After the separation of UK from the EU the impact on taxation, particularly VAT, is focused on goods transactions. Since 1st January 2021, the fully neutral intracommunity supply and acquisition of goods has been replaced by export and import transactions. From a VAT perspective, the goods transactions are mainly in the spotlight because these will require rethinking tax and accounting processes. Other than the main modification of the type of transaction (from intra-community to export/import), there are many additional effects to be taken into consideration.
What happens to goods that were shipped in 2020? In this case, transitional rules take place. The main rule imposed by the EU-UK Withdrawal Agreement states that the determination of VAT conditions depends on the date of dispatch of goods. If the goods were dispatched in 2020, the transaction would be treated as an intra-community supply of goods.
In case of returns of goods originally shipped in 2020 then the taxpayer needs to provide proof that the goods were sent out of the country and that they have not been modified in any way.
While each EU country is redefining the way shipments from the UK are treated and harmonization processes are in place UK businesses will have to go through all of the intricacies of the VAT landscape and make an in-depth analysis of transaction models in order to minimize the impact and reduce registration challenges.
Source Credit: Linkedin