• Date

    16 Feb 2021
  • Category

    Tax, VAT & Indirect Tax

Post Brexit VAT Update

The first VAT returns (for January) that will include post Brexit changes will be due to be submitted by 7 March 2021. As we head towards this deadline, Scott Craig, Head of VAT & Indirect Taxes at Azets, summarises eleven frequent post Brexit VAT issues that are arising.

If you have any questions or need more information on any of the points raised below, please contact a member of our specialist VAT & Indirect Tax team who are on hand to assist. 

1. Postponed VAT accounting for import VAT on goods brought into the UK after 1 January 2021

Postponed VAT Accounting (PVA) was introduced in the UK from 1 January 2021 to deal with import VAT. Import VAT is incurred on goods entering the UK. From 1 January import VAT has to be reported by an import agent using the correct VAT and EORI numbers for the importing business. Under PVA import VAT has to be accounted for by the importing business on the next VAT return.

The value of import VAT reported is confirmed on a monthly statement on the HM Government Gateway site for businesses that have activated the Customs Declaration Service option. In practice, the import VAT is entered as output tax and also as input tax (and recovered per normal rules) on the first available VAT return. If the import VAT is recoverable in full there will be no VAT cost. If not there will be an irrecoverable VAT cost to the business. When the goods are sold the output tax must be charged and accounted for in the normal way.

2. EC Sales Lists and Intrastat declarations

From 1 January 2021 you are only required to submit EC Sales Lists if you make supplies of goods that are supplied to Northern Ireland and classified as intra-Community dispatches under the Northern Ireland Protocol. Movement of goods from Great Britain directly to EU countries will be treated as exports and must not be reported on EC Sales Lists. Intrastat declarations are only required if acquisitions exceed £1.5m, and will only apply for 2021.

3. Overseas VAT registrations and e-sales

A number of UK businesses have applied for VAT registrations in France and Ireland and are using these registrations as “launch pads” to send goods into and around the EU. This arrangement can reduce or remove the need to be registered in every EU country that goods are supplied into. If you require more information regarding overseas VAT registrations and e-sales, please contact a member of our VAT & Indirect Tax team

4. Issues for electronically supplied services 

Electronically supplied services between 2 businesses may have to be recorded and reported in both an EU country and in the UK under separate VAT registrations. In some cases this could result in VAT being declared twice. For example, if a French company was to supply software services to another French business for use in the UK. The supply would normally be subject to French VAT because the place of supply in France is where the customer is based. However, from 1 January 2021 the same services are also liable to UK VAT where they are consumed. This means that the same supply could be subject to both UK and French VAT. Anyone that delivers electronically supplies services should confirm the VAT rules that apply to the supplies they make in the UK.   

5. Sales of good to and via Northern Ireland

HMRC has updated its guidance on the sale of goods to and via Northern Ireland. This confirms the VAT and duty implications of sales between GB and NI however it requires a knowledge of specific terminology. In simple terms:

VAT treatment of GB-NI sales

From a VAT point of view the sale of most goods from GB to Northern Ireland will be subject to normal VAT rules. The exception to this are supplies of goods that are subject to a customs special procedure or an onward supply procedure or those sold by an overseas retailer via an online market place (there are new rules for online market places).

The vast majority of goods moving from Northern Ireland to GB are expected to be  ‘qualifying goods’ so customs declarations or other declarations will not be required. However if the goods are not ‘qualifying goods’ export declarations will be needed. Goods that are not ‘qualifying goods’ include those under a customs special procedure in Northern Ireland such as those in an authorised temporary storage facility or those on a list of goods for which specific processes apply. Anyone selling goods in Northern Ireland must review and confirm the status of their goods and their supplies.

6. Digital supplies to Individuals

From 1 January 2021, anyone making digital supplies to individuals in EU countries will need to register for the VAT MOSS scheme in an EU member state to be able to continue to use the MOSS accounting procedure. They need to do this by the 10th day of the month following the first sale to an EU customer. So if a digital sale was made in January 2021, the supplier should have registered for MOSS by 10 February 2021.  The alternative is to register and account for VAT in every EU county that digital supplies are made.  Please contact us if you need any assistance with this.   

