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How has VAT changed since Brexit? A quick guide

Two months on from the end of the EU transition period, UK businesses still cite VAT changes as one of the leading sources of contention in their operations. Many remain confused about the rules and how to account for VAT, while some struggle to address the cost implications for their goods.

Problems relating to VAT have been touted in the media in recent months, with customers receiving unexpected costs after ordering from the EU and small firms facing price increases to cover rising expenses in their operations.

The issue of VAT comes up frequently when importing and exporting, so it is vital that companies understand the rules around this and adjust their costs accordingly. This is on top of the risk of financial and legal consequences if your company does not submit VAT returns properly.

In this guide, we have outlined the changes to VAT and how they may affect your business.

What has changed for imports?

When importing from the EU, the UK must follow the same process as importing from any non-EU country. Under the new rules, VAT-registered businesses can account for VAT using ‘postponed accounting’, which aims to ease the strain on cash flow.

Under this scheme, you can defer VAT payment until your next VAT return, enabling imports to pass through customs without immediate VAT payment. You can determine whether your business is eligible on the government website.

Import VAT tends to be 20% of the value of goods. Beyond this, there are other costs you may need to account for when importing, including customs duties, which apply to some goods.

For goods up to £135 in value, VAT should be charged at the point of sale rather than importation. This means supply VAT will be due on such orders rather than import VAT. The rates of supply VAT vary per product (as was the case before Brexit) and can be checked here.

VAT on goods moving between Great Britain and Northern Ireland will continue to be treated as domestic sales, and VAT charged accordingly. There are some exceptions, however, so be sure these do not affect you.

VAT on the import of services to the UK from the EU

For UK businesses, the VAT will be accounted for using postponed accounting and the related entries on the VAT return. There will be no cash transaction on import. For imported B2C services, VAT will be chargeable at the exporting country’s prevailing rate at the point of sale.

What has changed for exports?

For any exports you send to the EU, there has been some change. Under the rules, UK VAT is not charged on exports from Great Britain and Northern Ireland to other countries, as before January 2021. However, you must provide evidence that the goods were exported within three months of sale. You will also need to comply with zero-rating conditions.

This differs from having to complete an EC sales list as businesses may have done previously, though Northern Irish companies will still have to do this.

Your customers in the EU will have to pay import VAT and customs duty when goods arrive at their destination, in the same way that UK customers do on EU imports.

While UK VAT is not usually chargeable on exports, there are other costs you will need to account for when exporting to the EU. These include expenses around increased trade bureaucracy, such as labour to fill out declarations, payments to customs agents or hauliers, fees for licences and health checks and so on. Accounting for these may cause your operational costs to rise, so you must consider them and the impact on your business.

If you are selling to the EU, you may need to register for VAT in each country you will be exporting to comply with their VAT requirements. These tend to apply to the export of services.

As a non-EU seller, you may use the One-Stop-Shop (OSS) system to register as a non-union taxpayer in the relevant EU states. This scheme replaces the UK MOSS system for the sale of digital services to the EU.

Under the OSS, you can file quarterly returns with a regular domestic VAT return filed in at least one EU member state. Businesses wishing to utilise the OSS must register by the 10th day of the month following a sale.

Additional changes are also set to come into play after a grace period. From 1 July 2021, all suppliers selling to B2C customers in the EU (or B2B customers not registered for VAT) will have to account for Supply VAT to the relevant EU tax authority, and this will be charged at the point of sale on orders up to the value of €150. It is worth noting that this change is not related to the UK-EU TCA and instead will apply to any supplier from any country that is importing to the EU.

VAT on the export of services to the EU

Services supplied by a UK business to an EU business are supplied without charging VAT at point of sale. For the B2C export of services to an EU consumer, VAT must be charged at the point of sale in the UK.

Conclusion

Understanding the VAT changes is essential for any business involved in the trade that wants to stay on top of their accounting and ensure compliance with post-Brexit rules.

If you need support with your business’s VAT requirements, we are here to help. Our team of advisors can take you through the rule changes, including how to defer VAT payment with the HMRC and adjust your operations. We can also talk you through broader trade implications and how these might specifically impact your company.