The UK formally left the European Union on 31 March 2020.
Although there is a transitional period under which existing rules will remain in place, this is due to expire on 31 December 2020, after which there will be significant changes to the VAT and Duty rules that apply to trade between the UK and the EU.
The UK government are currently in the process of agreeing the rules under which the UK will trade with the EU from 1 January 2021.
Although we do not yet know what the specific rules will be, and it is likely that some of the new rules will be deferred, it is expected that on 1 January 2021:
- the supply of goods between the UK and the EU will become subject to Customs Clearance procedures (in the UK and in EU countries)
- import duties will therefore become payable on many types of goods and import VAT will become payable on VATable goods
We expect that procedures will be put in place to defer payment of Import Duties and Import VAT and in most cases, Import VAT will be recoverable.
However, Import Duties are not recoverable from HMRC and will represent an additional cost.
Compliance burdens are also expected to increase significantly.
There are also likely to be other significant changes to how VAT applies to cross border trading (both goods and services) as VAT simplifications that business have relied on over the years disappear.
Sectors that are likely to be significantly affected are:
- Online retailers and other online suppliers
- Online service providers (particularly providers of ‘electronic services’)
- Travel and tourism
This list is not exhaustive and Brexit will have an impact on most businesses.