IMPORTING GOODS

The highlights

All goods that enter Great Britain (GB) from abroad are now classed as imports. There will be no difference between the goods that you import from EU and non-EU countries as far as VAT and customs declarations are concerned. If your business is based in Northern Ireland (NI) and you are registered for VAT, you will still “acquire” VAT-free goods from EU suppliers because NI is still part of the customs union and single market. This means that all goods you import into GB as a GB-based business will be subject to VAT on arrival. However, there will be no customs duty or quotas for goods arriving from EU countries in most cases following the UK trade deal with the EU agreed in December 2020.

 

Postponed accounting

If you are registered for VAT, it makes sense to elect for postponed VAT accounting (see https://tinyurl.com/y5xgdyqj) when your goods arrive from abroad. This means that no VAT is payable on arrival, and you will self-account for the VAT on the return that coincides with the import date by doing a reverse charge entry. This is a big cash-flow saving for your business, and a much better outcome than paying VAT at the port and waiting up to three months to claim input tax on a VAT return.

All importers and exporters must have a GB EORI number, issued by HMRC. It only takes ten minutes to apply for one online and they are usually issued within five working days. Apply for an EORI number at https://tinyurl.com/y3wj9zhf.

Example

John is VAT registered in the UK and is a clothes retailer. He has imported trousers from a French supplier, costing £10,000. There will be no customs duty payable on the import because France is in the EU, but a customs declaration will still be needed. If the goods were manufactured outside the UK or EU and were shipped into France, then duty might be payable under the Rules of Origin principle.

John can elect to defer payment of VAT by ticking payment option G on the customs declaration. He will account for output tax of £2,000 on his VAT return that coincides with the import date (Box 1), claiming the same amount as input tax in Box 4. The net value of the expense will be included in the inputs figure in Box 7.

If goods that you import are zero-rated under UK law, then no VAT will be due at the border anyway. For example, if the trousers imported by John had been zero-rated as children’s clothing, then import VAT would not be an issue.

 

Should you use a customs agent?

You have the choice of handling imports yourself or appointing a freight forwarding or customs agent to do it for you. HMRC’s guidance emphasises the importance of making a “correct customs declaration” for your imports, which is why many businesses use a third-party agent. It could badly affect the profits of your business if your supply chain is affected by goods being held up at a port because of paperwork problems. HMRC’s website gives a list of agents you can contact ( see https://tinyurl.com/y3rkfwu6).

 

C79 certificates and postponed import VAT statements - new Customs Declaration Service

When you complete your VAT returns with postponed VAT accounting (PVA), you make an input tax entry in Box 4 of your return as well as in Box 1. However, you must treat this Box 4 entry the same as a normal purchase invoice you receive from a UK supplier when you claim input tax. In other words, you must reduce the claim for any private, non-business or exempt use. You must also ensure that you have evidence to support this claim, such as how you keep copies of your purchase invoices. For imports, this evidence has always been a C79 VAT certificate, and this continues to be the case post-Brexit if VAT is paid on your imports. However, if you use PVA for an import, the relevant document to support the Box 1 and Box 4 entries on your VAT return is a postponed import VAT statement, rather than a C79 certificate. The key change is how you obtain these certificates. You must now register for the Customs Declaration Service (CDS), and then download them from this site. See https://tinyurl.com/y8j8mvqy for further information.

Once registered, you will be able to download copies of your monthly C79 VAT certificates and postponed import VAT statements in the middle of the month following your imports, e.g. the middle of March for your February imports. However, they must be downloaded within six months, as they will be removed from the site after that period.

 

Imports with a shipment value of £135 or less

An important change that took effect on 1 January 2021 is that shipments of goods from overseas are now subject to sales VAT rather than import VAT when they arrive here if the shipment value is less than £135. This means that either an overseas seller must register for UK VAT in order to charge you 20% VAT on their sales invoices, or the online marketplace they sell through will charge you VAT instead. However, if you are VAT registered and buying directly from an overseas seller, they will not charge you VAT. You will provide your UK VAT registration number at the time of placing the order, and then you must account for the reverse charge on your next VAT return.

