Post-Brexit VAT Compliance: Your Questions Answered

Sovos
June 20, 2021

Six months after Brexit there’s still plenty of confusion. Our VAT Managed Services and Consultancy teams continue to get lots of questions. So here are answers to some of the more common VAT compliance concerns post-Brexit.

How does postponed VAT accounting work?

Since Brexit, the UK has changed the way import VAT is accounted for. Before January 2021, you had to pay or defer import VAT at the time the goods entered the UK. Because of the volumes of trade between the UK and the EU, the government have understandably changed this. So, now rather than having to pay import VAT you can choose to postpone it to the VAT return. In practice, this effectively means it’s paid and recovered on the same VAT return. This is a significant cash flow benefit. It’s common among many EU Member States and it was allowed in the UK many years ago. The UK reintroduced it from the start of this year.

There’s no need to be approved to use postponed VAT accounting but an election to use it must be made when completing each customs declaration. It doesn’t happen automatically and the reality is that businesses can choose whether they want to use it or not. The import VAT is then accounted for in box 1 of the UK VAT return and then recovered in box 4. If you’re a fully taxable business and the VAT is recoverable, this will mean that there is no need to make any payment of the import VAT. There are no costs involved in using postponed VAT accounting. The business will have to download a monthly statement from the Customs Declaration Service. The statement shows the postponed amount of VAT.

There are also import VAT accounting mechanisms in place in the EU but they vary from country to country. If you’re a UK business and you’re going to be the importer of the goods into the EU, there is the ability to use postponed accounting in some other countries but the rules on how it applies can vary. In some countries it’s like the UK, so no permission required.

In others you’ll need to make an application and meet the conditions in place. If there is no postponed VAT accounting, there may be the opportunity to defer import VAT which can still provide a cash flow benefit. It’s really important that companies understand how it works in the Member State of import, and if it’s available to them as it can have a big impact on cash flow. It’s good news that the UK have reintroduced postponed VAT accounting as it’s certainly a benefit and applies to all imports, not just those that come from the EU.

I’m shipping my own goods to a third party logistics provider in the Netherlands. I will ship the goods to customers around the EU. How do I value the goods for customs purposes as they remain in my ownership? They’re not of UK origin so customs duty may apply.

This question comes up a lot as customs valuation, like the principle of origin has not arisen for many years for UK companies who have only traded with the EU.

The rules on customs valuation are complex. In this scenario, there is no sale of the goods. So it’s not possible to use the transaction value which is the default valuation method. As customs duty is not recoverable, it’s essential that the correct valuation method is used. This minimises the amount of duty paid and also to remove the possibility of the customs and VAT authorities challenging a valuation. We would recommend seeking  specialist advice.

If I sell B2C to customers in the EU do I need to register for VAT in each Member State?

When goods go from Great Britain to the EU, we’re currently in the transition period between Brexit and the introduction of the EU e-commerce VAT package which comes into play on 1 July 2021. Until then, whether you need to be registered or not in an EU country depends on the arrangements in place with your customer. If you sell on a Delivery Duty Paid (DDP) basis, you’re undertaking to import those goods into the EU. So if you do that, you’ll incur import VAT on entry into each country and then make a local sale. If you do that in every Member State country, you’ll have to register for VAT in every Member State.

It should be noted that these are the rules for GB to EU sales and not those from Northern Ireland. This is because the Northern Ireland protocol treats NI to EU sales under the EU rules. The distance selling rules that were in force before the end of 2020 still apply.

Going forward, the EU has recognised that this isn’t really a manageable system. There has been significant abuse of low value consignment relief. LCVR relieves imports of up to €22 from VAT. So they’re introducing a new concept – the Import One Stop Shop (IOSS). IOSS will be available from 1 July 2021 as part of the EU E-Commerce VAT package. From this point, the principle is that for goods with an intrinsic value of below €15. you can use the IOSS. IOSS accounts for VAT in all the countries to which you deliver. You only need a VAT registration in one country where you then pay all your VAT. You submit one return in that country on a monthly basis. This should simplify VAT compliance and ease the admin burden.

There will also be a One Stop Shop (OSS) for intra-EU transactions. So the simplifications ahead will reduce the burden to businesses. What’s important is making sure you review your options. Make an informed decision as to which is the right scheme for your business. Ensure you can comply with VAT obligations to avoid VAT compliance problems in the future.

Take Action

Get in touch to discuss your post-Brexit VAT requirements and download our e-book EU E-Commerce VAT Package: New Rules for 2021.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Sovos

Sovos is a leading global provider of software that safeguards businesses from the burden and risk of modern transactional taxes. As VAT and sales and use tax go digital, businesses face increased risks, costs and complexity. The Sovos Intelligent Compliance Cloud is the first complete solution for modern tax, giving businesses a global solution for tax determination, e-invoicing compliance and tax reporting. Sovos supports more than 7,000 customers, including half of the Fortune 500, and integrates with a wide variety of business applications. The company has offices throughout North America, Latin America and Europe. Sovos is owned by London-based Hg. For more information visit www.sovos.com and follow us on LinkedIn and Twitter.
Share This Post

EMEA VAT & Fiscal Reporting
August 17, 2021
Romania SAF-T: Updated Guidance Released

In our last look at Romania SAF-T, we detailed the technical specifications released from Romania’s tax authority. Since then, additional guidance has been released including an official name for the SAF-T submission: D406. Implementation timeline for mandatory submission of Romania SAF-T Large taxpayers (as designated by the Romanian tax authorities) – 1 January 2022 Medium […]

EMEA VAT & Fiscal Reporting
August 17, 2021
The French CTC Mandate – Your Questions Answered: Part 2: Reporting Obligations

Welcome to our Q&A two-part blog series on the French e-invoicing and e-reporting mandate, which comes into effect 2023-2025. That sounds far away but businesses must start preparing now if they are to comply. The Sovos compliance team has returned to answer some of your most pressing questions asked during our webinar. We have outlined […]

EMEA IPT Italy
August 17, 2021
How Insurers can Prepare for Tax Authority Audits

A tax authority audit can come in various forms, whether it be directly to the insurer itself or indirectly through a policyholder or broker. It can be targeted, for example, where an insurer has been specifically identified to be investigated due toa discrepancy on a tax return, or it can be indiscriminate in its nature […]

IPT
August 12, 2021
German IPT Law Changes and Double Taxation Implications

Insurance Tax Act reforms in Germany, effective from 10 December 2020, continue to cause uncertainty in the insurance market. The main area of concern relates to the location of risk for Insurance Premium Tax (IPT) purposes. The reform can impact a policy taken out with either an EEA or non-EEA insurer where the policyholder is […]

EMEA VAT & Fiscal Reporting
August 12, 2021
The French E-invoicing Mandate: Your Questions Answered

In our recent webinar, Sovos covered the new French e-invoicing and e-reporting mandate, and what this means for businesses and their tax obligations. We are witnessing a global move towards Continuous Transaction Controls (CTCs), where tax authorities are demanding transactional data in real-time or near real-time, affecting e-invoicing and e-reporting obligations. As such, from 2023, […]