Brexit no deal. What is the deal with VAT and customs?

28th August 2018

Following the release of papers by the UK government on what will happen if there is no deal with the EU before Brexit in March 2019, VAT Director Wendy Andrews takes a look at the issues for those trading with Europe.

It may be surprising to note that despite the media whirlwind surrounding the publication of the no deal papers, most of issues covered in them will apply anyway to any of the scenarios for leaving, except where the UK stays in the single market and the customs union – both of which have already been red lined by the government.

In a free trade agreement (FTA) for example, all the additional import/export documentation which is referred to in the papers would still be required; it is just that no duty would be charged.

In addition, in an FTA, origin would need to be documented to demonstrate eligibility for the FTA, and duty would still be chargeable if the goods didn’t qualify (because they had too many non-UK/EU components). This is not mentioned at all as far as we can see.

We discuss the key points from the no-deal papers below.

VAT for businesses 

Import VAT and cash flow

  • Postponed accounting will be introduced for import VAT for all goods arriving in the UK, from the EU and the rest of the world. This means that VAT registered businesses will not need to pay import VAT in cash at or soon after importation but will be able to account for it on their VAT returns. This removes one of the major cashflow issues on VAT. Although non-VAT registered businesses are not mentioned in the papers, in practice they would not be able to use postponed accounting.
  • Customs declarations and payment of other duties will still be required on goods arriving in the UK from the EU.

Parcels from the EU

  • VAT will be payable on goods arriving in the UK from the EU (unless they are zero-rated for VAT e.g. children’s clothes and books). Low value on consignment relief will not apply.
  • HM Revenue & Customs (HMRC) is introducing a technology-based solution which will allow VAT to be collected by overseas businesses selling parcels worth less than £135 into the UK so that they can charge VAT at the point of sale and account for it to HMRC. This service will be available for overseas businesses to register in early 2019.
  • For goods worth more than £135 sent as parcels, VAT will be collected as is currently the case on non-EU parcels over these values.

Vehicles

  • Import VAT will be due on vehicles brought into the UK from the EU, although reliefs would be available in some cases as is currently the case with vehicles imported from outside the EU. 

Exporting to the EU

  • For sales to EU consumers, the distance selling rules will no longer apply and sales will be zero-rated for VAT. However, the goods arriving in the EU will be treated as third country imports and may be subject to import VAT and duty as applicable.
  • For sales to EU business customers, these can be zero-rated, but evidence that the goods have left the UK will need to be kept. This will be similar to the evidence currently required for non-EU exports.
  • Goods entering the EU from the UK will be treated as third country imports with associated import VAT and duty implications.

Sales of own goods by UK businesses in other EU member states – will continue as before.

Supplies of services

  • The main place of supply rules will remain the same
  • Place of supply for digital services will continue to be where the customer belongs, so UK suppliers will continue to need to account for VAT in the member state where their customer belongs. However, the UK MOSS scheme cannot be used, so affected businesses will need to register in a continuing EU member state for non-Union MOSS. Timescales will be tight for doing this as registration cannot be applied for until the UK has left the EU, but must be in place within 10 days of the month in which a supply is made.
  • For businesses supplying insurance and financial services, input VAT deduction rules may be changed.

Tour operators margin scheme:

HMRC is engaging with the travel industry to minimise any impact of no deal with the EU.

EU VAT refund claims:

In a no deal situation, UK companies would need to reclaim VAT incurred in EU member states using the non-member state claim process (which is not on line, and which requires claims to be made separately to each member state where VAT has been incurred).

On the Irish border

The document says that there would be “engagement on arrangements for land border trade” and that they will provide further information in due course.

Trading with the EU if there’s no Brexit deal

  • The free circulation of goods would cease
  • The same rules will need to be applied to goods moving to and from the EU as at present with third countries.
    • Customs declarations will be needed when goods enter or leave the EU/UK
    • There will be separate safety and security inspections by the carrier of the goods
    • There will be additional requirements for excise goods
  • Additional requirements for goods imported from the EU after 29 March 2019
    • EORI number required
    • Ensure contracts and INCOTERMS reflect the import transaction
    • Consider how to submit import declarations (you may need a customs agent or freight forwarder)
    • Decide classification and weight of goods for customs declarations
    • Import VAT and duty will be payable at importation (although postponed accounting will be available for VAT registered businesses).
    • Import licences may be required for certain goods.
  • Additional requirements for goods exported to the EU
    • EORI number required
    • Ensure contracts and INCOTERMS reflect export transaction
    • Consider how to submit export declarations.
    • Export licences may be required for certain goods.
  • Use of customs procedures may need to be considered for goods originating from the EU
    • Customs warehousing: this must be authorised by HMRC, and allows goods to be stored with import VAT and duty suspended
    • Inward processing: there will be relief from customs duty for goods which will be re-exported after processing or modification
    • Temporary admission: for goods being imported as samples, for exhibitions etc
    • Authorised use: there will be reduced duty for goods being used for certain purposes.

Classifying your goods in the UK Trade Tariff

Goods traded between the UK and the EU after 29 March 2019 in a no deal scenario will be subject to the same requirements as third country goods:

  • Trade with the EU will be on non-preferential World Trade Organisation (WTO) terms
  • The EU will apply its most favoured nation (MFN) rates to goods from the UK (i.e. the same rates as all other WTO members with which it doesn’t have a trade deal).
  • The UK will apply its MFN rates to goods from the EU. The government will determine and publish these rates before 29 March 2019.
  • The UK intends to seek to transition all EU FTAs for day 1 (although it is not clear how it can do this in a no-deal scenario)
  • The UK Trade Tariff will be made available free on gov.uk.
  • The UK does not intend to change the classification of goods immediately in a no deal scenario.

We can help

There are many implications here for those trading with the EU, and if your business will be affected it is important that you start planning now. Our Brexit team are here to advise and can be contacted to discuss your concerns.

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