.
For businesses registered for VAT in the UK, it will be possible to account for import VAT, on VAT returns for goods imported. This will be done by declaring and recovering import VAT on the same VAT return, rather than having to pay it upfront when the goods come into the port and recover it later. This will be introduced with effect from 1st January 2021. It should be noted, that this is not available for any duty costs which become payable.
One of the main advantages to be gained by UK businesses from its ending of the Brexit Transitional Period, is that Postponed VAT Accounting will equally apply to both non-EU and EU purchases. Import VAT will therefore not be payable at the port for goods imported from (say) China
It appears that the general rule for B2B cross-border services will continue to make the customer responsible for accounting for VAT under the “reverse charge” procedure. While there may be some minor changes re the rules, the more significant changes are to apply with respect to supplies of goods
Under the existing LVCR rules, a UK business importing goods from outside the EU of a value below £15 is not required to pay import VAT. With effect from 1st January 2021, this relief is to be removed resulting in VAT falling due where no other reliefs are available.
Triangulation is the term used to describe a chain of intra-EU supplies of goods involving three parties in three different Member States. It is a simplification measure to deal with such supplies. It applies in cases where, instead of the goods physically passing from one to the other, they are delivered directly from the first to the last party in the chain. From 1st January 2021, any UK businesses will not have the availability of this measure, as it will be a third country.
Currently, an 8th Directive refund claim is available for UK businesses wishing to submit a claim for overseas VAT incurred e.g. hotel expenses, where it does not make any supplies in that member state. This is done by UK businesses submitting a claim via its UK VAT portal to HMRC. This is to end on 31 March 2021, for transactions made in calendar year 2020.
One of the most important documents which a UK business must have in advance of 1st January 2021, is an Economic Operator Registration and Identification (“EORI”) number. This document will be required for any import / export of goods into or out of the UK.
A Fiscal Representative is a special type of VAT agent for foreign businesses with a VAT registration in another country. They are responsible for the correct calculation and reporting of VAT of their client, and are the first point of call for the local tax office in the case of questions or audits. At present, 19 of the remaining 27 EU member states, will require a fiscal representative of a UK business. In the UK, no fiscal representative is required for EU or non-EU resident businesses.
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What people say
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We have now a better handle on the matters we need to be considering and our thanks to him for this.”
We would have no hesitation in referring Raphael and his services to any of our colleagues.”
Raphael’s expertise in this area was readily apparent. He immediately reviewed all emails, letters, papers etc that we entered into with HMRC over the period. He prepared a summary of the issues at hand and explained to us in a simple manner, what he had uncovered. We agreed actions, timescales and Raphael’s fees in moving to the next phase of the project.
He drafted a detailed letter to HMRC, attaching various correspondence, putting forward his case. He liaised with HMRC and ensured the entire process was hassle free. Shortly thereafter, HMRC agreed with Raphael’s analysis of the situation and confirmed that the repayment of the earlier VAT return would be on its way. In light of this, the potential VAT penalties that HMRC was considering, also no longer fell to be applicable.
I would strongly recommend Raphael’s services in the event of your business facing VAT penalties. VAT is a “very grey area”, and the fact that HMRC may decide to raise an assessment does not necessarily mean that it is correct."