Brexit & VAT

VAT rules are changing on 1 January 2021. Businesses trading with the EU must take action to make sure they are ready to comply.

Since the UK left the EU customs union on 31st December 2020, rules around import/export and VAT have changed.

For some businesses, this means filling out customs declarations and paying import VAT, although this payment can be postponed.

Other businesses selling to UK customers now need to register in a EU country to continue operating.

Below is a summary of the key changes around VAT that have come into force when the Brexit transition period ended on 31st December 2020.

If you are looking for an in-depth analysis of the VAT implications of Brexit, we recommend downloading our Brexit VAT Analysis, written by VAT expert Martin Kaney who can advise you on UK VAT.

Key Changes for VAT

The UK no longer assumes the Principal VAT Directive

The Principal VAT Directive (PVD) controls VAT regulations for all EU Member States.

From 1st January 2021, the PVD does not apply to the UK anymore, granting the UK full control over VAT policies. This means that the UK is now fully independent in setting its VAT rate and amending rules over reduced VAT rates.

For UK businesses, this isn’t likely to make a huge difference, initially. But future legislation changes may affect VAT rates in specific sectors such as online publications.

Distance Selling thresholds do not apply anymore

Prior to Brexit, Distance Selling rules stated that EU companies could charge their local VAT rates when selling to EU consumers, as long as they did not exceed certain thresholds .

Since distance selling thresholds no longer apply, businesses selling goods directly to EU customers may need to register for an EORI number starting with GB or with EU, and/or register for VAT in the EU.

B2B intra-community supplies can’t be zero-rated

While the UK was a member of the EU, UK companies benefited from EU VAT laws which allowed them to zero-rate goods moved between member states.

From the 1st January 2021, this will not apply.

After the transition period, any supply between the UK and the EU is treated as an import or an export, therefore subject to import VAT in the relevant jurisdiction.

For UK businesses, this means that import VAT is now due whenever receiving goods from abroad, including EU countries. Import VAT must be paid during customs declarations, unless the business decides to defer the payment or use the Postponed VAT scheme. More on that below.

Businesses selling services to the EU

In the case of services provided by UK companies to EU business customers, VAT is not charged. The EU business customers is now liable for VAT in their own countries (as is currently the case).

UK businesses providing digital services to private consumers in the EU, that used the Mini One-Stop Shop single VAT return scheme should register in a EU-member state to keep filing VAT returns through Non-Union MOSS.

The UK will implement Postponed Import VAT Accounting (PIVA)

From 1st January 2021, VAT-registered businesses who import goods from abroad can account for import VAT with the Postponed VAT deferral scheme.

When filling customs declarations, businesses will be asked to confirm whether they want to

  • pay import VAT in cash and reclaim it through their VAT returns (as it currently is), or
  • use PIVA and declare their postponed VAT on their VAT return, so that the reclaimed VAT is subtracted from the amount due.

For UK businesses, using PIVA involves a significant cash flow savings upon importing goods from the EU, as well as a payment deferral for goods imported from non-EU countries. However, PIVA involves additional admin and is only available for VAT-registered businesses.

UK importers can defer import VAT and customs duties

At the end of the transition period, the UK leaving the EU will mean that British importers will be asked to fill out customs declarations, as well as pay custom duties and import VAT when importing supplies in the UK.

The admin and cash flow burden involved can be significantly reduced by applying for a Duty Deferment Account, which allows companies to make duties and import VAT payments on a monthly basis via Direct Debit, rather than upon receiving the goods.

Additionally, as VAT expert Nicola Gladwell from Rouse Partners writes: “from 1 January 2021 to 30 June 2021, most traders with a good compliance record can defer making full declaration for up to six months on imports of standard goods from the EU”.

For UK businesses, deferring import VAT and custom duties, although temporarily, can be a welcome relief on cash flow and additional admin, as well as providing a longer time frame to adapt to the new rules.

Brexit Transition Hub – GOV.UK

Check VAT Rates – GOV.UK

Export Step-by-Step Checklist – GOV.UK

Import Step-by-Step Checklist – GOV.UK

Get a GB EORI Number – GOV.UK

Get a EU EORI Number – EU Website

Check if you can use Postponed Import VAT Accounting – GOV.UK

Apply for a Duty Deferment Account – GOV.UK

Register for MOSS – EU Website

FAQs

Do I need to pay VAT when importing goods into the UK?

Import VAT will be payable for all goods brought into the UK, however it can be accounted for when you submit your VAT return as part of the Postponed Import VAT Accounting.
This way, import VAT is offset by the VAT reclaim on the same return.
As an alternative, companies can defer VAT and customs duty payments by applying for a Duty Deferment Account.


How do I apply for a Duty Deferment Account?

You can apply for a Duty Deferment Account through the Government Website.
However, this requires information about your EORI number, so make sure you have requested an EORI number starting with GB.

My company provides services to EU businesses, should I start charging them VAT?

No. If you sell to business clients, they are responsible for paying VAT in their own country.

Do I need an EORI number?

If you move goods between the UK and the EU, then yes.
You need a GB EORI number in order to import goods into the UK, and a EU EORI number in order to import goods into the EU, including selling to EU customers.