As of the 1st of January 2021, businesses will need to consider changes to VAT as supply of good or services to EU member states are likely to be treated as imports and exports, as the UK leaves Europe as part of Brexit.  

Currently the exact changes are still to be finalised and as such a 6-month grace period is anticipated to support businesses with implementing these changes. In the meantime, here is what the expectations are around the changes to VAT. 

Import VAT

VAT will no longer be applied using the EU reverse charge process. Businesses must now account for import VAT on goods imported from anywhere in the world including countries within the EU.  

This only applies where the value exceeds a specified threshold, currently set at £135. For imports of under this value, businesses must use the new e-commerce rules, even if the goods were not traded via e-commerce. 

VAT on imports over the threshold value

VAT is applied at the point where goods are free to enter circulation. This should be considered the VAT tax point. You will need to collect evidence from HMRC regarding the point the goods entered circulation for your VAT records.  

The VAT can be paid at the tax point. In this case, monthly C79 reports should be obtained from HMRC. 

Alternatively, businesses can use the new postponed VAT accounting system, which is similar to reverse charge. When using postponed VAT accounting, the VAT is accounted for as input and output VAT on the same VAT return. This is as an alternative to paying the VAT upfront and then reclaiming on the subsequent VAT return.  

Postponed VAT accounting is optional. It is only mandatory if a business defers the submission of customs declarations. 

A new monthly online statement will be available as part of the postponed VAT accounting system. It will show the import VAT postponed for the previous month on a transactional basis and when you should include it in your tax return.  

For more information on how to complete your VAT return in line with the new accounting system reporting requirements, see the government guidance.  

VAT on services will remain subject to tax in the country of the customer. Therefore, tax will be accounted for as a reverse charge in the destination country by the recipient of the service. 

VAT on imports at or under the threshold value

Businesses in Great Britain who receive goods at the value of the threshold or less will have to account for the VAT as part of the reverse charge procedure, declaring the VAT on their next VAT return.  

This means that foreign sellers sending goods to the UK with a value of £135 or less will need to charge UK VAT and apply to be part of the UK VAT system.  

The recipient business should ensure the seller knows its VAT number, or the seller will have to treat it as a B2C sale and apply VAT. 

Export VAT

Export of goods to EU countries and non-EU countries should have a zero VAT rate applied for both B2C and B2B sales. For businesses selling B2C to the EU, you may need to register for EU VAT depending on the requirements of the country in which they sell.  

B2B sales of services will continue to be subject to tax in the country of the customer and administered through reverse charge. 

B2C sales of services will continue to be subject to tax in the country of the seller. 

Northern Ireland

Northern Ireland will use the Northern Ireland Protocol. This is part of the Withdrawal Agreement between the UK and EU which aims to avoid a customs border between Northern Ireland and the Republic of Ireland. 

Goods moved between Northern Ireland and Great Britain will be treated as domestic sales. Import VAT will not be due on movements. 

Services are excluded from the Northern Ireland Protocol. Sales of services between Northern Ireland and Ireland/EU will be treated like Third Country supplies.  

EORI Number

An Economic Operators Registration and Identification (EORI) number is a way of identifying businesses or operators who export or import to the EU. It will be required for both customs and VAT documentation.  

There are three types of EORI numbers: 

  • One for business in Great Britain trading with EU businesses 
  • One for businesses moving goods to or from Northern Ireland 
  • One for businesses making declarations or getting customs decisions in EU countries.  

Businesses may require one or more EORI numbers. 

At the time of writing some of these changes are yet to be formalised. If you would like to discuss the impact to your business or your current ERP solution and how you can be prepared, please get in touch with Telefónica Tech today to discuss your requirements in detail.