Brexit Tax Talk: VAT and the supply of goods – FAQs
The end of the transition period has substantial implications for the movement of goods between the UK and EU Member States, as the relevant VAT facilitations for intra-Community movement of goods have been replaced by additional formalities.
We summarise here our responses to some common questions and concerns raised by businesses.
We sell goods through our website and online marketplace to consumers in the EU, how are our supplies treated now?Until 31 December 2020, sales to EU customers were covered by distance selling rules which essentially allowed you to charge UK VAT on those sales until you breached the threshold for that country (usually €35,000). Once breached, you needed to register in that EU Member State. From 1 January 2021, distance selling simplifications are no longer available, sales become zero rated
exports and export declarations are required. If the end customer is deemed to be the importer, then depending on the value of the item, they may be required to pay the parcel operator local VAT and duty before they can receive the goods. If you are the importer, then you will be required to register for VAT in that country. However, you must pay import VAT and Customs Duty at the border, reclaim the import VAT and charge local domestic VAT on the sale.
Depending on the goods being sold, you should also ensure any required export or import licences are held to allow export of the goods from the UK and import of the goods into the EU.
From 1 July 2021, the EU will be introducing new rules for e-commerce supplies and schemes such as the Import One-Stop-Shop (IOSS) which will allow non-EU businesses to act as the importer of record and complete a single VAT return in one EU country and account for domestic VAT to all EU customers in different EU Member States without the requirement to register in multiple countries. No import VAT will be due.
I purchase goods from the Netherlands and sell these on to customers in Belgium. The goods are delivered directly to the customer and no UK VAT is charged on my supply. Will this continue to be the case?As the goods do not enter the UK, no UK VAT is due. However, you will need to deal with EU VAT locally via an EU registration.
From 1 January 2021 will I need to complete Customs declarations for the importation of goods from the EU?
If you are the importer of record then ‘yes’, although provided the goods are not controlled for customs purposes, you may be able to defer declarations and the payment of Customs Duties for up to six months under one of the easement measures announced in the Border Operating Model (all easements cease from 1 July 2021).
If I import goods into the EU for onward sale and my customers are unwilling to be responsible for importing the goods, will I be required to set up a subsidiary company in the EU?
This will largely depend on the specifics of your business activities, supply chains and transport routes. If you are going to be the importer of record you will need an EU EORI number (you only need one number for the whole of the EU). In general, you will be required to be VAT registered in the EU Member State where the goods first enter the EU unless you use Transit[CG1] which may shift the requirement to the destination country. Some EU Member States may not allow you to register for VAT if you only make supplies to business customers in that Member State, so you will have to consider the impact of this on reclaiming import VAT.
It is not usually necessary to have an EU establishment/company, but it would simplify the VAT registration process and the ability to make declarations. It could also help address other labelling/regulatory issues in the EU. You should note that having an EU company will have other ongoing compliance costs and tax implications so you should get advice before committing to this.
Without an establishment it is possible that you will be required to appoint a local representative/fiscal representative, which is a local entity that facilitates tax compliance. A fiscal representative usually becomes jointly and severally liable for any mistakes, so their charges may be high or they may require a guarantee to cover their risk.
How do I pay for VAT and Customs Duties and can these be deferred?Import VAT and Customs Duty is levied at the border to allow entry of goods into the UK.
You can either pay at the border using the Flexible Accounting System, which is essentially a BACS transfer, or you can defer the payment using your own deferment account or the forwarder’s account which they will make a charge for. In all cases you need to make it clear to the Customs agent how you intend to settle the taxes.
The importer of record will quote their UK EORI number on the declaration in the consignee field. This will generate the required evidence for reclaiming import VAT, which can be in the form of a C79 import VAT certificate if the business pays/defers the VAT at import, or an import VAT statement which will be generated monthly if using the new postponed import VAT mechanism.
This mechanism is optional, but the agent will need to indicate on the customs declaration if it is being used. It will allow input VAT for all imports (not just EU purchases) to be self-declared on the VAT return (usually an in and out if the business can reclaim the VAT in full). Using this mechanism will improve cash flow and mean that deferment account limits can be reduced.