Brexit: As the End of the Transition Period Looms Large on the VAT Horizon - Businesses Need a Plan-of-Action in Place

Brexit is here

UK and EU businesses need to rise to the challenge to get Brexit-ready, and review supply chains and VAT records in preparation for trade with EU Member States. 

Since January 2020, the UK is no longer a member of the EU but has been in a transition period where it still follows the EU’s law and regulations. The transition period is due to end on 31 December 2020.

VAT compliance is key to the success of any Brexit plan-of-action for the protection of supply chains, allowing companies to continue to trade confidently across Europe.

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Latest Changes

Complemento de leyendas supplements for virtual importation of product components (for example, tires on cars or sugar in soda) are now required for maquiladoras, or American-owned factories operating across the Mexican border.
The process for cancelling a CFDI, or e-invoice, changed in November 2018 and requires suppliers to submit cancelation request instead of credit notes to void a previously issued invoice/CFDI . In addition, it requires the buyer to accept or reject the request within 72 hours
The frequently used supplement of payment, which affects all transactions where a partial or complete payment is received after a CFDI is issued, took effect in September 2018.

Quick Facts

  • The UK is seeking to agree a Free Trade Agreement (FTA)
  • One in two businesses would be significantly affected by the UK leaving the EU without an FTA, but only half of these have a Brexit plan in place to deal with the challenges. Note: The existence (or not) of an FTA has no impact on future VAT obligations. It affects duty rates, tariffs etc.
  • After the transition period, the concept of dispatches and acquisitions will be replaced by exports and imports for trade between the UK and EU since the UK will be considered a third country
  • Where there is no postponement or deferment mechanism in place, import VAT becomes an upfront cost to the business
  • Post Brexit, UK businesses registering in an EU Member State may require Fiscal Representation
  • Special rules apply for goods moving between Great Britain and Northern Ireland

What’s impacted by Brexit?

  • Exports and imports replacing dispatches and acquisitions
  • Increased liability to register in EU Member States
  • Increased likelihood of needing fiscal representation
  • Recovery taking place via paper-based systems
  • Reciprocity possibly blocking 13th Directive claims 

What needs to be done?

  • Identify all supply chains impacted by Brexit
  • Pay special attention to contracts with Delivered Duty Paid (DDP) incoterms
  • Determine where companies still need to hold VAT registrations in the EU
  • Establish whether any new VAT registrations are required
  • Consider customs requirements, such as EORI numbers in UK and EU
  • Plan for changes necessary to meet VAT reporting requirements
  • Amend ERP systems as appropriate
  • Determine whether a fiscal representative is needed

Need help to ensure your business operations can continue?

Businesses on both sides of the channel have much to do to prepare. We know the uncertainty Brexit generates is difficult to manage, so businesses need to be ready.

In the midst of this confusion, we can deliver clarity about the Brexit impact on VAT.

Sovos has extensive experience in preparing its customers for the implications of Brexit.