VAT for businesses in a Brexit “no deal” scenario
HMRC published a guidance on 23 August 2018 for business which outlines the changes to VAT rules in the event of a no deal Brexit after 29 March 2019.
Currently, as part of the EU single market, the rules are that:
VAT is charged on most goods and services sold within the UK and the EU.
VAT is payable by businesses when they bring goods into the UK. There are different rules depending on whether the goods come from an EU or non-EU country.
Goods that are exported by UK businesses to non-EU countries and EU businesses are zero-rated, meaning that UK VAT is not charged at the point of sale.
Goods that are exported by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds.
for services the ‘place of supply’ rules determine the country in which you need to charge and account for VAT.
However, should he UK leave the EU in a no deal scenario on 29 March 2019, there will be some changes to the UK VAT rules. These changes are outlined below:
Buying goods from the EU
The current rules applicable to the importation of goods from non-EU countries would also apply to goods purchased from the EU.
However, unlike current rules on importation, where import VAT has to be paid at the time of importation or, where the importer operates a deferment account, on the 15th of the month following importation, the government has confirmed that a postponed VAT accounting mechanism would be introduced.
This means that UK businesses would be able to account for import VAT on their VAT returns rather than having to pay the import at the time the goods arrive in the UK, to mitigate any potential adverse cash flow impact on businesses.
To ensure equity of treatment, this VAT accounting treatment would also be extended to importation of goods from non-EU countries.
VAT on goods entering the UK as parcels sent by overseas business
Low consignment relief on goods entering the UK as parcels would cease after 29 March 2019 and goods would be taxable at the appropriate UK VAT rate.
For parcels valued up to £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HM Revenue & Customs (HMRC) digital service and account for VAT due.
On goods worth more than £135 sent as parcels VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries.
VAT on vehicles imported into the UK
Businesses should continue to notify HMRC about vehicles brought into the UK from abroad as they do now. The Notification of Vehicle Arrival Procedures (NOVA) system will continue to be used for this purpose.
The only difference is that import VAT would be due on vehicles imported from Non-EU countries as well as EU countries.
UK businesses exporting goods to the EU
The current UK rules regarding export would not change, zero rating would still apply, subject to meeting the conditions. However, UK businesses might need to take actions to ensure that they are familiar with the customs and VAT processes of EU countries where goods are exported.
UK businesses exporting goods to EU consumers
Distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate sales of goods to EU consumers.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU.
UK businesses exporting goods to EU businesses
The requirement to file EC Sales List would cease after 29 March 2019. UK businesses would still be able to zero rate the export of goods to EU businesses subject to meeting the relevant conditions. The current zero-rating conditions are expected to remain, with any changes to be communicated in due course.
Place of supply rules for UK businesses supplying services into the EU
The rules around ‘place of supply’ will continue to apply in broadly the same way that they do now.
For UK businesses supplying digital services to non-business customers in the EU the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU Member State within which your customer is a resident.
For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed. HMRC will publish further guidance in due course.
EU VAT refund system
If the UK leaves the EU without an agreement, then UK businesses will continue to be able to claim refunds of VAT from EU member states but in future they will need to use the existing processes for non-EU businesses.
UK business will no longer have access to the EU VAT refund system. UK businesses will continue to be able to claim refunds of VAT from EU member states by using the existing processes for non-EU businesses.
This process varies across the EU and businesses will need to make themselves aware of the processes in the individual countries where they incur costs and want to claim a refund.
How we can help
HMRC will publish further information and instructions specifically tailored to cover the actions that businesses would need to take in a ‘no deal’ scenario in due course. In the meantime, should you have any queries or wish to discuss any of the above please do not hesitate to contact us.