Accounting post-Brexit (updated March 2020)

4th Mar 2020
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Accounting Brexit

Like a closing down sale at a pound shop, Brexit keeps threatening to happen, but seemingly never does.  Then, on 31st January 2020, the UK left the EU. 

What does this mean for accounting once the transition period is over on 31st December 2020?

Article summary:

  • Prepare for Brexit now, no matter what you think will happen
  • Customs toolkit
  • VAT survival
  • What should accountants prioritise?

Leaving on the 31st December 2020 without a deal or a period of transition is an increasingly real threat, meaning that the UK will also exit the Customs Union and the VAT taxation system. 

Theresa May’s Withdrawal Agreement failed to make it past parliament, and Boris Johnson’s tweaks have not been well received by the EU at the time of writing this article - many suspect he is running down the clock, which could lead to all manner of legal complications

Be ready, be prepared - do it now

It is now vital to prepare your clients for the worst-case scenario, as it’s looking likely. In the event of a no-deal at the close of the transition period at 11pm on the 31st December 2020, new trading and indirect tax rules will apply with immediate effect. 

All goods crossing the border will become subject to import VAT for the first time, both ways. 

Tariff duties and custom declarations will need to be considered for all imports and exports after 11pm on the 31st, causing potential chaos at the borders. 

More pressingly, action is required right now from businesses to lessen the damage and facilitate a smooth transition. 

Accountancy practice managers must take particular note

Uku have curated a list of the most important measures that business owners need to put into action now, to limit the damage caused by the likely customs and VAT shakeup. 

There will be longer-term issues that must be addressed. These will include considerations about your licensing agreements and how all parties might be affected - your contracts with both customers and suppliers will need to be updated, added or erased.

Currently, though, we are focusing on the short-term emergency strategies that you can implement to protect your clients’ businesses as best you can in the event of a no-deal Brexit. 

The plan is meant for the weeks following the break; we would strongly advise that you and your clients begin making medium and long-term plans for your practice for the coming weeks and months that follow this initial period.

Customs: A toolkit for damage limitation

Businesses may need to get EORI numbers for both the UK and the EU

If a company is based in the EU and wants to continue importing goods into UK ports, it’lll need to register with HMRC for a UK Economic Operators Registration Identification (EORI) number.

Companies that are UK based will have one of these automatically issued, but EU companies will need to make an application to HMRC. 

Companies based in the UK wanting to export to EU member states will need an EU EORI number, these can be applied for from any EU member state. 

We recommend applying to the member state with which your clients do most trading, if possible. 

Payable duties and VAT at customs

HMRC have a very useful tool that’ll help you calculate the exact amount of UK customs duties and import VAT tariffs that’ll be due at the border for a consignment. This tool will also generate commodity codes for the goods that are to be imported. 

If the goods are leaving the UK and entering the EU, the WTO MFN tariffs will be applied. 

Please refer to your client logistics or freight partners for more information on these fees, and how to find and use the available online tools with which to calculate them. 

Dealing with customs declarations

Customs declaration forms will need to be filled out for all goods that will cross UK and EU borders. 

Luckily, there are several options for businesses affected by this. 

The UK government provides training on the topic, complemented by a range of off-the-peg software that will take you through the key points step-by-step. 

Again, you can also liaise with your logistics or freight partner for further guidance and information. 

Save time and avoid stress with the Transitional Simplified Procedures scheme.

Significantly reduce the paperwork and time spent at the border by enrolling with the government’s Transitional Simplified Procedures scheme. 

Designed to make life easier for businesses importing into the UK, with the aim of alleviating delays at UK customs. 

There is a range of other schemes aimed at assisting businesses with imports and exports, including a deferred customs clearance scheme and the ability to pay duties and import VAT away from the border beforehand. 

VAT: The essential knowledge for survival

Should the UK not formalise a deal with the EU prior to the 31st December, all goods arriving from the EU will be subject to a 20% UK import VAT levy. 

The best way to avoid having to make cash payments at the border is to get your client to go through the HMRC ‘postponed accounting’ route, more information can be found on this page of the government’s web portal, gov.uk

Businesses exporting goods to the EU will need to make a few changes to accounting practices. EU import VAT will be due on all exports from the UK entering an EU member state, and will most likely be payable immediately, so provisions should be made and noted in the company accounts. 

There will also be changes to the standard UK VAT return, in that postponed VAT must be declared in boxes 2 and 3 in the VAT return form. 

All businesses affected by this should ensure they make the relevant changes within the accounting software.

VAT registrations in EU member states

Businesses based in the UK but trading with the EU with a foreign VAT return will be required to have fiscal representation in the member state for which the VAT return needs to be completed. 

Currently, 19 of the EU states require this, with several others accepting returns filled in and processed outside of the country.

Distance selling thresholds and VAT registration

Client companies based in the UK with UK VAT numbers that sell goods to EU consumers, typically as merchants through the internet on an e-commerce basis, will need to register for VAT in a member state in order to service the EU market. 

This is a result of the distance selling threshold. 

The importing of low value good under £135

Any client business importing goods in individual parcels with a value lower than £135, with the sole intention of reselling these items to UK consumers, will be required to join HMRC’s parcel scheme

This will include parcels worth £15 or less as the existing Low Value Consignment Relief (LVCR) will no longer apply.

Digital services and MOSS

UK based businesses selling digital services to EU consumers will need to register for VAT Mini One Stop Shop (VAT MOSS). A single VAT return can be submitted in any EU member state and the dues paid in the said member state.

Reclaiming VAT after a no-deal Brexit

After the 31st December 2019, UK based businesses will be unable to claim back VAT from EU transactions through the VAT recovery portal. 

If you have outstanding claims, it is advised that you complete the process to have the amounts returned before the transition period ends. If you are an EU based company without outstanding UK VAT claims, the same applies.

What should accountants focus on?

As the UK government scrambles to formalise new legislation to replace the existing rules, there is a high likelihood of accounting, tariff and tax loopholes when considering tariff duties.

From 1st January 2021, it is highly likely that the UK will be facing tariffs on its imports and exports. Rather than have a widespread exemption as per the other 27 EU member states the UK will now have to formally enter into negotiations with each one or with the EU as a whole - this will cause years of discussions.

Plus, the UK, rather than negotiate with the rest of the world under EU rules will now have to create their own when dealing with any global nation.

For accountants and their practices, this is a pivotal opportunity to become experts and knowledge leaders who can ascertain who the new tariffs system will work - if they do, they will surely corner the market when new clients search for these types of tariff-expert accountants.

Having this experience will make it easier to charge more based on adding additional value to your accounting. So ensure you hire the right current talent to move your practice forward.

The lowdown 

Accounting practice managers must ensure they maintain a solid overview of the work involved for each client. 

Extra work will pile up, so your clients will need to be prepared to cover any extra charges that may be incurred from post-Brexit negotiations, and it’s your responsibility to keep track and bill accordingly. Practices that respond rapidly and effectively to seismic changes in the fiscal landscape - either as a result of Brexit or otherwise - will always retain a competitive advantage.

At the time of writing this article, the UK has left the EU on 31st January 2020 and entered the transition period up to 31st December 2020. Europe has made it clear that any rehashing of the original withdrawal deal that was recently submitted will not be acceptable, giving the UK a clear ultimatum of no-deal or transition period extension.