Tag: Brexit

UK businesses

Following the deal made with the EU, what is the difference for UK businesses selling to consumers in the EU post Brexit?

Although it was publicised that there would be no tariffs under the deal, this only applies to goods that comply with certain rules of origin (broadly speaking, they are made from materials originating in the UK or EU). Therefore, it is still important to check whether Customs Duty may apply to goods that are being sent to the EU, especially if UK businesses are importing components from outside the EU.

UK businesses will no longer have the benefit of accounting for UK VAT on sales until the distance selling threshold is breached and the current EU Mini One Stop Shop (MOSS) for non-EU businesses only covers services, not goods.

There is no registration threshold for non-EU established businesses, so the first sale of any goods delivered to a consumer in any EU member state on a B2C basis will result in a VAT registration liability in that EU member state. Therefore, UK businesses selling goods to EU consumers on a B2C basis will have the following options:

1. UK businesses can be responsible for importing the goods into the EU member state concerned and for the delivery of the goods to their customers (ie on delivery duty paid terms).; they will have to pay local import VAT and charge local VAT (once registered).
2. UK businesses can ask their consumer to be the importer in which case no UK VAT would be charged to the consumer, but the customer would be responsible for import VAT and any duty (there shouldn’t be any under the terms of the deal for most goods see above) when the goods reach the EU member state concerned (ie on delivered-at-place terms)
3. As a result of the issues concerning the options above, many UK businesses selling to multiple EU jurisdictions are suspending sales to the EU until July 2021 when the EU is launching a new system for non-EU businesses. Therefore, UK businesses can choose to wait until July 2021 to make EU consumer sales and to then use new rules for goods with a value of less than €150 (see separate section).
4. Another option would be to obtain EU premises, register for VAT in that EU member state concerned and to fulfil all EU orders from these premises

What are the key considerations in choosing which option above?

Option one

The disadvantage of option one is that UK businesses may be required to register for VAT in every EU member state  they have consumers in.  This, combined with the need to appoint a local fiscal representative, increases the administrative burden and compliance costs involved in selling to EU consumers. The UK business will need an EU EORI number which will apply across all EU member states.

Option two

The disadvantage of option two is that the consumer is inconvenienced in having to deal with paying VAT and Duty before the goods are delivered to them, and they may have to visit a local depot to collect their goods. There is also the difficulty of consumers not knowing the true cost of an item when it is ordered. However, it may be possible for parcel companies and freight forwarders to pay the VAT and Duty on the customers behalf so that the goods can be delivered to them hassle free (but this does not remove the cost of course).

Option three

The obvious issue with option three is the lack of trade in the meantime, whilst businesses wait for July 2021. This is especially costly in the current climate of lockdown when there is an increase in online mail order goods being sold.

Option four

The costs associated with this option would be higher than the other options as businesses would have to operate the premises and would still be liable to account for VAT in the EU member states in which  consumers are located (subject to the distance selling thresholds until July 2021). There would be local administration and compliance requirements to deal with, as well as the logistics of operating the premises and distribution of goods.  However, you would be entitled to use the MOSS/OSS.

What are the new rules being introduced for EU B2C sales from 1 July 2021?

The EU will be launching a new Import One Stop Shop (IOSS) for non-EU businesses.  Under the scheme, which is optional, UK businesses can register for VAT in one EU member state and account for VAT on sales in all other member states through that registration. There will be no import VAT or Customs Duty payable (subject to compliance with rules of origin) if the consignment is valued at less than €150. A monthly IOSS return will be required which will account for VAT on all EU sales on a country-by-country basis (at the various differing VAT rates). The scheme will resolve a lot of the administrative issues that would otherwise be the case (ie under option one set out above).

As far as the UK is concerned, these sales will be treated as zero-rated exports assuming that the appropriate evidence is retained.

As a result of the above, many UK businesses are likely to choose to register for VAT in Ireland, because of the shared language. There are already unprecedented backlogs and delays in obtaining this registration,  as a result of Brexit, and this is likely to increase in July 2021. We have close links to our MSI Global Alliance associates in Ireland and can assist UK businesses with VAT registration  if required.

What if we supply digital services to EU consumers?

As with the sale of goods, there is again no registration threshold for the sale of digital services (eg music downloading, videos, online gaming, apps, software services etc), therefore UK businesses would be required to register for VAT in each EU member state where they have consumers.

Alternatively, they can use the EU MOSS scheme for non-established businesses. This will mean having to register in one EU member state for the VAT MOSS non-union scheme as a non-EU provider and accounting for VAT on all EU sales (at the various differing VAT rates) through the one MOSS return.

As a result of the above, many UK businesses will choose to register for VAT in Ireland. As previously mentioned, there is already unprecedented backlogs and delays in obtaining VAT registration in Ireland, as a result of Brexit, and this is likely to increase in July 2021. We have close links to our MSI Global Alliance associates in Ireland and can assist UK businesses with VAT registration if required.

Any changes for any other services (non-digital) to EU consumers?

HMRC has changed their policy in respect of the place of supply of certain services which would previously have attracted UK VAT when provided to EU consumers before Brexit, this will no longer be the case. These services will now be outside the scope of VAT with the right to reclaim related input VAT (ie effectively zero-rated). This applies to most professional services to consumers (legal, accounting and advisory) and more detailed commentary is available in our article here.

Non-UK businesses selling into the UK

What are the requirements for non-UK businesses selling goods to UK consumers?

If you are a business without an establishment in the UK, the VAT treatment will depend on the value of the goods (each consignment) being sold and whether this value exceeds £135 or not as follows:

1. Goods not exceeding £135 in value: there will be a requirement for the EU business to register for UK VAT and charge UK VAT at point of sale on the supply being made to the end customer.
2. Goods exceeding £135 in value: the importer of the goods is required to be registered for UK VAT and will have to charge UK VAT on these supplies. However, in this case, there is an option to have the end consumer take responsibility for the cost of import into the UK. If businesses opt to take this route, the consumer is required to pay the import VAT when the goods arrive, but the overseas business does not need to charge VAT to the customer so would not be required to register for UK VAT.

More detailed commentary of these rules is available in our article here.

Are there any special rules for Online Marketplaces (OMP)?

If goods are already in the UK and are being sold through an OMP, the OMP will be deemed to be making the supplies for VAT purposes. In addition, OMP’s are now jointly and severally liable for any UK VAT that is due on any sales made through the OMP. Therefore, OMP’s will now have to not only take careful consideration of their own VAT position but will also have to keep an eye on and police the VAT treatment adopted by their users.

If you are a business affected by the changes above and require any assistance with UK VAT registration, or assistance in respect of EU B2C sales, we have a dedicated team of experts experienced in this area and would be pleased to help. We would be pleased to advise you further and can assist with VAT registration applications, as well as any future compliance requirements. If you wish to discuss any aspect further, please contact Kamlesh Chauhan, Senior VAT Manager, on 020 7969 5584 or via email kchauhan@haysmacintyre.com.

So how does this affect the VAT treatment of goods being moved between Northern Ireland, the rest of the UK and the EU?

The starting point to note is that businesses moving goods from Northern Ireland will now need a special XI EORI number.

When goods are moved from Northern Ireland to the EU, the existing EU VAT rules remain in place. This means that the distance selling rules apply when selling goods to consumers in other EU countries (until 1 July 2021 when the distance selling thresholds will be abolished across the EU).

When supplies of goods are made to EU business customers, the sales should be treated as being a zero-rated intra-EU dispatch of goods. This is of course different to the position when goods are sold from the rest of the UK to other EU countries, which will be seen as being an export of goods. Such a sale is also zero-rated but duties will be payable on import into the EU, unlike the situation where they move from Northern Ireland.

When goods are sold between the rest of the UK and Northern Ireland this will still be a domestic supply, so VAT will be chargeable accordingly. However, when businesses move their own goods from the rest of the UK to Northern Ireland this will be seen as being an import for VAT purposes, so an output VAT amount will need to be declared with the same amount being recoverable as input VAT (subject to the usual recovery position).

This will also impact supplies by members of a VAT group. Usually, of course, supplies between members of the same VAT group are disregarded for VAT purposes. However, when goods are supplied from the rest of the UK to Northern Ireland, VAT will now be due on this supply in the same way as the movement of own goods detailed above.

There will be no need to account for any VAT when own goods are moved from Northern Ireland to the rest of the UK.

Trader Support Service

As well as VAT differences, there will also be additional customs declarations to be made when sending goods between the rest of the UK and Northern Ireland. HMRC have therefore introduced the Trader Support Service. This is a free online tool which offers support and guidance to businesses that are moving goods between the rest of the UK and Northern Ireland. Businesses that sign up for this service will also automatically be issued with an XI EORI Number.

Margin scheme sales

It should also be noted that from 1 January 2021 any margin scheme will not be available when stock is purchased in the rest of the UK and sold in Northern Ireland. Instead, VAT will need to be accounted for on the full value of the supply as normal. The margin scheme will still be available for the sale of goods that are purchased in Northern Ireland or the EU and sold within Northern Ireland, the rest of the UK or the EU.

Intrastat

If you submit Intrastat forms, you will still need to submit Arrival forms at least for 2021. However, you no longer need to submit Dispatches forms.

EC Sales Lists

These will no longer be required unless your business is located in Northern Ireland.

Mini One Stop Shop (MOSS)

If you are registered for MOSS, you will no longer be able to submit the existing MOSS returns to HMRC. You will either have to register for VAT in each of the EU States where you trade, or register in one other EU State to use what is referred to as the Non-Union MOSS and submit returns to that country’s tax authority.

VAT return boxes

Boxes 2, 8 and 9 are no longer relevant and should be completed as nil, unless your business is located in Northern Ireland. In this case you can complete them as normal.

Importing Goods

If you are importing goods from the rest of the world or the EU, you should account for VAT using what is known as ‘Postponed Accounting’, as follows: if the value of the goods is £100 and the item is standard-rated you declare £20 VAT in box 1 and £20 in box 4, provided you are able to claim back VAT in full.

If you are partly exempt or otherwise unable to recover VAT in full you would enter the amount of VAT in box 4 that you are entitled to claim.

UK VAT legislation currently distinguishes between supplies made to private individuals within the EU and supplies made to private individuals outside of the EU. Paragraph 16 of Schedule 4A lists the relevant services and states that the place of supply of these services is where the customer belongs, provided the customer belongs outside of the EU, so no UK VAT is chargeable. However, for supplies to customers based within the EU, UK VAT would be chargeable on the basis that this is a B2C supply of services to another EU country, which is subject to the general place of supply rules.

Following Brexit, although the legislation has not been changed, HMRC have updated VAT Notice 741A to remove this distinction. The notice states that when you provide such services, these services are now deemed to be supplied where your customer belongs so will always be outside the scope of UK VAT.

Interestingly, if the supply is deemed to be supplied where the customer belongs it raises the question as to whether there would then be a requirement for the supplier to register for VAT in the EU country where their customer belongs. We expect that this will be unlikely on the basis that we presume this is intended as an easement which is intended to put people supplying private individuals in the EU on a level footing with people supplying private individuals outside of the EU; though it remains to be seen whether HMRC provide further comment on this aspect of the policy change, and what any subsequent change to the law says.