Whilst the Covid pandemic has dominated the news over the last year, Brexit has been moving forward with more details emerging on how our new relationship with the EU will look.
On 1st January 2021, the UK officially left the EU
Whilst many changes came into effect on 1st January, many details about how this affects businesses trading with the EU is slowly seeping out. We are sifting through the details as they come out and will continue to summarise the key pieces of information, aim to explain what they mean for your businesses and let you know if there are things you need to do differently from now on.
One of the largest changes so far is VAT. This guide is a summary, however if you are not clear about your own individual circumstances, then please contact us.
Not VAT registered?
These changes may still impact you even if you are not VAT registered, you will still be impacted on these changes if you buy items from outside of the UK, particularly if they are valued above £135. You may find that you have additional costs to pay when the goods enter the UK.
Customs and VAT may be charged as they enter the UK and the goods won’t be released until they are paid.
ARE YOU A BUSINESS SELLINGSERVICES INTO THE EU?
The most important thing to ascertain for any business selling services to the EU is:
Which country’s VAT rules now apply? Is it the place of supply or the place of consumption?
Post Brexit, the General Rule will apply to most services. But there are special rules relating to certain B2C (Business to Consumer/private customer) suppliers.
The General Rule
The General Rule applies to B2B (Business to Business) services provided in the customers country.
- The General Rule means that the supply is outside of the scope of UK VAT, and therefore it is zero rated.
- The customer will then reverse charge the VAT in their own VAT return in their country.
- You will need to provide evidence (for example a valid VAT number) that your customer is outside of the UK.
- If you are supplying B2C services, then you would need to charge UK VAT to your customer.
- The services that fall under the Special Rule are covered by the use and enjoyment rules- https://www.gov.uk/guidance/vat-place-of-supply-of-services-notice-741a#sec13
ARE YOU A BUSINESS SELLING GOODS INTO THE EU?
Buying and selling goods into the EU has now become more complicated as UK companies can no longer benefit from the EU laws that meant that you could zero rate goods moving between Member States.
Even though you do not charge any UK VAT, but you may need to pay VAT in another country depending on how you have agreed to supply the goods. This is because we are no longer able to take advantage of the Distance Selling Thresholds that were previously in place.
You can sell your items in these ways:
DDP – Delivery Duty Paid – This is where you, as the seller, have agreed to pay the VAT and Duty. This will mean that you will have to register for VAT in the destination country for VAT and submit a VAT return in that country. You may also need a Fiscal Representative in that country. Your invoice will have the foreign VAT rate on it. Your customer won’t need to pay anything additional to what was on the original invoice.
DAP – Delivery At Place – This is where you expect the customer to pay and deal with the VAT and duty once it arrives in their country.
You will show the VAT rate as 0% on your invoice. Your customer may have additional costs to pay once it gets to them.
Warehousing in EU – This is where you ship your goods to an EU country and they are stored there. From this destination they are sold to your EU customers. You would need to be registered for VAT in the warehouse country, and complete VAT returns in that country. You may be able to take advantage of the postponed VAT rules, but you would avoid having to register for VAT in each country that you ship to from this warehouse.
You will need to state on your invoices how the goods are supplied – these are called your INCOTERMS. You will need to state if you are selling as “DDP” or “DAP”.
Look out for…
Also, as of 1st July 2021, the EU will be introducing the single EU VAT return to simplify the VAT requirements in the EU. This would remove the need to register in each country.
The “Delivery At Place” method is by far the simplest and most cost effective for small businesses to trade with the EU, however, you need to ensure that your customers understand that there may be additional costs that they will have to pay when they receive the goods.
This could lead to a bad customer experience and lack of repeat custom so, communication and possibly adjustment of pricing is key here, and it is only for 6 months until the EU VAT return is rolled out.
From 1st January 2021, UK businesses (except Northern Ireland) will now need to declare the export of goods on a customs declaration. You may find that if you use a freight forwarder like DPD, UPS or Fedex, they will be able to complete the customs declaration for you for a fee.
Royal Mail have stated on their website that this form will need to be completed when sending goods abroad. In both cases, you will require the commodity code and country of origin for the item being sent.
You can find commodity codes her – https://www.gov.uk/trade-tariff
The country of origin is where (in simple terms) the goods were produced, manufactured or assembled.
If you are buying completed items from another supplier (even if they are UK based) you will need to establish the country of origin of the item.
Please note, you will need to state on your invoice the country of origin and provide sufficient detail to understand what you are selling.
There’s a lot to get your head around here, so if you require any help with this, please let us know.
ARE YOU A BUSINESS BUYING GOODS FROM THE EU?
If you are importing goods from the EU, you will need to ensure that you have a UK EORI number.
HMRC issued these to ALL VAT registered business between September and November 2020. You can request a copy if you no longer have it or you can apply online – https://www.gov.uk/eori
- You will need to determine who is the Importer of Records and what the INCOTERMS of the items being imported – are they DDP or DAP (see above).
- You may need an EU EORI number – your freight forwarder should advise of this.
- You will pay Import Duty when the goods get to the UK, and you can opt to defer the import VAT payment via Postponed VAT Accounting.
- You can opt to pay import VAT at the port of entry.
- This will require monthly C79 forms from HMRC.
- Postponed VAT is only relevant for imports to England, Wales or Scotland and only if the value exceeds £135.
If you want to apply to defer your VAT and/or customs duty, an application needs to be made to HMRC – https://www.gov.uk/guidance/apply-for-an-account-to-defer-duty-payments-when-you-import-or-release-goods-into-great-britain
HMRC will issue a monthly postponed import VAT statement, so you need to ensure that HMRC VAT office have the correct email and address for your business.
This document will be required for your input VAT to be accounted for correctly. It can be accessed via your government gateway once your account has been set up, but you will only be able to go back 6 months, so you must ensure you download the statements to hold them locally on your own PC.
VAT ON IMPORTS OF £135 OR UNDER
The UK has introduced additional measures for overseas goods arriving into Great Britain from outside the UK
- Low Value Consignment Relief (LVCR) is being removed.
- Previously, this meant that imports that were valued at less than £15 were exempted from import VAT
- Online marketplaces (like Amazon and Etsy) – where they are involved in facilitating the sale of the item, will be responsible for the collecting and accounting for VAT
- VAT on imports with a value of £135 or less will have VAT applied at the point of sale, rather than applied as import VAT at customs.
- For B2C transactions, this UK VAT will be charged and collected by the seller.
- But for B2B transactions, as long as the seller has your VAT number, then the VAT will be reverse charged to the customer.
- If the seller does not have your VAT number, the seller will have no choice but to treat the transaction as a B2C sale and apply VAT.
If you have got this far, then you are doing well.
The areas surrounding VAT and Brexit are quite complex and more information is being released all the time.