Image concept of Brexit and its impact on the UK and the EU

What Is the Impact of Brexit on VAT for UK Businesses?

The United Kingdom will no longer be a part of the European Union from 31st December 2020. It will be exiting the EU VAT regime, Customs Union and Single Market. The impact of Brexit on UK trade is bound to be significant. The move means a host of changes for small and medium-sized businesses that sell goods and services to the UK. If you are a start-up owner in the UK that imports or exports goods and services to the European Union, you must prepare to pay more in potential tariffs and custom declarations. UK businesses must also make sure they remain in compliance with EU laws with respect to VAT (value-added tax). Read on as we discuss the impact of Brexit on VAT .

How Will the Sale of Goods Be Affected?

Some of the most significant changes that UK businesses importing or exporting goods to the EU must prepare for include:

  • The Imposition of Import VAT

    Perhaps the most significant impact of Brexit on UK trade is how VAT will be charged on import and export of goods with the 27 member states in the EU. In a typical domestic transaction, sellers charge buyers VAT for a transaction and the money is then collected by a tax authority. Currently, for transactions in the EU, this tax is usually not charged on the supply of goods between businesses operating in European countries. The business recipient must charge itself VAT instead. This is known as acquisition VAT.

    However, post-Brexit, all transactions between a UK business and a European business will be considered import or export. These will be subject to the EU or UK import VAT, and buyers will have to pay VAT to HMRC along with other applicable customs duties. The UK plans to introduce a Postponed Accounting import VAT , under which importers do not have to make cash VAT payment to UK customs. However, many countries in the EU do not offer this reprieve for UK businesses importing goods to the EU.

  • End of Low-Value Consignment Stock Relief

    Another significant impact of Brexit on VAT payments for B2C ecommerce businesses is that they can no longer avail of the £15 VAT exemption thresholds for imported goods. Any imported consignments with a value of £135 or below will be subject to sales VAT. This VAT will be charged to UK consumers at the point-of-sale. The seller will report and pay the tax collected via a regular UK VAT return.

    The seller will also need to apply for a simplified customs declaration. Goods that exceed £135 in value will be subject to import VAT and customs duties as they currently are. Online marketplaces that facilitate this sale will be held accountable for collecting and reporting the VAT.

    For UK businesses selling to EU consumers , a sales VAT will be charged at the point-of-sale for consignments that are less than €150. To facilitate this process, sellers can take advantage of the one-stop-shop scheme. Under this scheme, UK sellers can appoint an intermediary in an EU member state for declaring and paying the VAT charged and collected by the seller.

    If a UK seller does not opt for this, an import VAT can be collected from the buyer by the customs declarant. For consignments over €150, an import VAT will be charged as per the current rules.

  • VAT Registration May Be Required

    Many UK businesses that sell goods to EU consumers benefit from EU VAT Distance Selling thresholds.
    These allow a business to opt out of VAT registration in EU countries where their sales are below a compulsory registration threshold (less than £70,000).

    However, from 1 st January 2021, these thresholds may not apply anymore. If you own an e-commerce store that sells to EU consumers, you will have to get VAT registration done to avoid legal repercussions.

  • Appointing a VAT Fiscal Representative

    UK businesses with a foreign VAT registration may also have to appoint a special VAT fiscal representative. This representative is responsible for calculating and reporting VAT on your behalf. They also manage any unpaid VAT and are the first point-of-contact for the local tax office. They are held liable for any undeclared or unpaid VAT and need a cash deposit or a bank guarantee for protection against any losses faced by their client. They also charge a higher fee.

    Currently, 19 EU states require non-EU businesses to hire a VAT fiscal representative.

How Will the Sale of Services Be Affected?

The impact of Brexit on UK trade involving services could be less pronounced. B2B businesses that offer services to the EU only need to prepare for a limited number of changes on the VAT for services. These include:

  • Change in VAT for Digital Services

    UK businesses that offer digital services to EU consumers will have to pay VAT in the country their consumers reside in. Previously, UK businesses could benefit from the €10,000 annual threshold for cross border provision of digital services. Moreover, UK sellers will no longer be part of the EU Mini One-stop-shop (MOSS). Consequently, they will have to re-register for MOSS in the EU to continue filing their VAT declarations. For UK businesses that supply telecommunication services, electronically supplied services, and
    broadcasting services, there may also be a change in the current Use and Enjoyment rules.

  • Changes in Reclaiming EU VAT

    Businesses that offer financial services may be able to take advantage of increased VAT recovery. There
    will also be a change in how a UK business reclaims EU VAT in a country that currently does not require VAT registration. For instance, UK tour-operators may lose access to the Tour Operator Margin Scheme. This will require them to get a VAT registration in all the EU member countries they serve.

    In addition, UK businesses that incur EU VAT on travel, hotel accommodations, and other expenses cannot utilise the 8 th Directive online VAT reclaim system. They will have to use the 13 th Directive paper-based reclaiming process instead. Under this system, UK businesses must file individual VAT claims in each country separately.

Preparing for The Impact of Brexit on VAT

Whether you manage a UK business offering goods or services to the EU, there are plenty of changes you need to prepare for post-Brexit.

As far as the impact of Brexit on VAT is concerned, you must make sure your business aligns with EU regulations regarding the declaration and collection of VAT. These changes are expected to have a significant effect on the cash flow of your business, as well.

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