Impact on retailers sending goods from the UK to other EU member states

But first the good news

In order to help businesses with the changes in customs requirements, HMRC recently announced that it was making available additional funding to help businesses cope with new customs arrangements and declarations.  The deadline for businesses to apply for a grant is 31 January 2020 at the latest, an application can be made even if you previously applied for a grant from HMRC.

The further £10m in grants is open to businesses based in, or with a branch in, the UK, that currently complete customs declarations for importers and exporters.

The grants are available to support costs of hiring staff, including £3,000 for recruitment costs, and up to £10,000 for salary costs, to help build business capacity.  Full details on eligibility are available from HMRC here https://www.gov.uk/guidance/grants-for-businesses-that-complete-customs-declarations.

Brexit impact on VAT on distance sales

Under current VAT rules, e-retailers can use their UK VAT number to account for sales (B2C) made to other EU member states, as long as the value of sales in each calendar year remains below the EU member states’ distance selling threshold (set at either €35,000 or €100,000).  Going forward it is likely that the distance selling VAT registration thresholds for UK businesses will be removed as a result of Brexit, as this is a VAT simplification measure for EU businesses when trading within EU member states.

EU VAT registration

Any retailers that are trading in other EU member states will be required to apply for VAT registration and charge and account for local VAT for sales in that EU member state (subject to their local rules).  This invariably involves additional costs in term of compliance and administration which can be more cumbersome than in the UK.

It is also likely that any businesses that are already registered for VAT in another EU member state will be required to appoint a local fiscal/tax agent. These agents will become jointly and severally liable for any unpaid VAT and as a consequence high fees and bank guarantees may be involved.

Customs issues

UK businesses will need to consider import VAT and customs duties for goods from the EU and the cash flow impact these may have, many businesses will have to deal with this for the first time.

For incoming goods into the UK, importing goods into the UK will attract UK import VAT and potentially customs duties.  However, there is a new fast track customs clearance and tariff deferred payments scheme, as well as the ability to reclaim the import VAT in your VAT return.  Known as the Transitional Simplified Procedure, it requires a guarantee to be given to HMRC and a duty deferment account to be set up.

In addition, sales of goods from the UK to the EU may be subject to customs duties and tariffs as well as export declarations being required for each sale.

Potential solutions

We are working with a number of clients regards these issues and a range of potential solutions have been discussed.

• UK distance sellers could ask their EU customer to act as importer which in practice is likely to be commercially unattractive and potentially have a negative impact on your brand.
• Alternatively, there are UK businesses that will act as “hub agent” and sell goods through their own EU VAT registrations on your behalf.  The goods are sold by the UK business to the hub agent and delivered to the UK hub with UK VAT charged.  The hub agent will then deal with all the EU VAT and customs requirements on your behalf.  However, the fee charged by such agents tends to be a relatively high percentage of the sale price.
• Lastly, it may be worth looking to set up a subsidiary or VAT registration in the Netherlands or Belgium to channel goods through into the EU.  Both member state have import VAT deferment schemes which are very popular with non-EU businesses.  Many EU member states will allow simplification for import VAT procedures so that the import VAT does not have to be paid but can simply be entered on the VAT return (the UK has also announced that it will apply this after March 2020).

For more information on the potential impact of Brexit on the UK’s VAT arrangements, please speak with Kamlesh Chauhan or your usual haysmacintyre contact.