Prepare for Brexit: Businesses still have time to act
Businesses of all sizes must take steps to understand the new VAT obligations they may have following the end of the transition period, and prepare for Brexit. Failure to comply with these new obligations may hamper the ability to trade post-Brexit and could lead to significant delays in moving goods from or to Great Britain from 1 January 2021.
There is still time to prepare for Brexit but businesses should take note of the points below.
The UK, post Brexit, will be outside the EU free trade area, and therefore all supplies of goods from the UK to the EU will become exports.
Under existing UK VAT law these B2B exports of goods will continue to be zero-rated.
Instead of having to account for an acquisition, the EU business customer will incur import VAT and may incur import duty. Import duty in contrast to import VAT is not recoverable.
As the UK leaves the EU VAT regime on 31 December 2020, some EU VAT rules will be removed for UK established businesses such Call of Stock simplification, simplified Triangulation, intra EU supplies, for example.
Between 1 January and 1 July 2021, goods sent from the UK to consumers in the EU can be zero-rated from the UK VAT as exports, but will be subject to import VAT on arrival in the EU member state where the customer belongs.
This may mean that the customer will need to make arrangements to pay the import VAT before they can take delivery of the goods, which may not be a favourable outcome for an online retailer as it may discourage the customer from ordering again from the same website.
If the supplier is to be the importer of record, then a VAT registration will be needed and possible fiscal representation.
However, new EU arrangements start on 1 July 2021, in the form of the One Stop Shop (OSS) and the Import One Stop Shop (IOSS), which will give online sellers options to simplify their VAT registration obligations and reporting.
Online B2C sellers should therefore consider how to manage their VAT compliance from 1 January 2021 post Brexit and then how to simplify their compliance obligations from 1 July 2021 with the new EU rules coming into force.
UK and Northern Ireland
UK VAT rules related to transactions in services will apply across the whole of the UK.
Under the obligations in the Northern Ireland Protocol, import VAT will be due on goods that enter Northern Ireland from Great Britain (England, Scotland and Wales).
The same will also broadly apply to goods entering Great Britain from Northern Ireland.
However, existing flexibilities within the EU VAT rules have been used to ensure that the Government priority to minimise business impacts is met.
Under the Protocol, transactions in goods between Northern Ireland and EU businesses and consumers will continue as they do today.
HMRC has also made it clear that the UK must function as a single customs territory in practice as they operationalise the Protocol.
Moving goods under the Northern Ireland Protocol
Articles 5-10 set out the provisions under which Northern Ireland can remain aligned with specific EU rules in customs, goods, VAT, and the Single Electricity Market until an alternative arrangement were agreed.
For goods in free circulation in Northern Ireland moving to Ireland or other EU Member States that means:
- no substantive change for goods movements;
- no customs checks, paperwork or requirements;
- no tariffs or quotas applicable, nor checks on rules of origin;
- no EU member state able to impose barriers or frictions on goods in free circulation and authorised for the Single Market in Northern Ireland; and
- no discrimination against Northern Ireland goods by EU member states
This also applies to goods using the transit procedures.
The UK Government will monitor the application of these provisions closely, to ensure that no EU Member State breaches their obligations or discriminates against Northern Ireland goods in any way.
For the first six month of 2021 (and may be extended until end of 2021) there will still be an obligation to submit Intrastat declaration.
During this time, UK companies will continue to have to declare all arrivals but not dispatches.
Traders who import or export goods into or out of the European Union (EU), will need an EU EORI number.
This number is valid throughout the EU.
It is used as a common reference number for interactions with the customs authorities in any Member State.
Each legal entity has just one EU EORI number, which will be used in all other member states.
All existing EU VAT numbers have to be linked to this EORI number.
Post Brexit, a GB EORI number will be needed as well as an EU EORI number, if a company also imports or exports into or out of the UK.
Ireland fiscal representation requirements
The Irish Finance Bill for 2020 contained provisions, which now grant powers to the Irish tax authorities to request the appointment of fiscal representation by non-EU businesses.
Under these provisions, the Irish tax authorities may service notice for the appointment of a tax representation within a 21 day period and this representative will have joint and several liability for VAT liabilities.
This new requirement will only apply to Irish VAT registered traders who are established in a non-EU country that does not have a legal instrument relating to mutual assistance for the collection of taxes and it is expected that fiscal representation will only be requested, where a business has a poor tax compliance record.
This requirement will not apply to business registered under Mini-One-Stop Scheme.