Brexit: The Transition Period Has Ended - Businesses Must Have a Plan-of-Action in Place

Brexit is here

UK and EU businesses need to rise to the challenge that Brexit has posed by reviewing their supply chains and VAT records to trade with EU Member States. 

The transition period ended on 1 January 2021 and trade between the UK and EU is now governed by the Free Trade Agreement announced on Christmas Eve 2020.

While many businesses have prepared for Brexit’s impact on customs, many haven’t formulated a strategy to ensure VAT compliance. This 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 has agreed a Free Trade Agreement (FTA) with the EU
  • The FTA has no impact on VAT obligations -it affects duty rates, tariffs etc.
  • The concept of dispatches and acquisitions will be replaced by exports and imports for trade between Great Britain and EU since Great Britain is now considered a third country
    Special rules apply for movements between NI and the EU.
  • Special rules also apply for goods moving between Great Britain and Northern Ireland
  • Where there is no postponement or deferment mechanism in place, import VAT becomes an upfront cost to the business
  • UK businesses registering in an EU Member State may require Fiscal Representation

What’s impacted by Brexit?

  • Exports and imports replace 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?

Although an FTA has been agreed, many problems remain unresolved. As such, businesses must make sure they:

  • 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 the 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.