VAT After Brexit
With Brexit decisions looming and the proposed deadline almost upon us, are we any clearer as to what to expect after the 31st October 2019?
If we were to leave the EU on a no deal basis, trading with the EU will become similar to trading with the rest of the world, subject to any transitional arrangements. There will inevitably be specific rules but we do not know these at this time.
If we get an extension, it would seem that nothing changes until such time that Brexit happens.
You may well have heard lots of HMRC and government campaigns all over the radio and TV, and online, and you may well feel it is still unclear as to what you are expected to do. However for the purpose of this article we will cover the main and most important points that we think may be relevant to you and your business if/when Brexit goes ahead with no deal and the UK leaves the EU.
If you are currently selling digital services and reporting the VAT due to EU member states via the VAT Moss scheme, you can continue to do this but you will need to register for VAT MOSS in an EU member state, and report and account for this VAT via this new EU registration. Thereafter the same reporting rules would apply. You will need to register for VAT MOSS in an EU member state by the 10th day of the month following your first sale to an EU customer, post Brexit. The current digital services threshold of €10,000 will no longer apply. Unfortunately you cannot register before Brexit. Click here for the latest HMRC guide.
Therefore you will no longer be able to use the UK VAT Moss system after Brexit and 31 December 19 will be the last return to include sales up to the date of Brexit.
EORI - EU Trading of Goods
Unlike previously, you will need an EORI number to move goods in or out of the UK to or from the EU, like you do now with countries outside the EU. An EORI number is an Economic Operator Registration and Identification number which is 12 digits long, and starts with GB, and will include your VAT registration number if you are VAT registered. An EORI number is not needed for services. You must apply to get an EORI number and there is a simple registration process, click here for the direct link to HMRC‘s online registration page. If you do not already have one, you can and should apply for one now, even before you need it.
You do not need an EORI number to move personal goods, as this applies to trading only.
If you are dealing with EU customs, you will need to obtain an EU EORI number and you can obtain this from the customs authority in the EU country that you first trade with.
There is a really useful link on HMRC‘s website showing a flowchart of what you need to do if you are exporting from the UK to the EU. VAT on sales of goods to EU businesses and consumers will become zero rated for UK VAT, as long as you have evidence the goods have left the UK. However your customers should be mindful that the goods may be subject to VAT and import duties in the country you are selling to.
Goods imported from the EU will be subject to VAT and import duties after Brexit, adding to your reporting and compliance burden, as well as your cost. Click here for a useful HMRC guide , which gives more in-depth detail on this.
The same procedures will apply to EU trade that currently apply to trading with the rest of the world. If you currently import from outside the EU using a third party such as a customs agent, you can follow the same procedure for imports from the EU.
There are also Transitional Simplified Procedures (TSP) for imports from the EU which will enable you to delay providing full information at the time the goods enter the UK and paying import duty and VAT in the UK. You need to register to use these procedures. See here
Any VAT due on import is like any other VAT incurred in the UK and can be reclaimable where applicable. if you are VAT registered you don’t pay the VAT on import, you will account for this on your VAT return, and only pay across if you are unable to reclaim it under normal VAT rules, which may well help you with cashflow. If you’re not VAT registered, VAT will be paid in the same way as duty.
CHARGING VAT ON SERVICES
Once the UK leaves the EU, most service invoices to other businesses outside the EU will be treated in the same way as any other business outside of the EU, and therefore outside the scope of UK VAT. Conditions and exclusion may apply such as land and property related transactions.
There are more complex rules around selling services to consumers outside of the UK and you should seek advice specifically with regards to the service being provided.
If you have received a direct letter from HMRC, we would recommend you speak to your advisor on this.
FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.