VAT and How This May Change in a No Deal Post Brexit World
As Brexit negotiations prove evermore challenging it is more important than ever to be proactive in trying to mitigate the impact of the unthinkable ‘no deal’ outcome. Here at Mitchells we like to keep our clients informed and as such have produced a series of ‘No Deal Guidance Posts’ to help you understand the possible implications of various tax and trading issues that a no deal result may incur.
In this first post we look at VAT and how this may change.
Whilst the UK government is confident that it will agree a good deal for all, it is important that businesses consider how a ‘no deal’ scenario could affect them and begin to take steps to mitigate against such a risk, however unlikely.
In reality for most UK businesses there will be no change to VAT rules, however there will be some businesses that are affected, so it’s important to understand how things may change.
So what are the current VAT rules?
- VAT is charged on most goods and services sold within the UK and the EU.
- VAT is payable by businesses when they bring goods into the UK. There are different rules depending on whether the goods come from an EU or non-EU country.
- 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 that are exported by UK businesses 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 you need to charge and account for VAT.
What will be the position post 29 March 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.
- However, there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU member states
UK businesses importing goods from the EU
In a no deal scenario, the current rules for imports from non-EU countries will also apply to imports from the EU.
Accounting for import VAT on goods imported into the UK
If the UK leaves the EU without an agreement, the government plans to 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.
In reaching this decision, the government has taken account of the views of businesses and sought to mitigate any adverse cash-flow impacts keeping VAT processes as close as possible to what they are now. To ensure equity of treatment, in a no deal scenario, businesses importing goods will be able to account for their import VAT from non-EU countries in the same way, which will help UK businesses make the most of trading opportunities around the world.
VAT on goods entering the UK as parcels sent by overseas businesses
If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses.
VAT on vehicles imported into the UK
If the UK leaves the EU 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 Procedures (NOVA) system will continue to be used for this purpose.
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 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
No agreement would mean 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.
UK businesses exporting goods to EU businesses
Following a no deal 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 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 World rules.
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 rules around ‘place of supply’ will continue to apply in broadly the same way that they do now, however there are a few areas of potential change which could affect suppliers of digital services to non-business customers in the EU, suppliers of insurance and financial services and businesses that currently use the VAT Mini One Stop Shop (MOSS). More details can be found at https://www.gov.uk/government-no-brexit-deal
UK VAT Mini One Stop Shop (MOSS)
Businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU.
Businesses that want to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU Member State. 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 April 2019 if you make a sale from the 29 to 31 March 2019, and by 10 May 2019 if you make a sale in April 2019.
Alternatively, a business can register in each EU Member State where sales are made. You can find further information about registering for VAT in EU member states on the EU Commission’s website.
EU VAT refund system
UK businesses will continue to be able to claim refunds of VAT from EU member states but in future they will need to use the existing processes for non-EU businesses.
UK business 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. This process varies across the EU and businesses will need to make themselves aware of the processes in the individual countries where they incur costs and want to claim a refund.
Businesses in Northern Ireland importing and exporting to Ireland
In the event of a no deal scenario, the UK Government are poised to stand ready to engage constructively to meet their commitments and act in the best interests of the people of Northern Ireland, recognising the very significant challenges that the lack of a UK-EU legal agreement would pose in this unique and highly sensitive context.
For more information…
This brief summarises the main VAT issues for UK businesses in the unlikely event the UK leaves the EU without a deal and is for guidance only. For more detailed information, please visit https://www.gov.uk/government/publications/vat-for-businesses-if-theres-no-brexit-deal