If a business was previously registered for VAT MOSS in the UK, there is an assumption that the business would apply for the non-union MOSS scheme in another EU member state. This assumes the threshold for VAT MOSS has already been exceeded  - again if you require any assistance with the MOSS application process or want to know if you are making digital supplies contact a member of our VAT team. 

7. VAT accounting entries for post Brexit services received from EU suppliers

The VAT accounting treatment of most services has not changed. Services purchased from the EU (indeed from anywhere outside the UK) should normally be accounted for under the reverse charge mechanism.  No VAT should be charged by overseas suppliers. Reverse charge treatment means that output tax should still be accounted for in Box 1 and input tax reclaimed in Box 4. The net value of the sales should be accounted for in Box 6 and 7 of each VAT return. We would suggest that the VAT position of services that are deemed to enjoyed or supplied in the UK by overseas suppliers are confirmed. This includes the supply of electronically supplies services, software, supply and installation of plant and machinery and work on land or buildings. In these cases the overseas supplier could have a requirement to register and account for UK VAT on their UK supplies.

8. VAT accounting entries for post Brexit goods received from EU suppliers

All goods purchased outside of the UK are now recorded and accounted for as Imports. If you opt to adopt postponed VAT accounting you will need declare and recover import VAT as output tax in Box 1 and input tax in Box 4. The net value will then be included in Box 7. If you do not use postponed VAT accounting the normal import VAT rules apply and you will be required to pay import VAT to get the goods into the UK.  You will need to hold documentary evidence to recover this import VAT as input tax on your VAT return.

9. Recovering EU VAT

UK and Isle of Man businesses that want to recover the EU VAT they incurred on or before 31 December 2020 must submit their claims through the HMRC portal by 31 March 2021. To be able to make an electronic application for refund of VAT you need to be registered for VAT online services. All similar future claims will need to be made under the ‘13th Directive’ for non-EU applicants.

10. Changes to distance selling rules

From 1 January, the distance selling rules for UK suppliers in EU countries cease to apply. This will affect any supplier that sells goods to individuals in the EU. From 1 January UK suppliers will have a liability to register and account for VAT in other EU countries when they make supplies there. Historically they only had a liability to register when their sales exceeded certain limits in each country. Depending on the value of their supplies and shipping/delivery terms they may also have a liability to import VAT and duty in other EU countries. Retailers who sell to individuals in other EC countries are considering the following options.

  1. Registering for VAT in all the countries they make sales in.

  2. Passing the import VAT and duty costs onto overseas customers by changing sales terms so that the customer is the importer.

  3. Stopping all sales to EU individuals and waiting for the One Stop Shop (OSS) simplified method of accounting to be introduced (this is tabled to happen in July 2021 however there are now doubts that this will be implemented then and is likely to be postponed to a future date).

  4. Setting up an EU VAT registration to handle all EU sales. This could provide access to the distance selling rules again but it would also result in sales from the UK to EU sales hub being subject to import duty and VAT (unless they are below £135) and all sales in the hub country being liable to VAT in that country.

11. Restriction to the duty suspension procedures (the ‘Percy Pig’ issue)

Issues associated with restrictions to the Trade and Cooperation Agreement have been highlighted in recent press articles. One example related to supplies of M&S “Percy Pig” sweets in and out of the UK. The Agreement was expected to suspend duty charges on goods moving between EU and UK where they meet specific origin status conditions. This was expected to result in movements of goods between the UK and EU being duty free. Goods that are brought in to the UK from outside the EU do not benefit from this suspension and are normally subject to duty charges. However it has transpired that the suspension may only apply to the first ‘leg’ of any movement, e.g. from EU to UK. Where there are subsequent movements, e.g. from UK back to other EU member states, then duty charges can still apply.

We are here to help

We are here to provide help wherever this is required. If you require further advice or want to confirm the duty position of your supplies, please get in touch with your usual Azets contact or contact a member of our VAT & Indirect Tax team.

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