Reverse Charge VAT After Brexit
What is Reverse Charge VAT?
Value-Added Tax (VAT) is normally charged and accounted for by the supplier of the goods or services. However, in certain circumstances, the recipient rather than the supplier is obliged to account for the VAT due.
EU Reverse Charge VAT
On 31 December 2020, the United Kingdom left the EU and as a result, became a third country for VAT purposes. Therefore, for companies trading with the UK (excluding trade in goods with Northern Ireland*), the rules of trade with a non-EU country apply.
*It should be noted that Northern Ireland is treated as a Member State regarding VAT on goods but not treated as a Member State regarding VAT on services.
For B2B supply of goods, this means:
- The supply and movement of taxable goods between Ireland and Great Britain are subject to the VAT rules on imports and exports.
- You do not have to report details of trade with the UK (excluding Northern Ireland) on the Intrastat system or VIES (VAT Information Exchange system).
- You do have to report details of trade with Northern Ireland on the Intrastat system or VIES.
- Agreed EU simplifications, such as triangulation, do not apply to transactions involving Great Britain.
For B2B supply of services, this means:
If an EU established business supply or receive general services to/from a UK business, including Northern Ireland, post-Brexit, the place of supply continues to be the place where the business receiving the services is established in accordance with the general place of supply of services rules.
The location of the business customer to whom the services are supplied can be:
- where he or she has established their business;
- where that person’s fixed establishment is located or
- in the absence of such place of business or a fixed establishment, the place where he or she has a permanent address or usual place of residence.
Self-Accounting (Reverse Charge)
Where the business customer is located outside the EU, such as the UK post-Brexit, the EU supplier will not charge VAT on its services. Instead, the business customer will self-account for the VAT in their State.
If you as an EU established business receive services from a UK established business, the UK business will not charge VAT on its services. Instead, you should self-account for the VAT in your VAT return in your EU Member State of the establishment. You are treated as if you had made the supply yourself.
This is known as self-accounting or reverse charge. Businesses are also entitled to reclaim the VAT in the same VAT return if you are a taxable business.
After Brexit: Changes to Import / Export rules
As of 31 January 2021, the United Kingdom became a third country for VAT purposes, and the EU reverse charge rules for the supply of goods sent to/from the UK no longer applies. Companies instead should treat such transactions as exports or imports. Businesses must now considers Triangular Transactions and Call Off Stock for trade between the UK and the EU.
The impact of Brexit on Business – Trade between the UK and the European Union
In Episode 1 of TBI Expert View, Lisa Dowling (Senior Global Director – Head of Indirect Tax, Advisory and Compliance) and Joe Healy (Chief Strategy Officer) discuss ‘Brexit: The Tail End of the Storm’ and the practical implications of Brexit for Taxback International’s clients. Watch it here:
