The Government has provided a self-assessment tool to allow you to determine how the BREXIT changes may impact you and your business HERE (https://www.gov.uk/transition ), and we encourage you to use this tool and read widely on this subject to ensure that you are ready for January 2021!
The key areas where the changes may impact you include:
- Importing / exporting goods and services
- The availability of people and skillsets
- Cash flow impacts
- Taxation impacts
While all of these areas should be considered in detail by business owners, as your Accountant we are keen to highlight in particular the potential taxation impacts!
Larger companies will potentially be impacted by: Accounting for withholding taxes on dividends, new Group Accounting reporting requirements, and the impacts of Transfer Pricing. But for the majority of our smaller business clients, the main impacts will be VAT, tariffs on import / export, and the new operational considerations of trading with Europe.
The Government has published a paper entitled ‘Changes to VAT treatment of overseas goods sold to customers from 1 January 2021’ HERE (https://www.gov.uk/government/publications/changes-to-vat-treatment-of-overseas-goods-sold-to-customers-from-1-january-2021/changes-to-vat-treatment-of-overseas-goods-sold-to-customers-from-1-january-2021), which explains these changes in greater detail and we have summarised these for you below.
To understand these changes in context it is best to first consider the CURRENT process. Simplistically, in summary:
- VAT is normally charged at the Zero rate (0%) on the “export” of goods outside the EU, or on the “dispatch / removal” of goods to a party who is registered for VAT in the EU.
- Services are normally out-with the scope of VAT if they are supplied to another business who is not based in the UK. In these instances where VAT is payable it is normally applied on a reverse charge basis.
- Historically there has been a requirement to complete: Boxes 6 & 8 on the VAT Return, EC Sales Lists, and where applicable (>£250k) Intrastat Supplementary Declarations, where Zero rated EU supplies have been made during a period.
- VAT is normally charged at either the Standard or Reduced rate on the supply of goods or services to a party who is NOT registered for VAT in the EU.
- Where a business makes “distance sales” to parties who are NOT registered for VAT in the EU, then per above these are normally subject to UK standard or reduced rate VAT, unless the total value of sales has exceeded the ‘Distance Selling Threshold’ of that EU country. In which case you will normally have to register for VAT in that country also and then supply the goods or services from the UK at the Zero rate, charging Standard or Reduced rate VAT in the country of supply instead.
Under the changes proposed by the Government from 1st January 2021:
- The UK will be leaving the EU as a result of BREXIT, and therefore VAT will be charged on “goods” supplied to the EU on an “export” basis. The VAT value impact for the supply of “goods” is therefore not significantly different to what it is an the moment as “exports” are also subject to Zero rate VAT.
- Businesses will report VAT using “Postponed VAT Accounting” by accounting for VAT in their normal VAT return instead of at the point of import.
- The big difference is that Customs duties will now be paid in the UK on imports from the EU and likewise will have to be paid in other EU states in respect of UK exports.
- And in order to submit declarations for these imports / exports and pay associated duties companies will have to register for an Economic Operator Registration and Identification EORI number.
- There will be no longer be a requirement to complete and submit the additional reporting requirements for Zero rated EU supplies (such as EC Sales Lists).
- Where the value of goods is less than £135, then there will be no custom duties payable (although customs declarations are still required) and the VAT tax point is treated as being the point of sale to the end customer and not the point of import.
- The Low Value Consignment Relief limit of £15 preventing import VAT on low value orders will be abolished.
The rules get a little more complicated where the seller of “goods” is an Online Market Place (OMPs) such as a website. In these instances:
- The OMP website and not the overseas supplier will now be responsible for collecting and accounting for VAT (irrespective of where the OMP is based). Clearly the UK Government wants its share of online sales!
- Possible scenarios:
- Goods sold to UK customers where the goods are located outside the UK at the point of sale.
- Goods sold to UK customers where the goods are in the UK at the point of sale
- In both cases if the value of the supply is less than £135:
- For Business to Customer (B2C) Sales the OMP must collect and account for VAT.
- For Business to Business (B2B) Sales the OMP must obtain the buyers VAT number to verify that they are UK VAT registered and then the buyer will collect and account for the VAT on a reverse charge basis. If they cannot do this then the B2C treatment is applied.
- If the value of the supply is greater than £135 then the standard import / export process applies rather than the OMP process.
IN SUMMARY – The majority of changes proposed are operational in nature and have customs and cash flow impacts. However there is a possibility that some of our clients will be impacted from a VAT perspective. Those clients that may be impacted include those who:
- Import / export goods to other EU states, or Northern Ireland.
- Provide services to or from other EU states.
- Provide goods via an Online Market Place (OMP) website.
If your company is involved in any of these activities please let your Client manager know so that we can ensure that we will be correctly accounting for your VAT after January 2021!
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