Brexit and the complexities around VAT

Brexit and the complexities around VAT

Much is set to change in 2021, with the UK officially leaving the European Union and heading into either a brave new future or a perilous and uncertain one, depending upon who you may ask.

While the nature of this future is up for debate, for the time being, one aspect of this post-Brexit future certainly isn’t - trade is set to change. 

One of the biggest questions surrounding the UK’s trade after leaving the single market is what happens with VAT. In this article, WTA will endeavour to explain the VAT situation as it currently stands. 

What is changing? 

The EU/UK trade agreement sets up free trade between the two parties, but only for those originating in either the UK or the EU. This rule of origin is set to result in more paperwork for shippers, with many having to prove that their product was manufactured in the UK to import tariff-free to Europe or vice versa. 

There is currently a worry that the UK doesn’t have the physical infrastructure available to process this increase in paperwork. As a result, the UK has delayed the physical checks at its borders

Is VAT changing? 

Domestic VAT rules will remain the same in the UK post-Brexit. However, VAT will change for imports and exports.

The reason for this change is that the UK was formally part of the EU VAT scheme. Due to this, UK businesses conveniently didn’t have to register for VAT for each EU member country they exported into.  UK businesses have now lost the right to use the B2B VAT Triangulation Simplification when selling goods to EU member countries. EU suppliers also now have to pay import VAT following Brexit. More on VAT Triangulation simplification later on in the blog.

After January 1st, 2021, the UK must do business with EU members in a similar manner to how they used to do business inside the EU with non-EU countries. 

Trade with EU countries is no longer called dispatches and acquisitions and instead is referred to as imports and exports – again, in line with trade with non-EU countries.

Import VAT

After January 1st, 2021 imported goods (over the cost of £135) to the UK must account for import VAT. The UK Government has introduced Postponed VAT Accounting known as PVA which does help businesses with their cashflow . For imports beneath £135, exporters to the UK will have to apply to join the UK VAT system and charge UK VAT. 

Export VAT

Similarly to import VAT, export VAT has also changed after January 1st, 2021. Exports to the European Union are now treated the same as exports to non-EU countries. In other words, they are zero-rated for UK VAT.  This doesn’t mean you forget about VAT for your exports, you need to still account for VAT but register it as 0%. You also need to take into consideration what the VAT implications are at the export destination. 

B2B VAT Triangulation Simplification

As mentioned earlier in the blog, UK businesses have lost the right to use the B2B VAT Triangulation simplification when selling goods to the EU. This means that prior to Brexit, if a UK based company had a supplier in France and a customer in Germany they didn’t need to register for VAT in France or Germany. Now, if you still have the triangulation of being headquartered in the UK but have suppliers in France and a customers in Germany you now need to potentially have VAT registrations in either France or Germany.

Another option is to consider setting up fiscal representation in Europe. This could be a viable solution for non-EU companies wanting to sell their products throughout the EU.

Northern Ireland

The Northern Ireland situation is slightly more complicated. The withdrawal from the European Union had to respect the terms of the Good Friday Agreement. This meant that there had to be no hard border between Ireland and Northern Ireland. 

Depending on whether or not goods are coming into Northern Ireland from Great Britain, or out of Northern Ireland to Great Britain will determine how trade operates moving forward.

Regarding products coming into Great Britain from Northern Ireland, nothing will change. There are no new paperwork requirements in place. On the other hand, for products coming into Northern Ireland from Great Britain, goods must now be declared to be considered ‘not at risk’ of moving. 

There will be no VAT on imported goods between Northern Ireland and Great Britain. 

 

As Brexit will continue to make headlines, shippers need to keep on top of all importing and exporting changes from the UK and Europe. WTA has a customs and compliance guide that is updated whenever the Brexit situation changes. Explore WTA's customs and compliance resources below.

Learn more about Custom and Compliance post-Brexit