This blog was last updated on January 10, 2024
The sands of transition period time are draining away. As we edge ever closer to the final Brexit deadline, there are a raft of VAT related considerations for businesses to attend to.
Though uncertainty reigns about the shape of the trading relationship, most of the Brexit scenarios up for debate would render the UK a third nation for VAT purposes. This means there are VAT implications to Brexit which will be substantial and, in many cases, immediate.
Our Brexit and VAT articles in the coming weeks, will address some of the key areas of concern for business providing information, advice and actionable insights. Here, we tackle goods, services and VAT recovery post Brexit.
Moving goods, moving goal posts
On 1 January 2021, the treatment of goods moving between Great Britain and the EU will change. At present, the concept of dispatches and acquisitions applies to GB-EU trade. Post 1 January, it will be replaced by exports and imports. Though zero rating for exports exists if the relevant conditions are met, crucially, imports are liable to import VAT and potentially customs duty.
To ease the impact of this, Member States including France, Belgium and the Netherlands implement postponed accounting, allowing for import VAT to be accounted for on VAT returns. This maximises cash flow, but may require an application or licence – both of which are conditional, can be revoked, and aren’t automatic like the current mechanism for accounting for acquisition tax. HMRC is implementing postponed import VAT accounting for goods arriving from the EU – this is automatic and will also be available for imports from countries outside the EU.
Usual service will be maintained
When it comes to the treatment of services, businesses can breathe a tentative sigh of relief. The UK is expected to maintain the application of VAT place of supply rules in line with the VAT Directive. However, businesses will need to consider the liability to be registered in the EU and the UK on an ongoing basis. With this in mind a word of advice – any business that engages in UK-EU trade of goods should review supply chains and contingency plan for all scenarios in the new year.
VAT recovery post-Brexit
Getting VAT back is a primary concern for businesses. The bad news is that it’s likely to become more complex. If a UK company is registered in the EU it can continue to recover VAT via returns, but it may be necessary to appoint a fiscal representative. If a business is neither registered nor liable to register, recovery will be via the 13th Directive, which has many drawbacks. Firstly, it’s a paper-based system with its own unique time limits. Secondly, it may cause issues of reciprocity, potentially preventing UK businesses from making claims in some countries.
EU businesses registered for VAT in the UK can continue to recover input tax via the VAT return. However, if a business is neither registered nor liable to be, recovery will be via a paper-based system. It’s important to note that the UK currently applies the reciprocity principle if a UK business would be denied a claim in the country of the claimant. For EU businesses, this means running the risk that they are denied VAT returns if there is no reciprocity between their country and the UK.
Whatever the individual situation, planning must be a priority. Claims can be made for 2020 under the current mechanisms, but deadlines will be reduced. Claims under new processes must be evaluated to ensure that no recoverable VAT is lost.
What next?
As we move into the final phase of the Brexit process, time is of the essence. With the type and likelihood of a deal still unclear, the best steps for any business trading cross border are to proactively plan, review supply chains and consider registration liabilities.
