All unincorporated businesses, including sole traders, the self-employed and trading partnerships, will be taxed on…
The latest guidance on VAT on imports and services to and from the EU is complex and businesses need to account for this in their trading.
To help we have provided a brief summary below, but we highly recommend you seek additional advice.
Goods that move into the UK from the EU from 1 January 2021 onwards will be considered imports, meaning import VAT will be payable and customs declarations will need to be made.
Businesses must account for VAT on all goods imported using a postponed accounting system. This means that import VAT is accounted for and paid via the usual VAT return, which will lead to an improved cash flow position for many businesses.
This applies to all goods imported by VAT registered importers to the UK, including those from the EU. In most cases, import VAT should be recoverable by businesses.
Accounting for import VAT on your VAT return
Businesses have to account for import VAT via their VAT return under the postponed accounting system if the goods they import are for use in their business.
A business must include its EORI number starting with ‘GB’ on its customs declaration and its VAT registration number if it is needed.
It can then account for import VAT on its VAT return when it submits a declaration that releases those goods into free circulation from one of the following special customs procedures:
- customs warehousing
- inward processing
- temporary admission
- end use
- outward processing
- duty suspension.
A business can only account for import VAT on their VAT return once they release excise goods for use in the UK – also known as ‘released for home consumption’.
If the business imports goods that are not controlled into Great Britain from the EU, between 1 January and 30 June 2021, they must also account for import VAT on their VAT return, even if they delay the customs declaration or use a simplified customs declaration to make a declaration in their records.
New rules for VAT deferment apply in Great Britain, which allow businesses that import goods regularly, to apply for a deferment account to delay paying most customs charges, including import VAT.
Through this account, a business can make a single payment each month via direct debit instead of paying for each consignment separately.
The scheme is open to importers or customs agents and freight handlers that work for importers and have an approved deferment guarantee or waiver in place.
Regardless of the method of accounting for VAT on imported goods, checks to ensure that the data on the customs declarations is accurate will continue to be highly important for VAT purposes, for all imports.
Consignments of value below £135
Imported goods in a consignment not exceeding a value of £135 (€150), excluding specific excise goods and gifts, will not be subject to import VAT at the border and will be subject to sales (supply) VAT instead.
This will end the £15 VAT exemption thresholds previously known as low-value consignment relief and VAT will now be charged on the goods as if they were supplied in the UK and accounted to HM Revenue & Customs on the UK VAT return.
This means that businesses selling goods to be imported into the UK with a value not exceeding £135 will be required to charge and collect any VAT due at the time of sale.
For UK VAT registered businesses importing goods in a consignment not exceeding £135 in value that has not been charged VAT at the time of purchase they can account for this VAT on their VAT return under the usual reverse charge method.
Place of supply
Businesses must determine the country where a supply takes place for VAT purposes so that they know where VAT due is payable.
Businesses should be aware that they may continue to create VAT liabilities in other EU Member States. This may mean that businesses in the UK require multiple EU VAT registrations within each member state that they trade within.
Reclaiming VAT in the EU
Currently, UK firms incurring VAT in EU countries can claim VAT back (subject to national rules) via HM Revenue & Custom’s dedicated refund portal.
That arrangement will remain in place until 31 March 2021, after which time, there is currently no provision in place to claim for VAT incurred in 2020, under the terms of the Withdrawal Agreement.
Impact on services
Post-Brexit there should be minimal impact on the supply of services. Business to business services are treated as though they are supplied where the customer belongs and that customer must account for the local VAT.
This will mean that for UK service suppliers they will continue to not charge UK VAT. For business to consumer supplies, UK VAT generally applies and this will also remain the same.
When receiving services, UK businesses may still have to apply a reverse charge to the receipt of services from non-UK suppliers. This ensures that there is no competitive advantage from sourcing services via non-UK suppliers.