The UK has recently issued a range of guidance notices informing both the public and businesses of what the implications would be in the unlikely event that the UK leaves the EU next year without a formal withdrawal agreement in place.
One of the notices released covers what the VAT implications will be for businesses if there is no Brexit deal. Click here to view this notification in full. Please also see below for some of the main points that may affect VAT registered businesses in the UK.
Businesses importing goods into the UK from the EU
• Introduction of a postponed import VAT regime. This will allow all UK VAT registered businesses to avoid having to pay VAT on the clearance of their goods into the UK. Instead, the import VAT amounts will be postponed to the VAT returns and will be entered in the same way as a reverse charge transaction.
The UK government hope that this will help companies who buy goods from outside of the UK avoid cash flow problems relating to the reclaiming of their UK import VAT.
• The current low-value consignment stock relief of £15 will be removed. Currently, non-EU E-commerce merchants of goods can import low-value packages of up to £15 into the UK VAT free. However, if the UK leaves the EU with no deal this will be removed.
• A new technology based solution will be implemented to account for VAT collected on parcels being sent into the UK with a value of up to £135. If no deal is reached, HMRC will expect overseas businesses selling e-commerce goods into the UK with a value of up to £135 to register for a new digital service. This will allow businesses to charge VAT at the point of purchase. Once registered the non-resident supplier will then be able to account and pay the VAT collected directly to HMRC.
For goods worth more than £135 that are sent as parcels by non-EU companies, VAT will continue to be collected from UK recipients in line with current procedures for parcels received from non-EU countries, guidance on these procedures can be found in HMRC notice 143.
Businesses exporting goods to the EU
• EU member states will treat goods coming from the UK in the same way as from any other non-EU country. This will mean that import VAT and duties would become due on arrival of the goods into the EU from the UK and will apply to both sales and movements of own goods.
• Distance selling VAT rules/thresholds will cease to apply to sales of goods to consumers in other EU countries where goods move directly from the UK to that customer. This will lead to all UK e-commerce retailers involved in these types of transactions having an immediate liability to VAT register in the EU member state of their customer to account and pay for VAT accordingly.
Distance selling rules allow suppliers selling from the UK to consumers in another EU country to charge UK VAT up until certain thresholds in the customer’s country are reached. Once the threshold is met, the supplier has an obligation to VAT register in that country and charge VAT locally.
Businesses selling electronic services into the EU
• The UK Mini One Stop Shop (MOSS) return facility for reporting VAT on electronic services made to other member states will be removed. MOSS allows businesses who are selling electronic services (including e-books) to consumers in other EU member states to report/pay the VAT collected to the UK tax authorities rather than having to VAT register in their customer’s country to account for the VAT there. Once removed the affected businesses will either have to register in each EU country where they are selling their services to consumers or alternatively they can re-register for MOSS in another EU country as a non-EU seller.
• UK business will no longer have access to the EU VAT refund system (8th Directive reclaims). However, UK businesses will continue to be able to claim refunds of VAT from EU member states where they make no taxable supplies but incur VAT on their business expenses, by using the existing VAT reclaim process for non-EU businesses (13th Directive reclaims).
UK VAT numbers
• The EU wide database for validating EU member states VAT numbers will no longer include UK VAT registered businesses. This is typically used to validate that the customer is VAT registered when involved in intra-community supplies of goods and services (EC sales) and UK businesses will still be able to continue to use this service to validate other EU businesses VAT registration numbers if required.
HMRC will develop their own service so that UK VAT numbers can continue to be validated if needed.