In case of a no deal scenario, the UK government is committing to take unilateral steps to minimize disruption and prioritize stability. It is stated that in a ‘no deal’ scenario, the EU Commission has indicated that they would intend to treat the UK as a third country for all purposes. The EU has suggested they would apply “regulation and tariffs at borders with the UK as a third country, including checks and controls for customs, sanitary and phytosanitary standards and verification of compliance with EU norms”.
One of the notices published deals with VAT, to inform UK businesses of the implications for VAT when goods and services are traded between the UK and EU member states. Below we have summarized the important features.
After 29 March 2019 if there’s no deal...
The UK will continue to have a VAT system after it leaves the EU. The VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now.
Although no changes will be made before then, this note highlights the VAT changes that businesses will need to prepare for when importing goods from the EU, exporting goods to the EU, supplying services to the EU, and interacting with EU VAT IT systems such as the VAT Mini One Stop Shop (MOSS). The technical notice details potential changes in each of these areas.
1. UK businesses importing goods from the EU
This section provides information about accounting for VAT on goods imported from the EU, and the rules and procedures that will apply after Brexit. In a no deal scenario the current rules in the UK for imports from non-EU countries will also apply to imports from the EU, some additional changes are outlined below. Businesses that import goods into the UK may wish to also read the ‘Trading with the EU if there’s no Brexit deal’ technical notice which covers import processes at the border.
1.1 Accounting for import VAT in the UK
If the UK leaves the EU without an agreement, the UK will introduce postponed VAT accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries. The rule will take away the negative cash flow implications. Customs declarations and the payment of any other duties will still be required. More guidance setting out further detail on accounting and record keeping requirements will be issued in due course.
1.2 VAT on goods entering UK as parcels sent by overseas businesses
If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses. The Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK from the EU. This note confirms that if the UK leaves the EU without an agreement then LVCR will no longer apply to any parcels arriving in the UK. This means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing).
However for parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HM Revenue & Customs (HMRC) digital service and account for VAT due.
The digital service is an online registration, accounting, and payment service for overseas businesses. On registration, businesses will be provided with a Unique Identifier which will accompany the parcels they send in to the UK. They will then declare the VAT due on those parcels and pay this via their online account. This ensures the process of paying VAT on parcels does not become burdensome for UK consumers and businesses. To give overseas businesses sufficient time to familiarize themselves with their new obligations, the online service will be available for businesses to register in early 2019, prior to March 29.
1.3 VAT on imported vehicles
If the UK leaves the EU without an agreement, businesses should continue to notify HMRC about vehicles brought into the UK from abroad as they do now. The Notification of Vehicle Arrival Procedures (NOVA) system will continue to be used for this purpose. NOVA is an online service that businesses should continue to use to notify HMRC about vehicles brought into the UK from abroad and ensure that VAT is correctly paid on imported vehicles.
The rules on the movement of goods to the UK from the EU will change when the UK leaves the EU and as a result, import VAT will be due on vehicles you bring into the UK from EU member states. Certain reliefs will also be available as with current imports of vehicles from non-EU countries. Businesses will need to continue to use NOVA to verify that VAT is correctly paid on imported vehicles.
2. UK Businesses exporting goods to the EU
This section provides information about accounting for VAT on goods exported to the EU, and the rules and procedures that will apply. UK businesses may need to plan for customs and VAT processes, which will be checked at the EU border. So they should check with the EU or Member State the rules and processes which need to apply to their goods.
2.1 UK Businesses exporting goods to EU consumers
If the UK leaves the EU without an agreement, distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate sales of goods to EU consumers. Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU.
2.2 UK Businesses exporting goods to EU businesses
If the UK leaves the EU without an agreement, VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists. Those UK businesses exporting goods to EU businesses will need to retain evidence to prove that goods have left the UK, to support the zero-rating of the supply. Most businesses already maintain this evidence as part of current processes and the required evidence will be similar to that currently required for exports to non-EU countries with any differences to be communicated in due course.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries with associated import VAT and customs duties due when the goods arrive into the EU. Individual EU member states may have different rules for import VAT for non-EU countries and import VAT payments may be due at the border when importing goods. UK businesses should check the relevant import VAT rules in the EU Member State concerned.
3. UK Businesses supplying services into the EU
This section provides information about accounting for VAT on services supplied into the EU, and the rules and procedures that will apply. If the UK leaves the EU without an agreement, the main VAT ‘place of supply’ rules will remain the same for UK businesses.
For UK businesses supplying digital services to non-business customers in the EU the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU Member State within which your customer is a resident.
For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed. More information will follow in due course.
If you are a UK business that currently uses the VAT Mini One Stop Shop (MOSS) you can find more information the next paragraph.
4. UK VAT mini One Stop Shop (MOSS)
If the UK leaves the EU without an agreement, businesses that sell digital services to consumers in the EU will be able to register for the MOSS non-union scheme. MOSS is an online service that allows EU businesses that sell digital services to consumers in other EU member states to report and pay VAT via a single return and payment in their home Member State. Non-EU businesses can also use the system by registering in an EU Member State.
If the UK leaves the EU with no agreement, businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU. Businesses that want to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU Member State. This can only be done after the date the UK leaves the EU. The non-union MOSS scheme requires businesses to register by the 10th day of the month following a sale. You will need to register by 10 April 2019 if you make a sale from the 29 to 31 March 2019, and by 10 May 2019 if you make a sale in April 2019. Alternatively, a UK business can register in each EU Member State where sales are made.
5. EU VAT refund system
If the UK leaves the EU without an agreement, then UK businesses will continue to be able to claim refunds of VAT from EU member states but in future they will need to use the existing processes for non-EU businesses.UK business will no longer have access to the EU VAT refund system.
6. EU VAT Registration Number Validation
If the UK leaves the EU without an agreement, UK businesses will be able to continue to use the EU VAT number validation service to check the validity of EU business VAT registration numbers and HMRC is developing a service so that UK VAT numbers can continue to be validated.
7. Businesses in Northern Ireland importing and exporting to Ireland
The UK government recognizes the very significant challenges that the lack of a UK-EU legal agreement would pose in relation to Northern Ireland. This would include engagement on arrangements for land border trade. More information will be provided in due course. The Irish government have indicated they would need to discuss arrangements in the event of no deal with the European Commission and EU member states.
Given the ongoing negotiations it is unsure for businesses whether they need to prepare for the above at this moment, but it is that there is only a short period of time left to prepare for all consequences for VAT. Both scenarios should be taken into account when planning for Brexit.
We will keep you informed about updates on the Brexit developments, for more information please contact Pincvision specialists bij phone +31(0)88-4321800 or e-mail firstname.lastname@example.org and you can always visit the website of GOV.UK for more information.