Example

Ann is registered for UK VAT as an accountant and has ordered a print cartridge online from a Dutch supplier. The cost is £80. The Dutch supplier should be registered for UK VAT as an overseas seller but will not charge Ann VAT on this sale. She will account for output tax of £16 on her next VAT return, claiming the same amount as input tax in Box 4, assuming the print cartridge is wholly used for her business.

EXPORTING GOODS

The highlights

All exports of goods from GB to anywhere in the world are now zero-rated as far as VAT is concerned. For a Northern Ireland-based business, exports only relate to goods shipped outside the EU. However, you must work hard to secure the zero-rating on your exports, keeping commercial and shipping evidence as proof that the goods have left the country. If this evidence is deficient, HMRC has the power to treat the goods as being sold domestically, subject to UK VAT. The evidence you retain must be enough to show the quantity of goods, and their destination.

 

Goods leaving the country - export declarations

A full export declaration must be made when your goods leave the country. The GB EORI number mentioned for imports is again required as part of the paperwork process. There might be other documents that you need to complete as part of the export process, depending on your business activity. For example, there are more requirements for animal and food products. HMRC’s website has a great deal of information about export procedures (https://tinyurl.com/y5o5vuen) but you might decide to use a customs agent to help with this process.

If you have sold goods to non-business customers in EU countries, you might be registered for VAT in some countries under the distance selling rules. This means that you have charged VAT according to the rate that applies in that country for the goods in question. Distance selling is only relevant to an EU-based business, so you will need to cancel your registration if this has not been done already.

 

What happens when goods arrive in your customer’s EU country?

Getting the goods out of the UK is only your first challenge. You must then consider what happens when they arrive in the customer’s EU country. The best outcome is for your customer to be declared as the importer of the goods when they arrive in the destination country. This means they will claim input tax on their VAT returns, assuming they are registered for VAT, and will also be responsible for clearing the goods at customs. However, some EU customers will have become used to your goods arriving at their warehouse without any paperwork issues, as a result of the free movement of goods that applied when the UK was a member of the EU. They might refuse to be declared as the importer and be contemplating using other suppliers in their own country instead of your business. In such cases you might need to register for VAT in the customer’s country and import the goods yourself, and then raise a sales invoice to your customer based on that country’s rate of VAT.

You need to take professional advice about the consequences of registering for VAT in an EU country. In the case of 19 EU countries, a non-EU business requires a local tax representative to be appointed, to act as a liaison point with the tax authorities. The representative is jointly and severally liable for any unpaid VAT, which is why their fees are often very high.

Since 1 July 2021, it has been possible for your business to register for the EU’s new import one-stop shop (IOSS) scheme, meaning that you can charge sales VAT on goods you ship into the EU with a shipment value of 150 Euros or less. This avoids the need to account for import VAT on these goods. You will register for the scheme in an EU country of your choice. The IOSS is optional.

You might need to appoint a local tax representative based in the EU country when you register for IOSS, to act as your liaison point with the tax authority in your country of registration. This might be a costly process so you need to research fees in advance. It might be best to carry on paying import VAT when the goods arrive in the EU.

 

Three-way deals - end of triangulation

It is very common for a UK business to act as the middle business in a deal involving the sale of goods. For example, you might receive an order for goods from a customer in Germany, which you will buy from a manufacturer in Poland. It makes sense for the goods to be shipped directly from Poland to Germany.

