This article was published prior to the publication of the post-Brexit agreement between the UK and EU which covers the relationship between the UK and EU following the end of the implementation period (commonly referred to as the “transition period”) created by the European Union (Withdrawal Agreement) Act 2020, and should be read in that context. For up-to-date commentary and information on our services, please see our Beyond Brexit page.
On 23 August, the government published a note about the potential VAT consequences for businesses if there is a 'no-deal' Brexit. It explains various measures which the government intends to introduce or apply with effect from 29 March 2019 if this occurs.
Imports of goods from and exports to the EU will automatically become imports and exports from or to non-EU countries. Those rules generally require import VAT to be paid on entry, but the government proposes to change this rule so that importers can instead account for the VAT on their VAT return. This will apply to imports both from the EU and from non-EU countries and alleviates the cash-flow concerns about the change raised by businesses.
The Low Value Consignment Relief will no longer apply to parcels entering the UK. However, the government proposes to introduce a 'technology based solution' to allow VAT to be collected from the overseas business for parcels of up to £135.
Exports to EU countries will be zero rated but the EU member state will treat the goods in the same way as treating the arrival of goods from outside the EU, with the associated import VAT and customs duties. Businesses will need to check the rules in each country they export to as the EU VAT refund system will no longer be available.
Businesses who store and supply goods in EU countries will have to make supplies in line with the Rest of World rules and may need to register for VAT in that country.
Services supplied into the EU
The place of supply of services rules will remain largely the same. However, one potential area for change flagged by the note is in connection with the supply of insurance and financial services. The rules in relation to input VAT deduction for financial services supplied to the EU may be changed.
A number of changes to the administration of VAT may need to be changed including:
- The UK VAT Mini One Stop Shop will no longer be able to be used (although businesses can register for the MOSS non-Union scheme in an EU member state)
- There will no longer be a requirement for an EC Sales List
- UK VAT numbers will no longer be part of the EU VAT number validation system but the government is developing its own similar system to enable UK VAT numbers to be validated
Northern Ireland/Ireland transactions
The paper mentions the importance of this issue but does not suggest any solutions. It recommends that businesses trading across the border should consider whether advice will be needed from the Irish government.
The guidance does give businesses some indication of how to prepare for a no-deal Brexit and, in particular, businesses which export goods to the EU will need to consider carefully the import rules of the relevant countries. However, there are still plenty of question marks and uncertainties for the months ahead.
HMRC has also published guidance on trading with the EU in the event of a no-deal and the impact on customs duties and tariffs, click here to read more.
- Consider the potential outcomes for your business in relation to VAT and customs duties (and in particular, review the actions recommended in HMRC's guidance notes)
Businesses who currently trade in goods with only the EU are most likely to be affected. Ashfords can work with you, your advisers and our network of consultants to assist you with preparing your business for changes relating to VAT and customs duties.