Brace for Brexit: VAT on dispatches and arrivals
This is the first of a series on preparing for Brexit that will cover new VAT and customs duty rules which will apply from 1 January 2021. Jason Croke reviews the current rules on moving goods within the EU and how they will change.
Most aspects of international trade in terms of VAT and duties are already known and will not change regardless of the negotiations between the EU and UK governments.
This is now a good time for businesses to start preparing for Brexit and we will start with a quick summary of how movement of goods currently work under the EU rules.
For intra-EU trade:
- Dispatches are goods leaving one EU member state and arriving in another EU member state
- Arrivals are goods arriving from an EU member state into another EU member state
For non-EU trade:
- Exports are goods leaving the EU/UK to a non-EU destination
- Imports are goods arriving into the EU/UK from non-EU location
From 1 January 2021, there will be no more dispatches and arrivals for UK businesses, only imports and exports.
How goods are accounted for between UK and EU
Selling to EU: B2B
These are “dispatches”. When the sale is business to business (B2B), the UK seller obtains the EU customer’s VAT number. The sale is zero-rated under reverse charge rules, the EU business accounts for VAT on their VAT return.
The UK business also submits an EC Sales List (ECSL) and if the value of their arrivals/dispatches reach thresholds, an intrastat return is also required.
Selling to EU: B2C
Where the sale is to a non-business customer (B2C) the sale is treated as a UK sale, VAT is charged at the appropriate UK VAT rate (0%, 5% or 20%) depending upon what the goods are. The UK seller sends goods to the EU consumer.
As soon as the value of total sales in a year exceeds the distance selling threshold for the EU member state (for many it is €35,000), then the UK business must stop charging UK VAT and is required to register for VAT in the EU Country where the distance selling threshold has been exceeded.
Buying from EU: B2B
These are “arrivals”. Where the sale is B2B the EU seller would obtain the customer’s UK VAT number, the sale is zero rated and the UK buyer uses reverse charge to account for VAT on their VAT return.
Buying from EU: B2C
Where the sale is B2C, the UK customer is charged either EU VAT based on the seller’s location or is charged UK VAT if the EU seller has reached the distance selling threshold.
From 1 January 2021, the reverse charge, ECSL (B2B) and distance selling thresholds (B2C) are gone. For both B2B and B2C transactions, UK sales will be zero-rated when goods are sent to the EU but with the recipient responsible for import duty and import VAT. Intrastat returns will still be required by HMRC for statistical purposes.
The removal of the simplifications makes trading with the EU a little more difficult, and these will be explored further over the coming weeks so watch out for further articles in this Brace for Brexit series on VAT and customs duty issues.
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Jason has over 20 years’ experience working exclusively in indirect taxes (VAT, import duty, SDLT) with owner-managed businesses, corporates and not for profit sectors. He particularly enjoys challenging HMRC decisions, representing clients in tribunals or during inspections.
Experience includes land and property, partial exemption and...