With 29 March fast approaching and a deal still not agreed, 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 29 March.
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 in the event of a deal?
If we leave with the proposed deal, there will be a transitional period from the day we leave the EU through to 31 December 2020 (unless extended). During this time the UK will remain part of the single market and trade will continue as if we were still part of the EU. Negotiations will continue during the transitional period with regard to future trade agreements.
A number of administrative easements have been introduced to prepare for a ‘no-deal’ Brexit (discussed below) and it is not yet clear whether any of these will be introduced in the event of a deal. We expect further guidance will be released once a deal has been agreed.
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 on 29 March 2019, 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).
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 much easier process than relying on a C79 import VAT certificate.
HMRC have written to businesses advising them to apply for an Economic Operator Registration and Identification (EORI) number. This number is required to import goods into the UK and can be obtained here (https://www.gov.uk/eori).
HMRC are planning to introduce transitional simplified import procedures. This will allow the import declaration to be filed by the 4th working day of the month following the arrival of the goods and the duties will be delayed until the 15th day of the month after the goods have arrived in the UK. This will differ for controlled goods (e.g. licensed or excise goods). Registration is required. 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.
Excise
The Excise Movement Control System (EMCS) will no longer be used to control the movement of duty suspended excise goods between the EU and the UK. However, EMCS will continue to be used to control the movement of duty suspended excise goods within the UK. This will mean that as soon as the excise goods are imported into the UK they will have to be placed in duty suspension otherwise duty will become payable – regardless of whether duty has been paid within the EU.
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.
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.
Refunds
UK businesses are currently able to claim VAT incurred in the EU through the EU VAT refund scheme which is filed through the HMRC VAT online portal. The deadline for filing a refund claim for 2018 would normally be 30 September 2019. However, in the event of no deal, the deadline will be 11pm on 29 March 2019. After this date a claim will need to be submitted using the refund scheme for non-EU businesses. These claims cannot be filed through the UK VAT portal and must be done with the EU tax authority where the VAT was incurred.
VAT number identification – VIES
UK VAT numbers will no longer be able to be checked on the EU site after 29 March if we leave the EU with no deal. However, there will be a UK VAT number checker available.
For further information please contact our VAT Partner:
