Brexit – Finally a Deal!
With little more than a week before the UK’s departure from the EU, a deal between the UK and the EU was finally reached. Given the fact that it has been over 4 years since the British public voted to leave the EU, it would be foolish for us to try and claim that we understand all the details of the deal and the respective tax authorities will be issuing guidance over the coming weeks. We will however briefly detail some of the key VAT changes which are likely to affect UK and EU businesses.
Tariffs and Duties – The deal suggests that no trade tariffs or customs duties will be due on the movement of goods between the UK and EU. This will be welcome news for anyone involved in the sale of goods between UK and the EU. It is worth remembering that the UK is still the fifth or sixth (depending who you ask) largest economy in the world, so a tariff/customs free agreement is very welcome.
Import VAT – From the start of January 2021, any goods imported into the UK from EU will be subject to UK import VAT. Likewise, any goods moving from the UK to the EU will also be subject to EU import VAT.
In most countries, for a business to import goods, import VAT needs to be paid at the border, after which the goods are free to enter the country. The UK tax authorities are introducing a new scheme “postponed VAT accounting” from January 2021. This means that the importer does not pay import VAT when the goods arrive at the UK. Instead the importer can account for the UK import VAT on the VAT return covering the period the import occurred in. Assuming the importer can claim VAT in full on the goods (i.e. there is no private, exempt or non-business use), the same amount of VAT is claimed on the same VAT return. An import entry will still need to be made and this is usually dealt with by a freight or shipping agent. At the end of each month the importer will be able to download the list of imports for that month and this should be used to account for the import VAT.
B2C Sales of Goods Shipped from Overseas to UK Customers up to £135 in Value – A new scheme is being introduced where overseas sellers of goods up to £135 in value will need to charge output VAT like a comparable UK business. Such imports will no longer be subject to import VAT. For goods sold directly by an overseas seller to a customer, this will mean that the overseas seller will need to register and account for VAT to the UK tax authority. The Postal authority or shipping agents will no longer collect the import VAT from customers.
Where the goods are sold by means of an online marketplace (OMP) such as Amazon, eBay etc, the OMP will be required to collect the VAT and account for the VAT to HMRC. This a huge departure from the current situation and puts the responsibility onto the OMP.
When the goods have been imported into the UK by the seller when sold to the customer, the seller will be deemed to be making a zero-rated supply of the goods to the OMP. This will allow the seller to be able to recover VAT on the imports and other costs incurred in the UK.
If you are likely to be impacted by any of these changes, please contact us for more information.