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Brexit Update: Where are we now? August 2019

With Britain’s exit from the EU fast approaching, businesses need to be considering how they may be impacted by a ‘no-deal’ Brexit and what steps they may need to take to ensure seamless trading pre and post exit. HMRC have released ‘no-deal’ guidance to help businesses plan and we have prepared a summary of this guidance. We are working with a number of businesses to consider the impact of a ‘no-deal’ Brexit and would be happy to help if you would like any assistance.

What happens if we leave the EU without a deal?

Goods entering the UK from the EU

If the UK leaves the EU without a deal, goods brought into the UK from the EU will be imports and will be treated in the same way as goods entering the UK from outside the EU. Import VAT and import duty will be payable (unless the goods qualify for 0% duty and/or VAT). The duty rates will vary based on a number of factors (classification, origin etc).  A temporary tariff has been published which will mean the majority of products will be subject to 0% duty for up to 12 months post exit.

Import VAT is currently due at the time of importation.  However, it has been confirmed that postponed accounting will be introduced. This means businesses will be able to account for import VAT on their VAT returns, much in the same way as VAT is brought to account on the acquisition of goods from the EU currently. This is a much easier process than relying on a C79 import VAT certificate.  
HMRC have announced that they will be automatically allocating an Economic Operator Registration and Identification (EORI) number to UK businesses. This number is required to import goods into the UK and must be quoted on the import declaration.

HMRC are introducing transitional simplified import procedures.  This will allow importers to defer making a full declaration and paying customs duty until after the goods arrive in the UK.  This will differ for controlled goods (e.g. licensed or excise goods).  Registration is required and is available to UK businesses only.  When this is withdrawn, and a full declaration is required, businesses will need to appoint a customs agent if they do not have anyone in-house that can complete customs declarations and/or does not have the appropriate software. 

Other points to note:

Low Value Consignment Relief (LVCR) will no longer apply to any parcels entering the UK from the EU or non-EU countries.  For parcel consignments valued up to and including £135, which do not contain excise goods, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK.  Intrastat will no longer need to be completed for arrivals from the EU.

Goods leaving the UK

If the UK leaves the EU without a deal, all goods sent from the UK to the EU will be exports. This includes sales to consumers which are currently subject to the distance selling rules as these rules will not apply to UK businesses once the UK leaves the EU. Whilst no VAT will need to be charged by the supplier, the customer will be responsible for any potential duty and VAT in their country.  Consideration will need to be given to the impact this may have on sales and whether any changes are required to pricing/terms and conditions etc.  An export declaration must be completed, and this can either be completed by the customs agent or, if planning to do this in-house, the business will need to register for the National Export System.  Businesses will not be required to complete EC Sales Lists and Intrastat declarations.

Services

The place of supply rules will broadly remain the same for supplies to businesses in the event of a ‘no-deal’ Brexit. This is because the current place of supply rules apply regardless of whether the business customer is in the EU or not.  However, there will be some changes to supplies to consumers.  Currently the supply of professional services (e.g. accountancy, legal etc) to consumers in the EU are subject to UK VAT but supplies to consumers outside the EU are outside the scope of VAT.  If we leave the EU without a deal, supplies to consumers outside the UK will be outside the scope of VAT.  Please note that there are transitional rules regarding the tax point for services.  Invoices and payment will be disregarded, and the performance of the service will be the tax point.  This prevents businesses potentially taking advantage in a change in VAT rules.  Where the performance covers both pre and post exit, an apportionment will need to be made.

There is also a change to the administration of the supply of digital services to consumers in the EU. This is subject to VAT where the consumer is located. There is a simplified return called ‘mini one stop shop’ or ‘MOSS’ to allow businesses to pay EU VAT to HMRC for them to distribute to the various EU tax authorities. UK businesses will no longer be able to use the EU VAT MOSS scheme. There is a non-union MOSS scheme and UK businesses will need to apply to use this in an EU member state. The registration deadline for this is tight so action needs to be taken quickly.

The purchase of services from outside the UK will still be subject to VAT under the reverse charge.

Simplifications

The Tour Operators Margin Scheme (TOMS) will continue to apply, even though it is an EU simplification.  Currently, UK VAT is due on the margin for supplies under TOMS in the UK and EU, but not for non-EU supplies.  Once we leave the EU, VAT will only be due on the margin for supplies under TOMS in the UK, the remainder will be zero-rated.  It is not yet clear what the EU will do in response to this.

Triangulation is a simplification that applies where you have three parties in a transaction that are in different EU member states but only one movement of goods. For example, company A sells to B who then sells to C, but the goods move directly from A to C. The simplification allows A and B to zero-rate their supplies to prevent an additional VAT registration for one of the parties. As this will no longer apply, any businesses who use this simplification will need to consider whether they will have additional VAT registration requirements or whether it is possible to restructure the supply chain.

EU VAT refund system

If the UK leaves the EU without a deal, UK businesses will no longer be able to claim refunds of VAT from EU member states using the existing EU refund scheme.  VAT refunds will be eligible but using the existing processes for non-EU businesses. 

VAT number identification - VIES

UK VAT numbers will no longer be able to be checked on the EU site after our exit from the EU if we leave with no deal. However, there will be a UK VAT number checker available.

For further information please contact our VAT Partner below: