Brexit: VAT implications for UK businesses and online market places
As you are all aware, The UK left the EU on 31 January 2020. The transitional period, during which nothing changed, ended on 31 December 2021.
Therefore, as of 1 January 2021, businesses that are currently located in Great Britain (England, Scotland and Wales) needs to be aware of the changes in the VAT rules which now governs trade between Great Britain and the EU).
Prior to leaving the EU, trade in goods between the UK and EU would not have a liability to foreign VAT. In other words, UK businesses selling/acquiring goods would not incur foreign VAT, nor would there be a liability to register for VAT anywhere in the EU (subject to exceeding the distance selling threshold).
However, as of 1 January 2021, sales and purchases with the EU will be treated as export and import.
Businesses selling goods to the EU would be treated as making a zero rated export, subject to meeting the conditions.
Purchases from the EU would be treated as an import and would be subject to import VAT. The new rules effectively brings trade in goods with the EU on a similar par to trade with the rest of the world.
However, rather than paying import VAT when the goods enter the UK (and subsequently recover the import VAT as input tax on a VAT return) , businesses might be eligible to use postponed VAT accounting. This would enable businesses to account and recover import VAT on the same VAT return, thereby, avoiding an adverse cash flow impact (paying the VAT at importation and recovering the VAT later through a VAT return).
Therefore, when goods are being cleared through customs, rather than paying the import VAT or using a deferment account, businesses can select that import VAT would be accounted for on their VAT returns.
Similarly, where goods are declared into a customs special procedure, a business can select that it will be accounting for import VAT on its VAT Return when it submit the declaration that removes them into free circulation from the following special procedures:
Customs warehousing
Inward processing
Temporary admission
End use
Outward processing
Duty suspension
If a business (such as a freight forwarder or customs agent, broker or fast parcel operator) is used to clear the imported goods through customs, they need to be informed that the business wishes to account for the import VAT on a VAT return so that they may complete the customs declaration.
Similarly, if a supplier is arranging for someone to import the goods on your behalf, you need to inform the supplier how you wish to account for import VAT so that they may tell them how to complete the customs declaration.
Consignment value not exceeding £135
New rules have also been introduced regarding import VAT with a consignment value not exceeding £135. A summary is provided below:
For goods located outside the UK at the point of sale (business to consumer)
Import VAT will not be due at the time the goods enter the UK. Instead UK VAT will be due at the point of sale. Therefore, the foreign supplier would be required to register, charge and account for UK VAT.
Whilst, import VAT will not be chargeable, consignments not exceeding £135 will still need customs declaration and be subject to normal customs processes and procedures.
For goods located outside the UK at the point of sale (business to business)
Where the UK VAT registered business customer provides its UK VAT registration number to the foreign supplier, the responsibility to account for UK VAT switches to the UK VAT registered business customer, who will account for the VAT under the reverse charge mechanism.
The foreign supplier should include a reference to UK VAT being subject to reverse charge on its sales invoice.
For goods located in the UK at the point of sale (business to consumer and business to business)
The foreign supplier would be making a UK supply and UK VAT would be chargeable at the point of sale. The foreign supplier would be required to register, charge and account for UK VAT.
Import VAT incurred by the foreign supplier in removing stock to the UK would be recoverable through its UK VAT return, subject to the normal rules for recovering input tax.
Sales through an online market place “(OMP”)
Moreover, where a foreign supplier sell goods to the UK, with a consignment value not exceeding £135, via an OMP, the following would apply:
For goods located outside the UK at the point of sale (business to consumer):
Import VAT will not be chargeable at the point the goods enter the UK. Instead, UK VAT will be chargeable by the OMP at the point of sale.
Therefore, OMPs will need to register, charge and account for UK VAT on such supplies.
For goods located outside the UK at the point of sale (business to business):
Where the UK VAT registered business customer provides its UK VAT registration number to the OMP, the responsibility to account for UK VAT switches to the UK VAT registered business customer, who will account for the VAT under the reverse charge mechanism.
Therefore, the OMP or foreign seller will not be required to charge and account for output VAT on the supplies of goods to the UK VAT registered business customer.
The OMP would need to include a reference to “reverse charge” on the invoice.
If, however, the business customer is not VAT registered or does not provide a UK VAT registration number to the OMP, the OMP should treat the supplies as a business to consumer and charge UK VAT on the sale.
For goods located in the UK at the point of sale (business to consumer):
This rule apply to any value of goods, and not restricted to goods with a value not exceeding £135.
In this scenario, it is expected that:
§ The goods are owned by the foreign seller;
§ The goods are located in the UK at the point of sale;
§ Import VAT and duty obligations have been met at importation; and
§ Seller sells the goods to a customer in the UK through an OMP.
At the point the goods are sold to customers in the UK, the OMP will be deemed to be making the supply, and it would need to charge and account for UK VAT.
At the same time, the foreign seller would be treated as making a zero rated sale of the goods to the OMP. As such, the foreign seller would be entitled to register for UK VAT and reclaim any import VAT incurred, subject to the normal rules for recovering input VAT.
However, the liability for charging and accounting for VAT on the sale to UK customers remain with the OMP.
For goods located in the UK at the point of sale (business to business):
This rule apply to any value of goods, and not restricted to goods with a value not exceeding £135.
Where the VAT registered business customer provides a VAT registration number to the OMP, the sale would be deemed to be made by the foreign seller rather than the OMP, and will follow existing VAT rules.
The OMP will need to inform the foreign seller that the customer is a business and provides its UK VAT registration number.
The foreign seller would need to register, charge and account for UK VAT on the sale.
Any import VAT incurred by the supplier in removing stock to the UK would be recoverable on its UK VAT return subject to the normal rules for recovering input VAT.
VAT accounting
Where a foreign supplier or OMP is required to register for UK VAT, the rules regarding VAT invoicing, record keeping and accounting would also apply.
Online market place
For completeness, HMRC defines an OMP as:
“…..a business using a website or mobile phone app (such as a marketplace, platform or portal) to handle the sale of goods to customers which meets all of the following conditions:
· In any way sets the terms and conditions on how goods are supplied to the customer
· Is involved in any way in authorising or facilitating customers’ payments
· Is involved in the ordering or delivery of the goods
A business will not be classed as an online marketplace if it only provides one of the following services:
· Processing of payments for the supply of the goods to the customer
· Listing or advertisement of goods
Redirection or transferring of customers to other websites or mobile phone apps where goods are offered for sale, without any further involvement in any sale that might take place on that website or app”.
Finally, should you wish to talk through the above in more details, please do not hesitate to contact us on 020 8191 9867 or enquiries@alexandrwalker.com.