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Brace for Brexit 22: Top ten VAT tips

In this final Brexit article, Neil Warren provides his top ten VAT tips to help businesses prepare for the end of the EU transition period on 31 December 2020.

22nd Dec 2020
Independent VAT Consultant
Columnist
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Brace for Brexit

We have all been through a massive learning curve in the last few months. We are now fast approaching the end of the transition period on 31 December 2020, which was supposed to ease the disruption following the UK’s exit from the EU.

Many issues will be very different from 1 January 2021 – so here are my top tips to consider.

  1. Use VAT postponed accounting

Remember that a VAT registered business in GB can request postponed VAT accounting for worldwide imports of goods, not just for those coming from the EU. Using this system, VAT is not payable at the time the goods arrive, but is accounted for as a reverse charge entry on the next VAT return. This helps enormously with the business’ cash flow.

  1. Don’t forget that all exports will be zero-rated

Any goods that leave GB for another country will be zero-rated for VAT purposes. They will be subject to duty and VAT when they arrive in the other country. Don’t forget that proof of export must be retained to support the zero-rating (see VAT Notice 703, sections 6 and 7).

  1. Consider using a freight forwarder

All imports of goods into GB will be subject to VAT, customs duty and customs declarations. Customs declarations are complicated; a lot of emphasis has been placed on the importance of ‘correct declarations.’ An experienced customs agent or freight forwarding company will be used by the majority of importers, rather than the process being done in-house.

  1. Be aware of new regime for low value imports

If you buy goods from overseas suppliers, where the shipment value is no more than £135, you will need to account for VAT on your own return by doing a reverse charge entry in Box 1 and Box 4. If you are not VAT registered, you will get a VAT invoice from the overseas seller, who is obliged to register for UK VAT from 1 January 2020.

  1. Don’t complete ESLs or Intrastat despatch returns

As customs declarations can be deferred for up to six months until 1 July 2021 for non-controlled imports of goods, HMRC still needs those UK businesses that come within the Intrastat rules to complete Intrastat arrivals. But EC Sales Lists and Intrastat despatch returns will disappear for all GB businesses.

However, businesses in Northern Ireland must still complete Intrastat despatch returns and also EC Sales Lists for goods, but not services.

  1. Check if you need to register for non-Union VAT MOSS

Many businesses that supply broadcasting, telecommunication and electronic (BTE) services to non-business customers (B2C) in EU countries, will not be currently registered for Union VAT MOSS (mini-one stop shop) and thus will be charging UK VAT on their sales.

But the annual VAT MOSS sales threshold of €10,000 (£8,818) will no longer apply for UK businesses after 31 December 2020, and instead a zero turnover threshold will apply. A UK business must register for the non-Union VAT MOSS scheme, even if it only makes one BTE sale to a B2C customer in the EU. The Union VAT MOSS scheme will no longer apply for UK-based businesses from 11.01pm on 31 December 2020.

  1. Can you claim extra input tax?

Legislation takes effect on 1 January 2021, meaning that input tax can be recovered in relation to sales of certain financial and insurance services to EU customers. In effect, the same VAT treatment will apply to EU and non-EU services.

  1. Review rules for B2C services

The list of professional services in VAT Notice 741A, section 12 will be outside the scope of UK VAT from 1 January 2021 if supplied to EU customers B2C. They were previously subject to VAT under the general B2C rule.

However, check that you are not liable to register for local VAT in the customer’s country under any ‘use and enjoyment’ rules that might apply there.

  1. Consider registering with the TSS

The Trader Support Service (TSS) is a free resource to help any business that trades in goods between GB and Northern Ireland. In effect, the TSS will advise and help with the necessary paperwork that will be needed when goods move from GB to Northern Ireland, or vice versa. Register for the TSS now if this is relevant.

  1. Make sure you have your GB EORI number

If you import or export goods, the GB EORI number is crucial. I understand that there are still some stragglers who haven’t applied for it yet. It only takes ten minutes to apply for it online, and HMRC will issue the number within seven days.

Looking forward

From 1 January 2021 sanitary products for women will be zero-rated.

Will there be more extensions to our VAT zero-rating in the future, now that we are not tied to EU law? Please add your suggestions below.

Brace for Brexit

Replies (1)

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By nksimmons
24th Dec 2020 13:14

The guidance for new customs rules and VAT accounting seem a little bit like the rules for golf - you think you have understood, but then, no I didn't get that bit about not looking for the ball for not more than 5 minutes.

I honestly have no idea how to navigate all these new rules that seem to be changing by the day (I'm keeping everything crossed for a 'deal' so at least the payment of duty will go away on anything from the EU). Should I be opening a deferment account anyway? How will the Postponed VAT accounting work in practice? How do both duty and VAT relate to the much encouraged 'use a freight forwarder or customs clearance specialist'? I had a call with a very well known accountancy firm a few days ago who are offering to complete customs declarations and it sounded very much like they haven't got a clue how it will all work and haven't even got all their own house in order (and won't until later in Q1). Can anyone point me to a clear explanation (as opposed to links the the HMRC 'guidance' which just sends you round and round in circles?
We are a very small company that imports a lot from the EU (and a little bit from RoW). At present when something from RoW arrives in the UK we get a call from DHL/UPS/FedEx saying we have your goods and if you want them you need to pay us the VAT and duty plus £11-15 for the privilege of using our deferment account. On the face of it the new world sounds fine as at least the VAT on RoW imports won't need paying immediately and although there's more paperwork it won't make a difference to VAT on EU imports (if I can figure out how everything interacts). As for duty perhaps the deal will come through and that should be a non-issue on EU imports? So just duty still to pay on RoW as there always was. I assume we need to tell whichever freight company is physically importing the goods to put down our VAT / EORI number and if the goods are from the EU that's that? Not sure why we now have to pay £45 as opposed to the £11-15 we paid previously.
Then there's all the stuff about simplified declarations and CHIEF and goodness knows what else - and that we can or is that must if X, Y and Z....
Anyway if anyone is less confused or can point to really clear (non-HMRC) guidance I'd be very grateful!
Thanks,
Nick

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