Under the terms of the Brexit Withdrawal Agreement (WA), the UK will have an exit transition period until 31 December 2020. Until this time, the UK will remain within the EU VAT regime.
Planned changes to the VAT regime post-Brexit will be coming into force from next year.
These will be the same or very similar whether there is a deal reached or not. The main change is that all goods entering or leaving the UK are classified as imports / exports, even to other EU countries. Northern Ireland, however, is subject to different rules and will still be considered a member state for the purpose of EU VAT and customs rules. Some of the key changes in VAT treatment are as follows:
1. Retail export scheme
The current Scheme allows non-EU visitors to reclaim VAT on goods purchased from participating UK stores, paying VAT at the time of sale, and receiving a refund later on, when HMRC paperwork confirms their departure from the UK.
It has been confirmed that this Scheme will end on 31 December and from January, retail sales to non-EU customers can only be zero rated if the goods are sent directly to the non-EU customer’s home address. It won’t be possible to make VAT-free sales where the customer takes the goods with them.
Also, to try and remove the competitive VAT advantage that airport shops have compared to high street shops, from January, VAT will also become chargeable on the sale of goods other than tobacco and alcohol products at UK airports to non-EU passengers.
2. Eu VAT refunds
The standard treatment for EU purchases is to zero-rate these for VAT, as “acquisitions”. If, however, VAT is paid on an EU purchase for any reason, for expenses on a business trip to an EU country for example, it is currently possible to reclaim the VAT, via the electronic refund system.
This system will cease to be available after the UK has left the EU, remaining available for claims until 31/03/21. After this date, the traditional paper-based system will have to be used. This is a highly bureaucratic mechanism, whereby the paper return has to be sent to the tax authority in the relevant member state, in the member state’s official language and accompanied with additional documentation (certificate of status etc.)
3. Mini One Stop Shop
This scheme was set up for circumstances where VAT de in multiple countries, can be accounted for in one EU country. In particular, this related to the sale of digital services – web hosting, supply of software etc.
Currently, If EU consumer sales are less than £8,818, UK VAT is charged on all sales (if the business is VAT registered). If sales are above the threshold, it is a requirement to either register in each EU member state that you sell to or register for VAT Mini-One-Stop-Shop rules to apply (This is called the union scheme, as the busines is within the EU).
However, this provision will cease to exist from January, with the options being either to register in each and every member state that you supply or register as a non-Union MOSS, however this can take time.
4. Distance sales to EU
These are sales to a non-VAT registered customer, I.e. B2C transactions. Currently, UK VAT is charged on distance sales unless total distance sales exceed the distance selling thresholds in a member state country – this is either €100k or €35k. If sales exceed the threshold in a member state, the seller has to register for VAT in that country and charge this at the appropriate rate to the customer.
There are also rules around low value consignments – currently if you import a consignment with a value less than £15, you do not have to pay the import VAT – this will no longer apply post-transition.
Going forward, for consignments under €150, the options are to:
- Register as a One-stop-shop, appointing an intermediary in a member state that will declare and pay the VAT or
- Request that the VAT is collected from the customer – this is done by way of the customs declarant, i.e. courier/ customs agent – however, this is highly onerous on the customer
If consignment exceeds €150, this is treated as an import or export (as it is currently). These will need to clear customs, potentially have import duty and customs VAT charged. If this is not sorted in advance, the package may be withheld.
Due to these changes, it is likely that a lot of online retailers may stop selling to the UK.
As can be seen from the above, regardless of whether a deal is reached in these final days of 2020, changes are coming into force, and it is imperative that businesses are aware and prepared for these.