The UK has issued a range of guidance notices informing the public and businesses of the implications of the UK leaving the EU on 29 March 2019 without a formal Withdrawal Agreement. The government emphasizes that this is unlikely given the progress of ongoing discussions.
One of the notices covers VAT implications for businesses trading with the EU if there is not Brexit deal. Topics cover:
Importing goods from the EU
- The government will introduce a postponed import VAT regime so companies buying goods from the EU or other countries can avoid the cash flow problems of having to recover UK import VAT. This would have to be extended to non-EU businesses too, who currently pay an estimated £31 billion per annum in recoverable import VAT.
- The current £15 low value consignment stock relief provided for small, imported packages will not be extended to goods coming from the EU. The EU had planned to scrap this relief anyway in 2021.
- For parcels under £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 payments 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 familiarise themselves with their new obligations, the online service will be available for businesses to register in early 2019, prior to 29 March. On goods worth more than £135 sent as parcels VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries, guidance on these procedures can be found here in HMRC notice 143. VAT will also continue to be collected in line with current procedures for all excise goods sent as parcels and potentially in cases where their supplier is not compliant with HMRC’s new parcels policy. HMRC is working with the relevant industry stakeholders and will provide further information in due course.
Exporting goods to the EU
- EU member states will treat goods coming from the UK in the same way as from any other non-EU third-country. This means import VAT and customs tariffs would become due for the first time.
- Distance selling VAT registration threshold relief will cease to apply in the event of no Brexit deal. This means many small UK e-commerce retailers would have to VAT register immediately for B2C goods trading into EU states. This could affect over 35,000 UK small businesses.
- 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.
Exporting services into the EU
- The factors for determining where VAT is payable, the ‘place of supply’ rules, will remain the same for sales of services to consumers and individuals
- This is the same for digital services provided from the UK to EU consumers, but the use of the 2015 Mini One Stop Shop reporting may change later, including UK businesses re-registering under the non-union scheme
- 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 updates will follow.
- UK business will no longer have access to the EU VAT refund system – ‘8th Directive’ reclaims. UK businesses will continue to be able to claim refunds of VAT from EU member states by using the existing processes for non-EU businesses – ’13th Directive’ reclaims.
UK VAT numbers
- The UK will develop its own online VAT number validation portal, similar to the EU’s VIES.