Trading Goods After Brexit
Although the UK left the EU on 31 January, the status quo on trading arrangements continued after this date. The key date when the goalposts will move dramatically will be 1 January 2021.
In this article, I present which reports and return will remain, and which one will disappear.
VAT Return boxes:
HMRC made it very clear that trading in goods with EU countries will be the same as for non-EU countries. In other words, references to goods sold into the EU as ‘dispatches’ will end, as will the description of ‘arrivals’ for goods coming into the UK. Northern Ireland is an exception.
Is the current nine boxes on UK VAT return will be reduced to six? This is because boxes 2,6, and 9 solely relate to trading in good with EU suppliers and customers. The answer is NO because these boxes will still be needed in Northern Ireland, which will continue to make acquisitions and dispatches as part of the Northern Ireland Protocol. For businesses based in Great Britain, only six boxes will be relevant from 1 January 2021.
This will apply to imports from EU and non-EU countries and will provide a massive cash flow boost for VAT registered importers. VAT payable on goods coming into the UK from anywhere in the world can be postponed at the point of entry and included on the importer’s next VAT return, instead of being paid on arrival and subsequently claimed as input tax. An importer that is not VAT registered will pay VAT when the goods arrive in the UK.
Postponed accounting will produce extra compliance challenges to HMRC. Under current procedures, the import VAT is likely to produce a large repayment claim by the business on its first VAT return, which HMRC often verifies before making a repayment. If import VAT is postponed when the item enters the UK, the box 1 and 4 compensating entries will mean that no repayment return will be submitted. The risk is that a business owner can forget to adjust the box 4 input tax for any private or non-business use of the imported goods. The Box 4 entry must pass the same input tax tests as a purchase invoice received from a UK supplier.
Intrastat declarations must be still completed in 2021 for arrivals of goods from the EU. Intrastat reports must currently be completed by UK businesses that annually sell more than £250,000 of goods to VAT-registered customers in the EU or buy goods from EU suppliers exceeding £1.5 million. As from 1 January 2021, the customs declaration would be used to compile trade statistics for imports from EU member states but this could leave the UK with significant gaps in the information available to compile import statistics. HMRC needs to carry on requiring businesses to submit Intrastat arrivals declarations for goods received in GB from the EU during 2021.
Reclaiming VAT paid in EU countries:
A UK business registered for VAT currently reclaims VAT paid in other EU countries by submitting an online claim to HMRC, which is forwarded to the tax authority of the other country. Claims for the calendar year must be made by the following 30 September but can be made quarterly during the year. From 1 January 2021, this procedure will no longer apply. A UK business must submit individual claims to each authority where VAT has been paid. This will usually be a paper form. In VAT speak UK businesses will move from submitting what is known as ‘8th Directive’ claims to 13th Directive claims. The deadlines dates for submission must be checked for each country.
If your client import or export goods, they must apply for an Economic Operator Registration and Identification (EORI) number from HMRC as soon as possible if this has not already been done. A ‘GB’ number is needed for both importers and exporters. The application process takes about 15 minutes and numbers are issued within seven days.
The VAT changes that will take effect for the online marketplace on 1 January 2021 will only apply to those goods are being sold by overseas sellers. It is a case of business as usual for the online marketplace’s own goods sold in the UK or for those goods owned by the UK based sellers.
Goods are stored in GB
Imagine the following situation: It is January 2021 and GB customer orders goods via an online marketplace that are stored in GB and are owned by an overseas business. The VAT outcome will depend on whether or not the GB customer is VAT registered.
- Customer is VAT registered: the sale is being made by the overseas seller and not the online marketplace. The overseas seller will have the UK VAT number because is making UK sales. The overseas seller invoices the VAT registered customer and charges the rate of VAT that applies to the goods in questions;
- Customer is not VAT registered: the sale is deemed t have been made by the online marketplace. The online marketplace will invoice the customer and charge the correct rate of VAT. The online marketplace must be registered for VAT. The overseas seller will raise a zero-rated invoice to the online marketplace for the goods and record this sale in box 6 of its UK VAT return.
Goods are outside GB
If the shipment value is less than £135, the GB sale is deemed to have been made by the online marketplace.- it will charge 20% VAT to the buyer. If the buyer is VAT registered it is back to reverse charge declaration by the buyer again. The invoice from the online marketplace will confirm that the customer must apply the reverse charge. This means that ‘sales tax’ rather than ‘import tax’ is being declared on the supply.
If the shipment exceeds £135 import VAT is charged rather than sales tax, with payment being due when the goods enter GB along with any duty.