Post-Brexit VAT Rules UK Businesses Need to Take Note of
The UK’s official withdrawal from the European Union means that UK small and medium businesses (SMB) can no longer trade with one another as if they’re all part of the same market. While the Brexit Deal means that British and EU-based businesses still benefit from a Free Trade Agreement, SMBs can no longer keep on trading as freely as they did before the 1st of January 2021 since there is more red tape and regulatory obstacles to go through.
If you consider your company an SMB, you may be asking, “Will there be VAT after Brexit?”. This article will touch on the major regulatory changes for VAT which all UK and EU businesses need to be aware of after Brexit in 2021 onwards.
Do I Have to Pay VAT When Importing to the EU?
There are 7 key steps to follow after Brexit
Identify the Importer of Record
The party that’s responsible for all the clearance requirements: customs import declarations, import duties and tariffs (if applicable), and import VAT. It can either be you, the company you bought the goods from, or a customs agent.
Tip
Make sure you clear this up before the goods are shipped—after all, nobody likes dealing with urgent, last-minute paperwork.
Apply for a UK EORI
An EORI (Economic Operator Registration Identification) number is your golden ticket to trading with the EU. Once you’ve obtained your EORI, you’ll then have to enter this number on all UK customs declarations.
Tips
Many UK businesses already have their own UK EORI, but if you don’t yet have one, apply to HMRC at the earliest possible opportunity.
You’ll also have to go through the process of applying for an EU EORI. Simply apply by getting in touch with any member state’s tax authority.
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strong>Do you need an Import Licence?
If you’re importing medicines, chemicals, weapons, agricultural products, animals, or even plants, then you’ll need to obtain a special Import Licence. The UK government has a comprehensive checklist for you to refer to.
Work out your VAT Strategy
You have three choices:
- Get your customer to pay under Delivered at Place (DAP) Incoterms.
What is DAP Incoterms?
The seller is responsible for arranging the transport and for delivering the goods, ready for unloading from the arriving means of transport, at the named place. The risk transfers from seller to buyer when the goods are available for unloading, so unloading is at the buyer’s risk. The buyer is responsible for import clearance and any applicable local taxes or import duties.
- Pay VAT yourself at Customs
- Or, use Postponed VAT Accounting to defer the import VAT payment.
Decide who’ll complete all import declarations
Either you take full control over the customs import process or you can hire a customer intermediary. Choose between: freight forwarders, customs agents or brokers, and fast parcel operators.
Prepare UK Intrastat declarations (if applicable)
All VAT-registered businesses in the UK that import over £1.5 million worth of goods from the EU per year have to compile monthly Intrastat declarations declaring the nature, quantity, and cost of these goods.
Note
Intrastat declarations will only be continuing until the end of 2021.
Remember the new £135 import rule
As of January 1st 2021, a new import regime has been implemented for all goods valued at £135 or under. E-commerce sellers now have to charge VAT at the point-of-sale instead of paying regular import VAT.
Unfortunately, the old rule where no import tax was charged on parcels under the value of £15 has now been scrapped.
Do I Have to Pay VAT When Exporting to the EU?
Likewise, here are the 7 crucial steps VAT-compliant when exporting goods.
Determine the Exporter of Record
State the Exporter of Record (usually the UK supplier).
Apply for a UK EORI
This allows customs authorities to identify the exporter in question.
Identify if you need an export licence
You’ll need an export licence if you’re looking to export certain goods: chemicals, livestock, foodstuffs, and excise goods.
Decide who’ll complete export declarations
You can do this entirely yourself—though this isn’t as easy as simply filling out a form. You’ll have to purchase commercial declarations software and register to be put on the National Exporter System (NES).
Once this has been approved, you’ll receive a special ‘badge’ allowing you to use HMRC’s online custom systems.
Alternatively, just hire a customs intermediary to do it on your behalf. Choose to work with freight forwarders, customs agents or brokers, or fast parcel operators.
Compile must-have information
You must provide a:
- Commodity code: Stating the good being exported, the materials it contains, and its production method.
- Departure point and destination: Where the goods are coming from/going to.
- Consignee and consignor: The intended recipient and the company responsible for delivering the good(s) to them.
- The nature, amount, and packaging of the goods: What the goods are and how they’ve been packaged.
- Certificates and licenses: If relevant/applicable.
- Exporter statement of origin: This ensures that your importer isn’t accidentally slapped with any additional (and unnecessary) tariffs.
Submit your EU import customs declarations
You’ll also have to submit EU import customs declarations on your customer’s behalf if you’re operating under a DDP system.
Remember that Intrastat doesn’t apply
As of 1st January 2021, you no longer need to send monthly reports on exports from the UK into the EU—but you do still need to compile Intrastat reports on all imports.
Do I Have to Pay VAT When Providing Services to Companies Based in the EU?
For B2B Businesses
The ‘General Rule’ means that if you’re based in the UK but providing service to a company based in the EU you’re zero-rated, as VAT is provided where the customer is resident.
Your customer then has to use the ‘reverse charge’ process to show the VAT in their return.
Dana, a copywriter, has to send off a monthly invoice to one of her European clients. She doesn’t include VAT in her invoice, leaving her client to declare this in their own VAT return.
For B2C businesses:
For B2C businesses, the opposite applies—meaning you’ll have to charge UK VAT to your EU customers.
However, there are certain circumstances where B2C businesses are required to register for VAT in the country of supply. For example, if you’re:
- Paying an entrance fee to physical events
- Supplying services relating to land or property
- An intermediary
When Sadiq sells his custom-made tools from his UK factory to European customers, he adds UK VAT (currently set at 20%) to the total price of the goods.
However, he is soon going to be travelling to France to work as an onsite consultant at a housing development. Therefore, he needs to register for French VAT and to add this sum to the total bill when invoicing his clients.
More Tips on Brexit for Small Businesses
Whether you’re a B2C or B2B business owner in the UK, you will surely be impacted by Brexit. With the new changes and updates happening every day, don’t worry if you feel like you can’t keep up. We’re on your side. Stay tuned to our blog for updates on government grants and more Post-Brexit accounting tips for small businesses.
