VAT Director Rayner Essex
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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.

19th Oct 2020
VAT Director Rayner Essex
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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.

Terminology

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.

Brexit changes

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.

Replies (11)

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By tom123
20th Oct 2020 08:54

Deep joy - intrastat is not going away..

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Replying to tom123:
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By Echo761
21st Oct 2020 16:35

Hooray, it is in part....

The guidance ( https://www.uktradeinfo.com/news/intrastat-declaration-requirements-for-... ) provides information for businesses on importing and exporting goods between GB and the EU after 1 January 2021. It has been updated to remove references to Intrastat declarations for exports. You will not have to submit Intrastat declarations for goods exported from GB to the EU.

Intrastat declaration will still be required however for the following:

- Goods imported into GB from the EU – for the whole of 2021
- Goods imported into Northern Ireland (NI) from the EU – for the lifetime of the - Northern Ireland Protocol. This will be a minimum of 4 years
- Goods exported from NI to the EU – for the lifetime of the Northern Ireland Protocol. This will be a minimum of 4 years

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By Justin Bryant
20th Oct 2020 10:35

So much for "oven ready deals" etc. Amazing that anyone actually believed all that baloney.

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Hallerud at Easter
By DJKL
21st Oct 2020 10:41

Well it is part Blair's fault, he trumpeted Education, Education, Education but obviously failed with its delivery, it is in part the fault of our media and their ability to broadcast the trite "he said she said "in politics but not any real analysis of the issues and of course our wonderful political classes for being cowed into line thinking about their careers over their country, or using it as mere opportunity (that's you two speech Boris) , so what do you expect.

And then we come to all those armchair experts who never studied anything connected with trade and how it impacts economies yet picked up a belief system online and were prepared to chant it, were not too ashamed to jump into bed with a bunch of quasi rascists and of course happy to choose their experts to fit their worldview, the new way to play the game as we can see starkly played out in the USA re Covid and to a lesser extent here.

Something is rotten in the Western Economies and it will either be allowed to continue to fester to destroy them eventually or it will be seen for what it is and stamped out, in less than two weeks we will see what, if anything, the USA has learned from its flirtation with populism and its Dark Side, it is a shame that here we have four more years however at least the current lot will likely clearly be seen holding the economic damage they have caused so even the obtuse UK electorate might decide to punish them at the polls, the Conservative USP of economic competence destroyed so all they have left is being the nasty party.

My biggest disappointment regarding all this is that the dispassionate histories of theses years will not be written for at least thirty years/forty years, the interval often required for objective analysis (Why the history taught to me at school and university tended to stop circa the 1930s), accordingly I doubt I will get to read them, but I predict that history will not be kind to the reputations and character of the players.

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Replying to DJKL:
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By Justin Bryant
21st Oct 2020 13:44

I don't disagree with any of that. I would merely add that it was only coz the UK opposition last year was even less palatable and competent than the current bunch of clowns in Government that they failed to win last year (in fact, they couldn't have done worse if they'd tried to lose and arguably they did just that). I doubt that point has been lost on their new leadership (who must know that they merely have to be "adequate" to win next time round).

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By jon watkin
21st Oct 2020 10:42

So could you perhaps expand on the potentially massive implications this has for UK firms importing a large proportion of their raw materials from the EC. As I see it, this will mean import duties must be paid (at the rates recently published according to the nature of the goods) AND import vat, whether at source or using a duty deferment account. This means that limits and VAT guarantees that previously were in place for non-EC imports will likely be very quickly exceeded, and very significant implications for cashflow. A quarterly VAT return may need to be changed to a monthly return to recover the import vat in good time and the limits and guarantees in place already may need increasing as well to avoid goods being held up at port awaiting payment of duty and vat. Changing all these arrangements can take time, even more so in the current situation.

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Replying to jon watkin:
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By Jason Croke
21st Oct 2020 13:36

There are many more articles to come in this "Brace for Brexit" series, including one that covers duty deferment schemes, and you are correct that goods entering the UK from EU and rest of the world will be subject to duty and VAT.

For the VAT, the intention is for import VAT to be accounted for on your UK VAT return, much like reverse charge when buying goods from EU at present, which should remove some of the cashflow implications.

If I can offer one takeaway, businesses shouldn't wait to see what deal or no deal is struck - Review your supply chain now, what do you buy from EU or sell to EU, what impact will this have? Review your costs in light of duty may apply to your purchases from Europe, etc.

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By Ian McTernan CTA
21st Oct 2020 12:39

So, pretty much just like selling in the other 140+ countries (or so) not in the EU then. Except for the Intrastat...

@jon, it doesn't take that long to change those arrangements if time is spent doing them rather than endlessly talking about it- and there has been many months (years) to prepare to leave the current EU VAT system. Those businesses that haven't made any plans yet better get moving!

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Replying to Ian McTernan CTA:
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By jon watkin
23rd Oct 2020 10:51

Yes, as we have been importing and exporting goods to the EC and beyond for many years, we are certainly prepared for it as much as we can be, but I have to keep checking everything just in case. We deal in controlled goods though, so the exemption for deferring import declarations until July 2021 is not available to us.

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Replying to Ian McTernan CTA:
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By LW64
03rd Nov 2020 16:07

You are right but it does not help that the current incumbents in parliament are either completely inept or completely dishonest. It is a hard call and I don't think either makes them any better.
When you import vast amounts from the EU then vast duties will clearly become due. Honesty a little sooner would not have hurt.
Oven ready? Piffle!

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By Amijay
04th Nov 2020 10:53

Like this series, easier to understand. So much bumph out there and 'be prepared, be prepared' but mostly now I need to know what to change on our systems to ensure shows in right place on Vat return.

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