6 October 2020
The transition period after Brexit comes to an end this year and even if a trade deal is agreed, there will be a host of changes to the current VAT regime that businesses will need to consider. Here, 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 before 1 January 2021.
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.
Financial services clients making supplies of specified financial services from the UK to the EU and vice versa, currently treat these supplies as VAT exempt and therefore suffer irrecoverable VAT on associated costs. Following the end of the transitional period, the UK will be considered outside the EU for VAT purposes, and it is anticipated that the VAT legislation, which permits the right to recover input tax relating to the supply of these services to final consumers outside the EU, would be extended to include sales to EU businesses. This may result in an opportunity for improved VAT recovery.
How can we help?
The above summarises a few of the issues that you must consider before 31 December 2020, and we recommend that you start to take steps and think about changes that may be required as a result of the end of the transition period.
Fiscal Solutions can help you make sense of these changes and your VAT requirements. With our unparalleled VAT expertise and our multi-lingual team of VAT specialists, we can help you with international VAT compliance, VAT registrations, fiscal representation, VAT refund claims, and all of the above.
Please contact us to discuss in more detail if you are likely to be affected by these changes.
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