In the above example, a VAT simplification was available until 31 December 2020, which meant you didn’t need to register for VAT in either Poland or Germany, depending on where you legally took ownership of the goods. This outcome depended on each of the three parties being VAT registered in their own countries, which was usually the case. The result was that the Polish manufacturer zero-rated their sales invoice to your business; you zero-rated your sale to the German customer, and the latter would account for the reverse charge on their own return, based on German VAT rates. This process was known as “triangulation” but is no longer available to a GB-based business. This means that you will need to register for VAT in an EU country, usually in that of the final buyer, i.e. Germany in this example.

Many UK businesses opened a warehouse or set up a subsidiary company in an EU country in advance of Brexit, so they are established in that country for VAT purposes and can continue to use the triangulation arrangement. You might want to consider this approach for your business.

 

Fewer reporting requirements

Your GB-based business no longer needs to submit either EC Sales Lists (ESL) or Intrastat sales reports for exports. These reports are only relevant to a business based in the EU. The exception, again, is for a business based in NI, where they are still needed for sales of goods. An NI business does not need to complete an ESL for sales of services to VAT-registered customers in the EU.

 

Moving goods to Northern Ireland

If you either sell goods to NI customers, or transfer your own goods to NI, then you need to be aware of extra rules and regulations that now apply. This is because NI is still part of the EU’s single market and customs union in order to ensure there is a soft border with the Republic of Ireland. In effect, there is an imaginary border between GB and NI in the Irish sea. Here are three issues to consider:

1. Trader Support Service (TSS). The government has invested £200 million in this service, which is intended to help businesses with the paperwork now needed when goods move from GB to NI. You should register with this service if you move goods to and from NI at https://tinyurl.com/y58h899g.
2. VAT. You will continue to charge UK VAT as normal on goods you sell to customers in NI.
3. Reverse charge for transfer of own goods. If you move your own goods from GB to NI, e.g. from your Leeds branch to your Belfast site, you must apply a reverse charge on your VAT returns. In other words, you claim input tax and account for output tax based on the value of the goods. However, this could create problems if your business is partly exempt, and you need to be clear of the correct procedures to avoid a double tax charge. An example will highlight this issue:

Example

Insurance Ltd is partly exempt and has offices in Leeds and Belfast. It purchased ten computers from a Leeds supplier and did not claim input tax because of the exempt use. Six computers worth £1,000 each are now being shipped to the Belfast office. The reverse charge on these computers means that output tax of £1,200 is payable in Box 1 with the reverse charge but no input tax can be claimed in Box 4 because the use in NI will be for exempt insurance work. The company has now paid VAT twice, so can include £1,200 in Box 4 to prevent this double charge.

 

Retail export scheme abolished

If you are a retailer selling high value goods you might have used the retail export scheme, enabling overseas visitors from outside the EU to get a rebate of VAT from you once the goods were taken out of the EU. This scheme was abolished on 31 December 2020. The withdrawal of “airside” tax-free shopping was also abolished on the same date. See https://tinyurl.com/y6d3gatn for further information about the scheme withdrawal.

buying and selling services

The highlights

In many cases, the VAT rules for services are unchanged. However, it is important that you do not, for example, accept VAT charges from an EU supplier on the basis that the UK is no longer part of the EU - most supplies will continue to be non-VATable. The good news is that NI will follow UK VAT rules for services - it’s only for supplies involving goods that you need to differentiate between GB and NI.

 

Selling services to EU businesses - what’s changed?

If your business sells services to business customers outside the UK (B2B sale), then you will not have charged VAT on your fees in most cases since the rules changed in 2010. This is because the VAT charge depends on where your customer is based, rather than where you have your business, or where you carry out the work. For example, a management consultant based in London might carry out work while on holiday in Spain, on behalf of a business customer based in France. The relevant country for VAT purposes (place of supply) is France, i.e. no UK VAT is charged on these fees.

The same rules still apply following Brexit - the place of supply is still France in the above example, i.e. no UK VAT is charged. The only difference is that you do not need to complete ESLs in respect of your sales to VAT-registered customers in EU countries.

