No Deal Brexit & VAT
VAT for businesses if there’s no Brexit deal
The Government has confirmed that in a no deal scenario, the UK will continue to have a VAT system that will largely mirror the existing procedure. The technical guidance published on 23 August 2018 outlines some VAT changes to be aware of if UK leaves the EU on 29 March 2019 without a formal Withdrawal Agreement.
Some points from the note are set out below
UK VAT Mini One Stop Shop (MOSS)
If the UK leaves the EU without an agreement, businesses that sell digital services to consumers in the EU will be able to register for the MOSS non-union scheme.
If the UK leaves the EU with no agreement, businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU.
Businesses that want to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU Member State. This can only be done after the date the UK leaves the EU. The non-union MOSS scheme requires businesses to register by the 10th day of the month following a sale. You will need to register by 10 April 2019 if you make a sale from the 29 to 31 March 2019, and by 10 May 2019 if you make a sale in April 2019.
Accounting for import VAT on goods imported into the UK
If the UK leaves the EU without an agreement, the government will introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on, or soon after, the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries.
VAT on goods entering the UK as parcels sent by overseas businesses
If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses. Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK from the EU. This note confirms that if the UK leaves the EU without an agreement then LVCR will no longer apply to any parcels arriving in the UK, this aligns the UK with the global direction of travel on LVCR. This means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing).
For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HM Revenue & Customs (HMRC) digital service and account for VAT due.
On goods worth more than £135 sent as parcels VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries.
UK businesses exporting goods to EU consumers
If the UK leaves the EU without an agreement, distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate sales of goods to EU consumers.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU.
UK businesses exporting goods to EU businesses
If the UK leaves the EU without an agreement, VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists.
As UK VAT registered businesses will not be required to complete an EC sales list, there will be changes to how these sales are recorded. Those UK businesses exporting goods to EU businesses will need to retain evidence to prove that goods have left the UK, to support the zero-rating of the supply.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU. Individual EU member states may have different rules for import VAT for non-EU countries and import VAT payments may be due at the border when importing goods. UK businesses should check the relevant import VAT rules in the EU Member State concerned.
Place of supply rules for UK businesses supplying services into the EU
If the UK leaves the EU without an agreement, the main VAT ‘place of supply’ rules will remain the same for UK businesses. The rules around ‘place of supply’ will continue to apply in broadly the same way that they do now, areas of potential change are flagged below.
For UK businesses supplying digital services to non-business customers in the EU the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU Member State within which your customer is a resident.
For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed. We do not yet know what this change will be but in the event of a Brexit no-deal scenario, the level of input VAT recovery on supplies from this sector to the EU is likely to be under consideration. The Government will update businesses with more information in due course.