This is a thought leadership article by London firm Buzzacott to help your firm prepare for Brexit.
With the transition period after Brexit coming to an end this year, there will be a host of changes to the current VAT regime. We highlight the key VAT issues that will impact businesses trading between the EU and the UK, and the appropriate course of action you should take.
Movement of goods and EORI numbers
After the transition period, the current free movement of goods between the EU and the UK will cease, and will be considered as imports and exports. To clear goods into and out of the UK, you will need to obtain an Economic Operator Registration Identification (EORI) number for your business, which is issued by HMRC.
At present, a UK EORI number can be used to import and export goods in any EU country, however, you will need to obtain an EU EORI number to be used in other EU countries post Brexit.
One of the biggest costs to businesses who will be importing goods from the EU into the UK will be the possible addition of Customs Duty. The rate of duty will vary according to the type of goods, their trade classification and origin. This will be an irrecoverable cost and will likely impact profit margins.
Businesses importing goods into the UK from around the world will be able to use postponed VAT accounting to account for import VAT on their VAT returns. This means you will be able to declare and recover import VAT on the same VAT return, rather than having to pay it upfront and recover it later.
Taxpayers using postponed VAT accounting for imports will be required to provisionally account for any ‘output VAT’ in box one of the VAT return and provisionally reclaim any postponed import VAT as input VAT in box four, subject to the usual rules. Taxpayers will be required to use an online monthly statement, which will provide them with details of the import VAT postponed from the previous month to check, and if necessary, adjust those provisional declarations.
Recovering VAT in other EU countries
If your UK VAT registered business currently incurs VAT in another EU member state, where there is no requirement for it to be VAT registered, you can recover this VAT via the EU’s online VAT Refund Scheme. However, from 1 January 2021, UK businesses will be forced to make these claims using the paper-based 13th Directive Refund Scheme.
This system is currently used by businesses established in countries outside the EU to reclaim VAT and relies very heavily on manual direct in-country applications with original documents required to support the claim. Due to the complexity and delays this will cause for UK businesses claiming VAT refunds, you will need to ensure that all documentation is available to submit the claim and make provision for the likely delay in achieving a full refund.
This recovery methodology will also apply to EU businesses making claims in the UK, as HMRC will require businesses to directly submit their refund claims manually, in the same way described above.
Review EU VAT registrations - Fiscal representation
Currently, UK businesses trading in other EU countries do not need to appoint a fiscal representative in other EU countries to assist them in managing their VAT registrations. A fiscal representative is currently a requirement for non-EU businesses trading in some EU countries, and this requires a resident business to represent the non-EU business for VAT purposes and generally becoming jointly liable for any VAT amounts owed by the company.
After Brexit, many EU member states will require UK businesses to use and engage a local fiscal representative, meaning UK businesses will be required to engage a fiscal representative and change their type of VAT registration in many EU countries.
With the Brexit date fast approaching, we encourage you to review your VAT registrations and take steps to implement any transitions required. If you are uncertain whether you require a fiscal representative, get in touch and a member of our team will help you make sense of any VAT requirements.
Mini One Stop Shop (MOSS) – Digital Services
At present, the place of supply of digital services provided to consumers is where the customer belongs and this will remain so after the transition period ends. As a consequence, suppliers will still have a requirement to register and account for VAT in the country of their customers.
To prevent businesses from having to register in all EU member states when providing these services, the EU implemented the Mini One Stop Shop (MOSS) reporting mechanism. This allows traders to report all of their EU digital service sales to consumers in one MOSS return via either their own EU tax authorities for EU companies or via any EU country via the non-EU suppliers MOSS reporting mechanism.
Once the UK is outside of the EU, UK based suppliers will not be allowed to use the EU-MOSS simplification to report electronic service transactions, therefore the HMRC portal for submitting these returns will close. This will mean that these businesses will need to register in another EU member state and use the non-EU MOSS reporting mechanism. Alternatively, suppliers can register in each EU country where they are supplying electronic services and account for VAT locally.
Non-UK businesses who are selling electronic services into the UK will need to register for VAT and start charging and accounting for UK VAT on their electronic supply transactions.
Non-EU businesses currently using the UK portal for their EU supplies will also need to register in another EU country from 1 January 2021.
On 9 November 2020, the Chancellor confirmed that when the UK leaves the EU at the end of the transition period (31 December 2020), businesses supplying financial and insurance services to EU businesses will be able to recover input tax attributable to these services. Click here for more information.
At Buzzacott we are trusted for the experience we have, the specialisms we understand, the relationships we build and the values we live by. We define ourselves by the needs of our clients, large and small, and we work hard to build and maintain relationships that are personal, collaborative and enduring – to be a partner you can trust. We blend pragmatism and front-line experience with the insightful knowledge of an industry leader. Our 400+ staff work cooperatively in specialist teams under one roof to tailor-make solutions for you. We’re big enough to display deep knowledge over a broad range of specialisms, and small enough to understand the power of personal connections.Learn more