Last edit: 24/09/2019

Global VAT Compliance Brexit impact analysis

Below we outline the immediate thing to think about in order to be prepared if the UK leaves the EU without a deal and therefore there is no transitional period.

If the UK leaves the EU on 31 October 2019 without a deal, the government’s aim will be to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses. However, if the UK leaves the EU with no agreement, then there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU member states.

Before 31 October 2019, under current VAT rules:

• VAT is charged on most goods and services sold within the UK and the EU.

• Goods sold B2C to the UK from other EU country are subject VAT in the country where the goods are shipped from or subject to UK VAT if the distance selling threshold is exceeded or if the seller opts to be taxed in the UK.

• Goods sold B2B to the UK from other EU country are subject VAT in the UK and the buyer reports and remit the UK VAT applying the VAT reverse charge mechanism

• Goods that are exported by UK businesses to non-EU countries and EU businesses are zero-rated, meaning that UK VAT is not charged at the point of sale.

• Goods sold B2C by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds or option to tax in the country of destination.

• On goods worth more than GBP 135 sent as parcels from non-EU countries VAT is collected from UK recipients.

• For services the ‘place of supply’ rules determine the country in which you need to charge and account for VAT.

• Electronic services sold B2C to the UK from other EU country are subject VAT in the UK VAT and VAT is paid via the Mini One Stop Shop (MOSS) quarterly return.

After 31 October 2019 if there’s no deal

• The UK will continue to have a VAT system after it leaves the EU. The VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now.

• In a no deal scenario the current rules for imports from non-EU countries will also apply to imports from the EU.

• The UK will introduce postponed accounting for import VAT on goods brought into the UK. This means that 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 time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries.

• For goods with a value up to GBP 135 sold B2C to the UK from other countries as parcels, import VAT will be payable.  The Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK from the EU and other third countries.  This means that all goods with a value of GBP 135 or less will be subject to UK import VAT.  The sale from Germany is a zero-rated export.

• On goods worth more than GBP 135 sent as parcels VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries.

Impact examples:

• Goods with a value of GBP 135 or less sold from Amazon Germany warehouse are subject to UK VAT.  Seller must be VAT registered in the UK.

• Goods with a value of GPP 135 or less sold from China, sold vis AliExpress are subject to UK VAT.  Seller must be VAT registered in the UK.

• Goods sold B2C by UK businesses to EU consumers are zero-rated in the UK, meaning that UK VAT is not charged at the point of sale.  For goods up to the local Low Value Consignment Relief (LVCR) in the country of destination, no VAT is due.  For goods exceed the LVCR for VAT has to be paid by the consumer.

• Goods sold B2B to the UK from EU countries are subject to the VAT zero rate in the country of departure and subject to import VAT due by the UK recipient of the goods. Impact examples:• Goods with a value of EUR 15 sold from Amazon UK warehouse to consumer in Germany is VAT zero rated in the UK.  Goods are not subject to German VAT or customs duties as LVCR applies.

• Suppliers of digital services with a VAT MOSS registration in the UK must enrol for the VAT MOSS in another EU country.

• Suppliers of digital services with a VAT MOSS registration in another country than the UK must enrol for VAT reporting on digital services in the UK separately next to the EU VAT MOSS.

VAT on goods entering the UK as parcels sent by overseas businesses

Online supplies of goods from EU to UK after Brexit

If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses.

The government earlier announced that the Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK from the EU and other third countries.

This means that LVCR will no longer apply to any parcels arriving in the UK.  The result is that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing).

For parcels valued up to and including GBP 135, a special VAT registration portal will allow VAT to be collected from the overseas business selling the goods into the UK. Foreign businesses will charge VAT at the point of purchase and will be expected to register with an HM Revenue & Customs (HMRC) digital service and account for VAT due.

The digital service is an online registration.  Businesses will be provided with a Unique Identifier which will accompany the parcels they send in to the UK. They will then declare the VAT due on those parcels and pay this via their online account. This ensures the process of paying VAT on parcels does not become burdensome for UK consumers and businesses.

On goods worth more than GBP 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 will also continue to be collected in line with current procedures for all excise goods sent as parcels and potentially in cases where their supplier is not compliant with HMRC’s new parcels policy. HMRC is working with the relevant industry stakeholders and will provide further information in due course.

Sellers selling goods from UK to consumers in EU

If the UK leaves the EU without an agreement, distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate sales of goods to EU consumers.

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 customs duties due when the goods arrive into 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.

As UK VAT registered businesses will not be required to complete an EC sales list, there will be changes to how these sales are recorded. Those UK businesses exporting goods to EU businesses will need to retain evidence to prove that goods have left the UK, to support the zero-rating of the supply. Most businesses already maintain this evidence as part of current processes and the required evidence will be similar to that currently required for exports to non-EU countries with any differences to be communicated in due course.

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 customs duties due when the goods arrive into the EU. Individual EU 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 goods from a warehouse 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 World rules. Current EU rules would mean that UK businesses will continue to be required to register for VAT in the EU member states where sales are made in order to account for the VAT due in those countries.

Depending on the country the UK business may need to appoint a fiscal representative.

UK businesses supplying services into the EU

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. The rules around ‘place of supply’ will continue to apply in broadly the same way that they do now, areas of potential change are flagged below.

VAT compliance for B2C sales of digital services

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.  UK Businesses supplying digital services cannot continue to use the MOSS in the UK and need to register in an EU country under the MOSS non-union scheme.  This can only be done after the date the UK leaves the EU. The non-union MOSS scheme requires businesses to register by the 10th day of the month following a sale. You will need to register by 10 November 2019 if you make a sale in October 2019.

EU business registered for the VAT MOSS will likely need an additional UK VAT registration for reporting VAT on digital services.

Non-EU business currently registered for the VAT MOSS non-union scheme in the UK need to move the VAT MOSS registration to a remaining EU country.  Non-EU business currently registered for the VAT MOSS non-union scheme in a country other than the UK will need an additional UK VAT registration for reporting VAT on digital services.

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 (VIES) to check the validity of EU business VAT registration numbers and HMRC is developing a service so that UK VAT numbers can continue to be validated.

The EU VAT Registration Number Validation service allows businesses to check whether a customer or supplier’s VAT number is valid.

UK VAT registration numbers will no longer be part of this service. In the event of no agreement HMRC is developing a system so that UK VAT numbers can continue to be validated.