In our recent weekly webinars we’ve brought in experts to explain the key points of Brexit for accountants and their clients. Changes to VAT after Brexit will have a wide ranging impact on UK businesses and this was the topic for our webinar on 7th January.
Andrew Needham of The VAT Specialists highlighted the issues around VAT after Brexit – here is an edited version of the webinar transcript.
The old system of imports and exports and acquisitions and EU supplies has been amalgamated into one. So anything coming into the UK is treated as an import. But instead of having to pay import VAT, like we used to have to before the first of January, they’ve switched over to what’s called postponed accounting. It’s very similar to the old acquisition tax in that you don’t actually end up paying any VAT.
What actually happens with postponed accounting is that you have to fill in a customs declaration. All of your customs declarations for what comes into the UK in the month are added together. And they then go on the business’s online account. At the end of the month, it gives a total and at the end of the three months, you add those three totals together and you put the amount of import VAT that’s due in box one of your VAT return as output tax and providing you’re fully taxable you then put the same amount in box four and claim it back again.
So it’s a good cash flow saving for businesses. And although you’ve got to do the import declaration, the amount of paperwork is probably only going to be about the same because you don’t have to do the C79s for import VAT anymore.
Prior to leaving the EU businesses had to get an EORI number to trade with businesses outside the EU. Now you have to have one for the EU as well. So businesses that haven’t previously traded outside the EU with customers or suppliers within the EU will have to obtain one of them.
In terms of exports, you no longer have EU supplies because we’re no longer in the EU. So everything is treated as an export and everything requires export evidence. So any businesses that have already been trading with countries outside the EU will know exactly what kind of documentary evidence they need to acquire. Those who haven’t will have to get an administrative document or similarly official documentation showing that the goods have left the UK.
Removal of triangulation simplification
Triangulation simplification has gone. Meaning that if you purchase from one EU Member State and have the goods move to another EU member state without them directly coming to the UK, previously you could get a simplification and it would be the final customer that accounted for acquisition tax. Now, you will have to register for VAT in one or other of those member states, and then it would be a domestic supply. But once you have registered in one of those EU member states, you’ll have an EU VAT registration. And then you’ll be able to take advantage of the triangulation simplification going forward.
Distance sales thresholds
Distance sales thresholds will have gone so any sales to private individuals in other member states of b2c sales would be treated as a normal export and would be zero rated. Now, the commercial downside of that is that the purchaser – so the prior individual and another EU member state – will have to pay any VAT that’s due on the import before they actually release the goods into free circulation. If for commercial reasons, businesses don’t want to have to have their customers account for import VAT, when the goods move into the EU, the business would have to register for VAT in the member states where they were selling goods, then they’d act as importer and then there’d be a domestic sale going forward. So that would be something of an administrative burden.
The EU has thought about this to an extent. They’re introducing an import one stop shop, so that you register for VAT in one EU member state. And then any sales that go on throughout the EU are recorded on that one VAT return so you’d count for all of your import VAT on there, and all of your domestic VAT on the sales on that one return. And you can choose to register in any member state that you like. The obvious choice would be Eire because all the forms are in English. But that would be the only reason really, just that its simpler.
In terms of some of the administrative easements, businesses no longer have to complete EC sales lists and interest at returns for dispatches are no longer required but for some reason interest at returns for arrivals are required for the rest of 2021.
Imports below £135
There are special rules for imports under £135. So if you’re an overseas trader selling to private individuals, or you’re a UK company that sells to private individuals mail order over the internet and you have the goods moved from outside the EU into the UK, so buying from China and having them delivered directly or whatever. This is the new system that removes it from paying import VAT to actually charging VAT at the point of sale. So, overseas businesses would be required to register for VAT over here.
It wouldn’t affect people who are selling through an online platform, because the online platform will deal with it for them. So what would happen now is that you would just charge your customer normal VAT and that would be accounted for on your VAT return. And then there wouldn’t be any VAT on the actual importation, it would just be shown as underspent accounting.
Currently, if you supply services to private individuals or b2c suppliers of services, in other EU member states, you charge them UK VAT and to the rest of the world, you don’t have to charge VAT at all. And it’s treated as outside the scope of UK VAT. With us leaving the EU, the EU is now the rest of the world as well. So you don’t have to charge UK VAT to private individuals on supplies or services. So if you’re doing accounts for somebody who’s living in Spain, you don’t have to charge them VAT. Previously to avoid charging VAT, you had to do it as a business to business sale of services. So that’s simplified matters somewhat. So sales of services to the rest of the EU, whether it’s businesses or private individuals, are treated as outside the scope of UK VAT.
MOSS (Mini One Stop Shop)
MOSS is the mini one stop shop for services. Currently, or up until the first of January, we were on the Union MOSS, which was businesses in the UK would register for MOSS in the UK and account for VAT on all of their sales around Europe on one VAT return. Now we’ll be going on to the Non-Union MOSS, which means that you have to register for VAT somewhere in the EU. Again, like the import one stop shop, you register for that in one member state in the EU and account for all of your sales of electronic downloads, that sort of thing, for the one VAT return. Again, you can pick any country to register in. And similarly to the import one stop shop, Ireland would be the obvious choice because they speak English and all the forms are in English.
Northern Ireland as a special category
Northern Ireland is in a special category of its own. It’s both within the EU single market and also part of the UK VAT regime. The result of that is that you have to fill in an export declaration for sending goods into Northern Ireland and Northern Ireland itself remains within the single market so it will have acquisitions of goods when it purchases from other EU member states. So box two on the VAT return is retained for businesses in Northern Ireland to use for acquisition tax.
There are other changes involving groups with Northern Ireland. So if you have a VAT group within the UK, and you have one member of that VAT group in Northern Ireland, you no longer disregard transactions with that group member. They would have to be VAT charged and VAT reclaimed. So that’s an extra burden. There is a separate EORI number for trade with Northern Ireland that businesses will have to obtain and these numbers can be obtained online through customs own website. It takes about a week to 10 days for the number to come through. But it’s a relatively straightforward process.
With Northern Ireland, where goods are being sold, you have to use an X1 or XI prefix on the button number when filling in the customs declaration forms rather than the GB one.
Tour Operators Margin Scheme
One of the nightmares of VAT, the tour operators margin scheme. Up until now supplies of tours within the EU have been treated to standard rated. Now the EU will be treated like the rest of the world and the margin is treated as zero rated so it is an advantage for tour operators who are dealing mainly with EU holidays.
Many thanks to Andrew Needham for his valuable insights – for more information his website is here.
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