Brace for Brexit: Your questions answered

Neil Warren and Jason Croke took their popular Brace for Brexit series to Any Answers Live and answered the audience’s most pressing indirect tax questions.

4th Dec 2020
Editor AccountingWEB
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Brace for Brexit

The authors of  the Brace for Brexit series joined AccountingWEB Live last week to summarise some of the key VAT and customs changes afoot come 1 January 2021 and fieled a barrage of viewers’ questions.

The questions ranged from whether they should advise clients to register for VAT in mainland Europe, to distance selling and how Brexit will affect micro-businesses. 

The answers below are an abridged version of Jason Croke from Rayner Essex and Neil Warren’s responses. You can hear the full answers to these questions and many more on issues such as B2B services and Northern Ireland by watching the Any Answers Live episode on demand

Are we expecting many UK firms to have to register for VAT equivalents in other EU countries? Can you confirm which scenarios we need to look out for?

Jason Croke: This is where we’re getting into the nitty gritty of what works best for your client and what works best for that business. 

Jason CrokeYou could register for VAT in, say, the Netherlands. And then when you ship goods to your EU business customers, whether in Germany or wherever, you would ship it from the UK using your UK EORI number. And then you would receive those goods in the Netherlands with your Netherlands VAT number and your Netherlands EORI number, and the import duty and VAT will be declared there. You would have to pay Netherlands import VAT, but you’ll get that back because you’re VAT registered in the Netherlands. If there is duty to pay, then that's just, that’s just the cost of Brexit.

Then, the goods can then go from our Netherlands.You don't need an office or anything. It's just sold on paper. So the sale would go from our Netherlands VAT return to our German customer. And because it's Netherlands to Germany that is in the EU, that's the old rule. So that's just basically reverse charge, as long as the German customer has got a VAT number. 

If you’re only going to be doing this once a year, then then it’s going to be expensive to register in another country. But if this is your bread and butter business, that you’re always supplying somebody Germany or France or whatever, set yourself up with that number in an EU country and then do it that way. 

Do we have to register for VAT in an EU country if we sell PDF copies of a magazine to EU customers?

Neil WarrenNeil Warren: PDF magazines are classed as an electronic service. Until 31 December, if you’ve got a UK business selling electronic services into the EU, then there’s a threshold of €10,000 on a calendar year basis, which is £8,818. That means that until 31 December, we carry on charging UK VAT up to that threshold, even though we’re invoicing a private person in France or Italy, so there is a threshold. 

From 1 January, two things happen: we’ve got a zero threshold for electronic services being sold by UK business into B2C into the EU so the threshold goes completely; and if the UK business was over the €10,000 threshold and was accounting for VAT in the rate that applies in the customers country (eg 25% Danish VAT, 20% French VAT, 23% Irish VAT...) and declaring that tax to HMRC on a MOSS return, then the second big change from 1 January is [the need to] deregister from the MOSS with HMRC and then choose a suitable EU country. Let’s say, Holland. With the Dutch tax authorities, you’ve got until the 12 February to do that to declare your January sales, submit the single non-union MOSS return to the Dutch tax authorities same principle collecting the VAT in the customers country. And at the current rate of VAT included on the non-union MOSS return. 

What I think the practical outcome is in short, is that at the moment, a lot of UK businesses don't need to worry about MOSS and charging VAT in Denmark and France because of the threshold if they’re just doing a few PDFs or a few software downloads. But the threshold going down to zero will mean many more UK businesses will need to register for the non-union MOSS scheme from 1 Jan in order to do it correctly.

What does a UK non-registered, microbusiness need to do when exporting goods to the EU? What are the VAT implications?

Jason CrokeJason Croke: Let’s say the goods land in Italy, then they'll be subject to import duty and Italian import VAT. As a microbusiness, my view would be that the customer then will be responsible for paying the duty and the VAT. 

So, in real terms, this means they’ll probably get that the recipient will get a postcard or something like that from the Italian mail, saying come down to the local depot you owe us €12, for example. Then, once you’ve paid, you can come and pick up your parcel. I’m sure many of us have bought things off eBay or Amazon and we get the Royal Mail card that says come down to the depot and pay £28 or something like that. 

That wouldn't be a problem if everybody was used to just buying like that and having the postcard but because of the way the EU worked, it was a little bit different. So it’s a change of attitude from the EU customer’s perspective. 

You could register for VAT in that country, but that seems excessive for a microbusiness. So it probably is going to be a case on the website when you’re selling it to make it clear to the customer that they may incur import duty and VAT and then then at least they can't complain if they end up having to work around the post office or the equivalent to post.

Neil Warren: Just a minor point: for the micro business in the UK, just that sale into Italy will be zero rated for UK VAT purposes. So the income is included in the 85,000 registration test of the UK business. And that’s the thing with exporting goods; zero rating that’s included in the £85,000 threshold. For exporting services let’s say consultancy service to an Italian customer, that will be outside the scope of the VAT and ignored for the 85 registration threshold. And I think from 1 July 2021it would be a little bit easier because from that point, the UK micro could do the One Stop Shop scheme. 

Regarding distance selling - I understand that all the country limits are disappearing. Will there be a different limit coming in, or will there be no requirement to register in EU countries now based on the value of sales?

Neil WarrenNeil Warren: Just to set the scene: distance selling at the moment is when you’ve got a UK business, selling goods B2C in the EU. 

