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Brexit Transition VAT Overview

At 11pm on the 31st December the Brexit transition period will officially come to an end. This will bring about some significant changes for businesses exporting and importing goods within the European Union. The UK Government have implemented a number of measures to ease the administrative burden as we leave the single market and customs union.

What’s Changing?

During the transition period businesses have had to make few changes as the UK has continued under the EU VAT system and remained within the single market and customs union. From 1st January new procedures must be followed when importing and exporting goods within the EU, this will be similar to those already in place for trading with non-EU countries.

For those affected by these changes, HMRC have put together a number of useful resources you can access below.

VAT Implications for your business

Domestic VAT will remain unchanged from the 1st January. For exports and imports to and from the EU new rules will apply. UK businesses will treat EU countries as they currently do for non-EU countries. What was previously referred to as dispatches and acquisitions under the EU VAT regime will become exports and import.

Generally speaking VAT will be payable on import, although the UK Government has introduced postponed VAT accounting to help businesses avoid cash flow issues once the transition period comes to an end.

Postponed VAT Accounting

The postponed VAT accounting system will become effective on 1st January and will remain in place until 30th June. This system is similar to the current reverse charge mechanism where instead of physically paying the import VAT upfront and reclaiming on the subsequent VAT return, it is accounted for as an input and ouput on the same VAT return.

The postponed VAT accounting system will also extend to non-EU imports.

HMRC will provide registered businesses with a monthly online statement that will show the import VAT postponed from the previous month.

VAT on Services

For VAT on the purchase of business to business (B2B) services the current place of supply rules will remain. The tax will generally be subject to the country where the customer is situated and will be treated as a reverse charge.

VAT on Exports

From 1st January exports to EU countries will be treated like exports to non-EU countries, in so far as the export will be zero rated for UK VAT. This applies for both business to consumer (B2C) and business to business (B2B) sales. Even though the VAT would be zero rated you would still be required to report the net value of the sale in box 6 of your VAT return. From 1st January there is no further need to identify the VAT status of your EU customers.

In regards to services, B2B sales of services will continue under the place of supply rules and be subject to the tax in the country of the customer and recorded using the reverse charge mechanism, with some limited exceptions. B2C sales of services will continue to be subject to the tax in the country of the seller.

Special rules for Northern Ireland

Unlike the rest of the UK, Northern Ireland will be subject to different rules dictated by the Northern Ireland Protocol. These measures were intended to avoid a hard border between Northern Ireland and the Republic of Ireland and are part of the UK’s withdrawal agreement with the EU.

The Northern Ireland Protocol will mean that Northern Ireland will remain in the EU customs union and VAT regime. Goods traded between Northern Ireland and Great Britain will remain subject to domestic VAT rules and therefore there will be no import VAT due on such movements.

Services exchanged between Northern Ireland and Great Britain will also remain subject to domestic VAT rules. More broadly services exchanged between Northern Ireland and the EU will be excluded from the Northern Ireland Protocol and from 1st January 2021 will be treated as Third Country supplies.

Conclusions

By now you should have a good understanding of how your business interacts with other businesses and consumers in the EU and to ensure that the necessary preparations have been made to avoid any disruption to your business. If you are moving goods between Great Britain and the EU and you have not done so already you must apply for an EORI number. You may also need to consider hiring a customs broker or freight forwarder to assist you with the transition.

From 8th April the VAT return will be updated as all VAT returns that wholly or partially predate the transition agreement deadline are filed. The VAT return format will retain the standard boxes 1-9 however specific provisions are made in regards to the new Northern Ireland Protocol and the cessation of EU dispatches and aquisitions. We will provide more information on these changes in due course.

Other VAT provisions will be introduced to the sales and purchase invoice editor in QuickFile from 1st January to allow you to report postponed vat accounting entries and other specific reverse charge scenarios. Again further information will be provided in due course on the nature of these changes.

We hope you have had a relaxing Christmas break and from everyone at QuickFile we wish you a healthy and prosperous 2021.

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Hi Glenn, I wish you and your lovely team a wonderful 2021 too.

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