VAT and Brexit: what happens if there is no deal?
With the UK’s exit from the EU rapidly approaching, the possibility of a ‘no deal’ scenario is looking increasingly likely. Although the government is maintaining that a deal is more likely than no deal, HMRC have released guidance to help businesses prepare for Brexit in the event there is no deal. This note outlines the proposed changes in a ‘no deal’ scenario from 29 March 2019.
Goods imported from the EU
The current rules for imports from non-EU countries will also apply to imports from the EU. A customs declaration will be required and import duty and import VAT will be payable unless the goods are entered into a customs procedure or the product qualifies for duty or VAT relief.
There will, thankfully, be changes to how import VAT is paid by VAT registered businesses. Post Brexit, postponed accounting for import VAT will be introduced. This means that VAT registered businesses would be able to account for import VAT on their VAT returns rather pay when the goods are imported into the UK.
Goods entering the UK as parcels
There will be changes to import VAT on goods entering the UK as parcels sent by overseas businesses. Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK from the EU. LVCR will therefore no longer apply to any parcels arriving in the UK. The result of which is that all parcels sent by overseas businesses will be liable to VAT in the UK, unless they qualify for the zero rate under the normal rules.
For parcels under £135, VAT will be collected from overseas businesses. These businesses will be required to register with HMRC for this digital service and pay the VAT collected on behalf of their customers. For goods with a value exceeding £135 sent as parcels, VAT will continue to be collected from UK recipients in line with current procedures.
UK businesses exporting goods to EU consumers
The distance selling arrangements will no longer apply. This means that should the UK fail to secure a Brexit deal, UK businesses will be able to zero-rate sales of goods to EU consumers. Any associated import VAT and customs duties are payable by the customer when the goods enter the EU.
UK businesses exporting goods to EU businesses
UK VAT registered businesses can continue to zero-rate sales of goods to EU businesses. Goods entering other EU countries will be subject to import VAT or duty. Sales to EU businesses are currently recorded on the EC sales list, however this will no longer be required. Sufficient export evidence is required to prove the goods have left the UK.
What will new importers and exporters need to do
Before importing or exporting goods a business will need to:
- Register for an EORI (Economic Operator Registration and Identification) number
- Either engage an agent to submit import/export declarations or obtain authorisation from HMRC to obtain software to do it themselves
- Check whether a license is needed for the goods that the business is importing or exporting
- Amend contracts and INCOTERMS to reflect the business is now an importer/exporter
- For imports, confirm the correct classification and value of the goods
- Also, for imports consider whether it is beneficial to use a customs procedure to delay or relieve the payment of duty.
The place of supply rules for UK businesses supply services into the EU
The place of supply rules will broadly remain the same if no Brexit deal is agreed, however there are some administrative changes.
VAT Mini One Stop Shop (MOSS)
The UK will no longer be able to use the EU VAT MOSS scheme and instead will be required to use the non-union MOSS scheme. The non-union MOSS scheme requires non-EU businesses to register for VAT in an EU member state to file their VAT MOSS return.
UK businesses can only register for non-Union VAT MOSS after the date the UK leaves the EU and businesses will need to act quickly to meet the registration deadlines. This deadline could be as early as 10 April 2019 if a sale is made between 29-31 March 2019.
EU VAT refund system
UK businesses will continue to be able to claim refunds of VAT incurred in the EU. However, in future UK businesses will need to use the non-EU business procedure. The timescales and procedures are different to the EU refund scheme.
If you believe that your business may be impacted by Brexit and would like to discuss the potential changes, please contact our VAT partner Alison Birch.