B2C is a customer without a VAT number in the other countries. So the goods are sold B2C, they leave the UK and let’s say they arrive inDenmark. And at the moment that's UK VAT at the same rate as the goods being sold in the UK, so standard rates for clothes, zero rated for children's clothes, but then once you sell into that particular country, B2C on a calendar year, and you go over either 35,000 euros, or €100,000, and each country can choose one of those two limits, Denmark chooses €35,000 euros, you stop charging UK VAT and you get a VAT number in Denmark and charge the Danish rate of VAT which happens to be 25% and you submit Danish VAT returns. 

When we come to the end of December, €35,000 or €100,000 becomes a complete red herring for GB business. And if you’ve got VAT numbers in other EU countries based on distance selling, then you can deregister. 

The movement of those goods that start in GB, head to Denmark into Copenhagen, they hit import VAT import duty in Denmark, and that’s the way the tax gets to the Danish tax authorities. So there’s no need anymore for this distance selling threshold.

Neil Warren and Jason Croke also answered questions on:

  • “I have a client who imports goods from China to sell in the UK. How will all this affect someone importing from China?”
  • “Will our GB business need a separate ‘XI’ Northern Ireland VAT number for goods it buys from France that get sent straight to Northern Ireland?”
  • “You have said that there will be no change to VAT on B2B for services outside of the UK. If a UK company buys services from the EU will they charge VAT and if so, how do we reclaim the VAT charged?”
  • And much, much more.
This special Brace for Brexit episode of Any Answers Live is now available to watch on demand
 
Don't miss our next episode of Any Answers Live where Rebecca Cave and BTCSoftware's Rob Ellis will be answering your questions on Making Tax Digital and the latest on HMRC's digital tax strategy,   

Replies (7)

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By mominnz
09th Dec 2020 10:07

Can some one make a quick guide instead of reading through scenario based questions which would be helpful.

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Replying to mominnz:
Jason Croke
By Jason Croke
17th Dec 2020 10:26

Apologies for delay in replying.

It's not so easy to do a guide that covers everything, HMRC have already done that and it runs to over 160 pages.

The Brace for Brexit series of articles were drafted by Neil and I and designed to cover the key changes that will affect most businesses. We discussed at length what are the key matters and those discussions are reflected in the articles.

I did try and do a summary for my own clients but there are so many deviations - B2C sales, what about plants and livestock, CE certification, some businesses will need an EU entity if they trade in certain goods like cosmetics or medicines, digital sales under MOSS, the imposition of One Stop Shop by the EU later this year, there isn't really a one pager that covers everything and if we take that content out to keep it short then we may mislead the reader into thinking there isn't a problem for them.

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By RogerMT
09th Dec 2020 10:10

UK VAT reg supplier currently supplying consultancy services to EU VAT reg customer. Reverse charge currently applies. After 1/1/21 (assuming no deal) the supply is outside scope of VAT, so "No VAT" instead of "ECS" VAT letter. Does reverse charge still apply at the customer's end?

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Replying to RogerMT:
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By RogerMT
09th Dec 2020 10:17

To be clear, I mean "No VAT", or whatever the particular book keeping system uses for "outside of scope" - sometimes "O" or "N". Not "ZR".

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Replying to RogerMT:
Jason Croke
By Jason Croke
17th Dec 2020 10:30

Apologies for delay responding RogerMT

Yes, reverse charge still applies at the EU customers end, so the customer accounts for VAT on their EU VAT return.

As it does in the UK if UK business buys services from EU seller, an exempt or unregistered UK business buying services from EU supplier, the EU supplier will treat as outside scope, UK business then has to reverse charge that and if it takes the business over the £85k VAT registration threshold, the UK business has to register for VAT.....mostly catches out charities and unregistered traders who buy a lot of services from non-UK sources.

...and yes, supply is outside the scope but we still want the net value in Box 6 of the VAT return, so some software doesn't put outside the scope (old T9 in sage) onto the VAT return, Xero/QB does have a code for reverse charged services and will therefore populate Box 6.

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By Grizzler
13th Dec 2020 20:48

Couple of questions which I am getting contradicting answers to.
I was under the impression that all business that are categorised as third countries making distance sales have to register for EU vat and submit declarations under something similar to MOSS. If this is the case what mechanism is there for registering and submitting returns.
Do business to business exports have to be declared on an EU vat return? Are there anymore VAT administration implications for exports to the EU than say an export to the USA?

It seems to me that everything is deliberately vague by govt\eu. Not much help for business who want to do things correctly and simply. Any answers really welcome

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Replying to Grizzler:
Jason Croke
By Jason Croke
17th Dec 2020 10:37

Business to business services, place of supply is where the customer is (unless land related/live event, etc).

If a UK business today buys services from outside the EU, no VAT is due, no requirement for supplier to register for VAT here, the recipient reverse charges (if a business). There is no change from next year, UK business buys from USA or France, service is where customer is (UK), UK accounts for VAT as it always has.

MOSS is a specific rule for digital sales to EU consumers (B2C), so a non-EU business selling apps, downloads or online digital services to EU customers would have to register for MOSS in an EU member state. As the UK falls outside of the EU next month, then any business that already has a UK MOSS registration would have to deregister for UK MOSS and register for MOSS somewhere in the EU, like Ireland or Malta.

there are some aspects that are vague, but there are also some things that have been published ages ago - the issue is, HMRC sometimes change what they've published so you run the risk of reading an article (or worse, advising a client), going "yes, understand" and then a month late the guidance changes and then it is "oh, so now I have to register for this service before I can do what I previously understood", so there is an air of caution in articles on the web and from Accountants because nobody wants to get it wrong.

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