VAT after Brexit

4 March, 2021 · 5 min read

Author

Team ANNA

Expert

On 1 January 2021 the UK left the EU. So what does that mean for UK companies that export goods to the EU?

From an EU perspective, the UK is now a third country (it’s outside the EU, and in this case outside the single market and the customs union). That means the UK is now required to operate full external borders similar to other international trading partners outside the EU.

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What does that mean for UK exporters?
How can UK exporters manage this?
How have customs procedures changed?
Can UK businesses get help?

What does that mean for UK exporters?

Goods exported to the EU after 1 January 2021 will be subject to VAT at 0% (commonly referred to as “Zero-rate”) and following the negotiation of a Free Trade Agreement, goods and services traded between the UK and the EU won’t be subjected to quotas or tariffs.

However, goods exported from the UK will be subject to input VAT on arrival in the EU member state where a customer is based. The exporter will need to make a customs declaration and the customer will need to pay the import VAT before they can take delivery of the goods. This could be bad news for suppliers as it may discourage customers from ordering again.

How can UK exporters manage this?

If you’re a retailer, you could mitigate this by either:

Arranging for an agent to manage the import VAT on your behalf so deliveries can be made after the tax has been paid, or
Holding your stock within the EU for fulfilment of orders within the EU. But be aware this may require VAT registration in the EU country where the stock is held – and potentially a selling registration in other EU states depending on the amount of sales. You may also need to consider the possibility that the business may be subject to corporation tax in the EU country.

The good news is that from 1 July 2021 the EU is planning to set up “one stop shops” to simplify VAT within the EU and enable VAT to be accounted for in a single VAT Return.

Be aware that VAT on services supplied business-to-business will still be subject to the “reverse charge” procedure, and UK businesses incurring EU VAT on travel, hotel and other expenses will no longer be able to reclaim the VAT using the online system and will be required to use the paper-based reclaim process.

How have customs procedures changed?

Since 1 January 2021, any business that imports or exports goods in and out of the European Economic Area (EEA) – which comprises the 27 EU nation states plus Norway, Iceland and Liechtenstein – now has to make customs declarations.

Businesses will need to be aware of:

The need to make a customs declaration whenever the goods enter the UK or EU (unless they’re putting them into temporary storage).
Controlled goods such as alcohol and tobacco will be subject to additional procedures and Excise duty may be due in addition to VAT.
Any products of animal origin (such as meat, pet food, milk, or eggs) and regulated products will need pre-notification and relevant health documentation.
Businesses may want to set up a deferment account to enable VAT to be paid once a month instead of paying taxes and duties on individual assignments.

Any business moving goods between the UK and the EU will require an UK Economic Operator Registration Identification (EORI) to avoid delays and storage fees if goods can’t be cleared by HMRC at the border

HMRC have auto-enrolled many VAT-registered companies that have traded with Europe. Firms below the VAT threshold and/or those which don’t have a “GB” EORI number need to apply at https://www.gov.uk/eori

Can UK businesses get help?

The Customs Grant Scheme has been set up to help businesses adapt to the new customs arrangements.

To support recruitment, training and upskilling HMRC has set up a fund of £80 million to cover salary costs for new/redeployed staff, up to £12,000 per person and £3,000 for recruitment costs for new employees.
Grants are available on a first-come, first-served basis. Applications will close on 30 June 2021 or earlier if all £80 million has been allocated at https://www.customsintermediarygrant.co.uk