VAT and a No Deal Brexit
HMRC have published a notice setting out the implications for VAT rules for goods and services traded between the UK and the EU in the event that the UK leaves the EU on 29 March 2019 with no agreement.
The current VAT rules… Under the current VAT rules:
• VAT is charged on most goods and services sold within the UK and EU.
• VAT is payable by businesses when they bring goods into the UK. The rules differ depending on whether the goods come from an EU or a non-EU country.
• UK goods exported to non-EU countries and businesses in the EU are zero-rated.
• UK goods that are exported to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds.
• For services the ‘place of supply’ rules determine the country in which VAT is charged.
Post-29 March 2019, if the UK leaves the EU without a deal, the VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now. However, there will be changes to the VAT rules and procedures that apply to transactions between the UK and EU member states.
Accounting for import VAT on goods imported to the UK
The Government proposes to introduce “postponed accounting” for import VAT on goods brought into the UK.
UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return rather than paying import VAT on or soon after the goods arrive at the UK border.
This will apply to imports from the EU as well as non-EU countries.
Customs declarations and the payment of any other duties will still be required.
VAT and goods entering the UK as parcels sent by overseas businesses.
VAT will be payable on goods entering the UK as parcels sent by overseas businesses.
Low Value Consignment Relief will no longer apply to any parcels arriving in the UK.
Consequently, all goods entering the UK as parcels sent by overseas businesses will be liable for VAT unless they are relieved under UK domestic VAT rules, e.g. zero-rating of children’s clothing.
For parcels valued up to and including £135, the Government proposes that 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 HMRC’s digital service and account for the VAT due.
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.
VAT on vehicles imported into the UK post No deal Brexit
If the UK leaves the UK without an agreement, businesses should continue to notify HMRC about vehicles brought into the UK from abroad as they do now. The Notification of Vehicle Arrival Procedure (NOVA), an online service, will continue to be used for this purpose.
The DVLA will not register a vehicle brought into the UK for use on UK roads unless it has a valid NOVA notification or has been registered using the DVLA secure registration scheme.
The rules on the movement of goods to the UK from the EU will change when the UK leaves the EU and as a result, import VAT will be due on vehicles you bring into the UK from the EU from EU member states. Certain reliefs will also be available as with current imports of vehicles from non-EU countries. Businesses will need to continue to use NOVA to verify that VAT is correctly paid on imported vehicles.
UK businesses exporting goods to EU consumers
The distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero-rate sales of goods to private individuals in the EU.
Current EU rules would mean that EU member states will treat UK goods entering the EU in the same way as goods entering from other non-EU countries, with associated VAT and customs duties due when the goods arrive in the EU.
UK businesses exporting goods to EU businesses
If the UK leaves the EU without an agreement, VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists. However, UK businesses exporting goods to EU businesses will need to retain evidence to provide that goods have left the UK, to support the zero-rating of the supply.
Current EU rules would mean that 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 custom duties due when the goods arrive into the EU. Individual 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.
UK businesses selling their own goods in an EU Member State to customers in that country
If the UK leaves the EU without an agreement, UK businesses will be able to continue to sell goods they have stored in an EU Member State to customers in the EU in line with current Rest of the World rules.
Current EU rules would mean that UK businesses will continue to be required to register for VAT in the EU member stages where sales are made in order to account for the VAT due in those countries.
Place of supply rules for UK businesses supplying services into the EU
If the UK leaves the EU without an agreement, the main VAT ‘place of supply’ rules will remain the same for UK businesses.
The current ‘place of supply’ rules determine the country in which you need to charge and account for VAT. These rules are in line with international standards set out by the OECD.
The rules around ‘place of supply’ will continue to apply in broadly the same way as they do now but there are some areas of potential change.
For UK businesses supplying digital services to non-business customers in the EU the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU Member State within which your customer is a resident.
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. HMRC intends to issue further updates in due course.
EU VAT refund system
UK businesses will no longer have access to the EU VAT refund system. 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.
The process varies across the EU businesses will need to make themselves aware of the processes in the individual countries where they incur costs and want to claim a refund.
EU VAT Registration Number Validation
If the UK leaves the EU without an agreement, UK businesses will be able to continue to use the EU VAT number validation service to check the validity of EU business VAT registration numbers and HMRC are developing a service so that UK VAT numbers can continue to be validated.
Conclusion on VAT & Brexit
These points highlight the most significant changes that would arise should the UK leave without an agreement.
However, the Government stresses that a scenario in which the UK leaves the EU without agreement remains unlikely given the mutual interests of the UK and the EU in securing a negotiated outcome. The accelerated preparations for a no deal scenario do not reflect an increased likelihood of a ‘no deal’ but instead are about ensuring plans are in place…
Enterprise Tax Consultants can advise on all aspects VAT & Brexit
Tax advice services include VAT Advice.