It is recommended that you still include your customer’s EU VAT number on your sales invoices - this is the best evidence of their business status. It is also helpful (but not compulsory) for you to continue to include a note on your invoices to EU customers, along the lines of: “No UK VAT charged - reverse charge on your VAT return.”

What about services you buy from EU suppliers?

There is good news here: the status quo is maintained post-Brexit. In other words, most of the services you buy from EU suppliers will not be subject to domestic VAT from their country, i.e. the B2B principle is maintained. You should ensure that EU suppliers do not try to charge you VAT incorrectly on the basis that the UK is no longer a member of the EU. If you accept an incorrect VAT charge, there is no way that you can claim this back - it will be an extra cost to your business.

When you buy services from abroad, you must apply the reverse charge on your own VAT returns - this has always been the case, irrespective of whether your supplier is based in the EU or otherwise.

Example

Marie is a computer consultant in Leicester. She has used the services of two subcontractors, one based in America and the other in France, paying them £5,000 each. Marie must apply the reverse charge on her next VAT return, accounting for output tax of £1,000 in each case (Box 1) and claiming the same amount as input tax (Box 4). The input tax claim is the same as her output tax payment because her business is not partly exempt, and she is using the services of the subcontractors for her business. As this example shows, there is no difference in the VAT treatment if she uses an EU or non-EU supplier - that has always been the case.

 

Potential VAT savings - selling services to EU consumers (B2C)

The basic rule for selling services to non-business customers (B2C) has always been that VAT is charged based on where your business is based, i.e. the UK. So, for example, if Marie had done some consultancy work for a church in Ireland, she would have charged UK VAT until 31 December 2020. This assumes the church has no business income, i.e. the supply is classed as B2C rather than B2B.

There is a list of services in the legislation where no VAT is charged if the customer is based outside the EU. The good news is that the principle of “outside EU” changed to “outside UK” for these services from 1 January 2021. So, what does this mean in practice? In short it means no UK VAT needs to be charged, which could mean savings for customers.

For the list of services where this rule applies, see Section 12 of VAT Notice 741A at https://tinyurl.com/y4kkw8lr.

Example

Ann the accountant completes private UK tax returns for a person living in Spain (EU country) and another living in America (non-EU), charging a fee of £500 to each of them. Ann has never charged VAT to the American customer because accountancy services are included in the list of services where no VAT is charged to non-EU customers. She has always correctly charged £100 VAT on her invoices to the Spanish customer. From 1 January 2021, the fee will be not subject to UK VAT for the Spanish customer either.

Ann might want to share the VAT savings with her Spanish customer, e.g. by agreeing a 10% increase in her fees. Both Ann and the customer will be better off than pre-Brexit. But see the next section about “use and enjoyment” rules before going down this route.

 

Warning - be aware of the “use and enjoyment” rules

As an extra challenge, you need to consider if the VAT situation for services that you buy or sell might have changed because of “use and enjoyment” rules that apply to some services, producing a different VAT outcome now that the UK is outside the EU. For example, in the case of Ann completing a tax return for her Spanish customer, the fee is subject to neither Spanish nor UK VAT since 1 January 2021. But the fee would have been subject to Spanish VAT if Spanish tax law included a clause that accountancy and tax services were subject to a use and enjoyment clause, i.e. Spanish VAT would then be an issue because Ann’s services are enjoyed/used by her customer in Spain. In this case Spain does not apply such a clause for accountancy services. However, you will need to check the rules in any EU country you make sales to. Some EU countries have legislation in place which means that many services are captured by use and enjoyment rules, e.g. France. You need to be careful with this issue and consider sales you make in each EU country on an individual basis.

For the list of services subject to a use and enjoyment override in the UK, relevant if you are selling services, see Section 13 of VAT Notice 741A at https://tinyurl.com/y2n6z9jn. The good news is that they are quite limited in scope, so will not affect most UK businesses. The same is true with tax law in EU countries, i.e. most services are not subject to a use and enjoyment clause.