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VAT Brexit Changes

As of 31st December 2020, the UK is no longer a member of the European Union. We can expect this to bring about many changes, but what does it mean for VAT?

In terms of domestic transactions within the UK, there are no changes – VAT rules and rates remain the same.

The key difference for VAT moving forwards is the treatment of supplies made between the UK and EU.

Importing Goods from the EU

One of the changes taking effect from 1st January 2021 is that goods brought into the UK from the EU will now be classed as imports. This brings the treatment of EU imports in line with the existing rules surrounding non-EU imports, with some changes.

From 1st January 2021, it will be possible for businesses to account for VAT due on the import of goods from the EU (and non-EU countries) on their VAT return, as opposed to paying for it upfront at the point of import and reclaiming later – this is something commonly referred to as ‘postponed accounting’.

Exporting Goods to the EU

From 1st January 2021, VAT-registered business in the UK should zero-rate any exports to EU countries. Rather than completing an EC Sales List as required prior to the transition, businesses should now retain proof that the goods have left the UK within the required timeframe – this is the same as existing requirements for non-EU exports.

Businesses should refer to HMRC’s guidance on the deadlines for zero-rated goods to leave the UK as it differs depending on the nature of the export, but the standard is 3 months from the point of sale.

Supplying Services to the EU

As of 1st January 2021, the VAT treatment of any services supplied to EU countries will follow the rules already in place for the supply of services to non-EU countries.

The ‘place of supply’ rules outlined by HMRC should be used to determine the VAT treatment of any services supplied.

Where the supply of services takes place between two businesses (B2B), the place of supply is where the customer is based – as the UK is no longer in the EU, this supply is now classed as being ‘outside the scope’ of UK VAT, and VAT should therefore not be charged. This should make determining the VAT treatment of services supplied in B2B transactions outside of the UK more straightforward, as there is no longer any difference between the ‘place of supply’ rules for EU and non-EU countries.

Following the ‘place of supply’ rules for business to consumer (B2C) sales, the place of supply is generally considered to be where the supplier is located – the UK. With that being said, there are exceptions to this rule:

  • Advertising services, consultancy, engineers, lawyers, accountants, and similar services, data processing and the provision of information (other than services relating to land) – the place of supply for these services is the location of the customer. Where the location of the customer is outside of the UK, no VAT is chargeable.
  • Services supplied in relation to UK land, transport, restaurant and catering services, hiring goods located in the UK, broadcasting, admission to events, conferences, and meetings in the UK – the place of supply for these services is considered to be the UK, and therefore VAT should be charged regardless of whether the customer is located in the EU.
  • Digital services provided to consumers in the EU are liable to VAT in the country in which the consumer resides. Prior to 1st January 2021, there was an annual threshold of £8,818 for UK to EU sales of digital services. This threshold has now been removed, meaning that UK businesses making B2C supplies of digital services will either have to register for VAT in the EU countries to which they make supplies, or register for a MOSS scheme – the UK MOSS scheme previously used for these supplies will no longer be available.

Additional Changes

For any businesses selling to the UK, there will no longer be a threshold under which VAT registration is non-compulsory. As of 1st January 2021, any business selling to the UK must register for a VAT number with HMRC.

For any questions on the changes to VAT after Brexit, please get in touch.

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