The United Kingdom officially left the European Union (EU) on 31 January 2020 and the 11-month transitional period ended on 1 January 2021. There are important changes businesses must now make in order to continue trading with the EU. Great Britain (England, Wales and Scotland) is no longer subject to EU VAT legislation. Northern Ireland remains subject to EU VAT legislation in respect of transactions involving goods, but not for services.
Acquisitions (purchases of goods from EU member states) are treated as imports. A new system, Postponed Accounting, has been introduced and applies to imports received from all over the world, with some exceptions such as low-value consignments. The system is intended to mitigate the cashflow disadvantage posed by paying import VAT upfront and waiting to reclaim it in a later VAT return. Under the new system, import VAT can be deferred and declared to HMRC in the VAT return for the period of importation. The VAT can be reclaimed in the same return subject to the normal rules for reclaiming input tax.
Dispatches (zero-rated sales of goods to business customers in EU member states) are treated as exports. Exports are zero-rated, provided certain conditions are met. Distance sales (sales of goods to non-business persons in the EU) are also treated as exports. The EU distance-selling regime and thresholds no longer apply to UK suppliers.
Following the UK's departure from the EU Customs Union on 1 January 2021 the UK operates a full, external border with the EU. New border controls on imports from the EU to Great Britain are being introduced in stages, with customs declarations for goods which are not controlled being delayed until 30 June 2021.
From 1 January 2021, new rates of Customs Duty for imports apply where the UK has not agreed a trade deal with a particular jurisdiction. These are set out in the 'UK Global Tariff'. On 24 December 2020, the UK and the EU reached a trade agreement that, in principle, means trade in goods between the UK and the EU will be tariff-free. To check the tariffs that apply to different categories of imported goods, please see https://bit.ly/2VuLjbB.
Steps to take
Some practical actions to take now include:
Obtaining an Economic Operator Registration and Identification (EORI) number, which will be required when trading with the EU post Brexit. It is free to obtain an EORI number and you can do so by visiting https://bit.ly/37uD4BF.
Deciding whether to use an agent freight forwarder to help with making customs declarations. The following guidance outlines the services they can provide: https://bit.ly/36BCS4C.
If you buy goods from the EU, checking whether those goods are 'controlled'. Ascertaining which declarations are required and when they will need to be made. For more information please see https://bit.ly/2Jw6wiP.
Checking the UK Global tariff (linked above) to see the rate of Customs Duty that is likely to apply to the goods you import.
Deciding whether to use the Postponed Accounting system (https://bit.ly/37KGLUf) to defer import VAT and familiarising yourself with the procedure for declaring the deferred import VAT on the VAT return.
This Hot Topic outlines the new VAT arrangements which will impact businesses supplying to or receiving goods and services from the EU. Every business is different and we welcome the opportunity to work with you to support your business through 2021. If you require more information on any of the issues contained in this Hot Topic, please contact us.