As we are all aware, BREXIT has been a topic that has drawn a tremendous amount of uncertainty for many industries, the VAT world is no exception. A scenario in which the UK leaves the EU without a formal agreement, a ‘no deal’ scenario, remains unlikely given the mutual interests of the UK and the EU in securing a negotiated outcome. However, in the event that the UK leaves the EU on 29 March 2019 with no agreement, this article outlines some key information directed from HMRC to inform UK & EU businesses alike of the implications for VAT rules for goods and services traded between the UK and EU member states, as well as the VAT refund system.
It is of utmost importance that businesses consider how a ‘no deal’ BREXIT could affect them and their operations and begin to take appropriate steps to mitigate against the associated risks, this includes the VAT refund process. This article provides further details to support early planning on VAT to help businesses understand the potential impacts of no deal. Bear in mind that a lot of this information is speculative and subject to change, due to the uncertain nature of BREXIT happenings…
The following article is directed specifically at UK based business, but also provides insights to overseas entities managing operations in the UK:
Before 29 March 2019
Under current VAT rules:
- VAT is charged on most goods and services sold within the UK, and the EU.
- VAT is payable by businesses when they bring goods into the UK. There are different rules depending on whether the goods come from an EU or non-EU country.
- Goods that are exported by UK businesses to non-EU countries and EU businesses are zero-rated, meaning that UK VAT is not charged at the point of sale.
- Goods that are exported by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds.
- for services the ‘place of supply’ rules determine the country in which you need to charge and account for VAT.
After 29 March 2019 – if there’s no deal
The UK will naturally continue to have a VAT system after it leaves the EU. If the UK leaves the EU on 29 March 2019 without a deal, the UK government has claimed its aim will be to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses. However, if the UK leaves the EU with no agreement, then there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU member states.
The EU VAT & refund system
If the UK leaves the EU without an agreement, then UK businesses will continue to be able to claim refunds of VAT from EU member states, but in future, they will need to use the existing processes for non-EU businesses.
UK businesses will no longer have access to the EU VAT refund system. UK businesses will continue to be able to claim refunds of VAT from EU member states by using the existing processes for non-EU businesses. This process varies across the EU and businesses will need to make themselves aware of the processes in the individual countries where they incur VAT and want to claim a refund.
You can find further information about claiming VAT refunds from EU member states on the EU Commission’s website.
1. Accounting for import VAT on goods imported into the UK
The UK government will introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries. This is to mitigate any adverse cash-flow impacts keeping VAT processes as close as possible to what they are now. To ensure equity of treatment, in a no deal scenario, businesses importing goods will be able to account for their import VAT from non-EU countries in the same way, which will help UK businesses make the most of trading opportunities around the world. Customs declarations and the payment of any other duties will still be required.
2. UK businesses exporting goods to EU consumers
Distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero-rate sales of goods to EU consumers.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU.
3. UK businesses exporting goods to EU businesses
VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists.
As UK VAT registered businesses will not be required to complete an EC sales list, there will be changes to how these sales are recorded. Those UK businesses exporting goods to EU businesses will need to retain evidence to prove that goods have left the UK, to support the zero-rating of the supply. Most businesses already maintain this evidence as part of current processes and the required evidence will be similar to that currently required for exports to non-EU countries with any differences to be communicated in due course.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries with associated import VAT and customs duties due when the goods arrive into the EU. Individual EU member states may have different rules for import VAT for non-EU countries and import VAT payments may be due at the border when importing goods. UK businesses should check the relevant import VAT rules in the EU Member State concerned.
4. UK businesses selling their own goods in an EU Member State to customers in that country
UK businesses will be able to continue to sell goods they have stored in an EU Member State to customers in the EU in line with current Rest of World rules.
Current EU rules would mean that UK businesses will continue to be required to register for VAT in the EU member states where sales are made in order to account for the VAT due in those countries.
You can find further information on EU rules for storing non-Union goods in an EU Member State before selling or exporting on the EU Commission’s website.
5. Place of supply rules for UK businesses supplying services into the EU
The main VAT ‘place of supply’ rules will remain the same for UK businesses.
The current ‘place of supply’ rules determine the country in which you need to charge and account for VAT. These rules are in line with international standards set out by the Organisation for Economic Co-operation and Development (OECD), guidelines can be found on the OECD website.
The rules around ‘place of supply’ will continue to apply in broadly the same way that they do now, areas of potential change are flagged below.
For UK businesses supplying digital services to non-business customers in the EU the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU Member State within which your customer is a resident.
For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed. We will update businesses with more information in due course.
If you are a UK business that currently uses the VAT Mini One Stop Shop (MOSS) you can find more information in the section of the notice from HMRC…
6. EU Tour Operators’ Margin Scheme (TOMS)
The Tour Operators Margin Scheme (TOMS) is an EU VAT accounting scheme for businesses that buy and sell on certain travel services that take place in the EU. HMRC has been engaging with the travel industry and claim they will continue to work with businesses to minimise any impact, however limited information is presently available.
A Note from HMRC
“The steps and obligations businesses will need to take to continue to trade with the EU, if the UK leaves without a deal, are broadly the same as those that apply to businesses that trade with countries outside of the EU.
Further information and instructions, specifically tailored to cover the actions that businesses would need to take in a ‘no deal’ scenario, will be published in the coming months. These are plans for a contingency we do not expect to happen. They form part of our responsible preparations for all possible outcomes. This notice is meant for guidance only. You should consider whether you need separate professional advice before making specific preparations. It is part of the government’s ongoing programme of planning for all possible outcomes. We expect to negotiate a successful deal with the EU.”
VAT4U will be continuing to follow developments relating to BREXIT happenings and will keep clients informed about how BREXIT could affect them. Keep following our blog and resources to keep up-to-date with preparations for BREXIT, whether a deal is reached or not…
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This article has been produced based on guidance notes from HMRC, the UK Tax Administration. More information can be found within the original publication, courtesy of HMRC: https://www.gov.uk/government/publications/vat-for-businesses-if-theres-no-brexit-deal/vat-for-businesses-if-theres-no-brexit-deal