Brexit & VAT: An Update

Posted on: January 31st, 2019 by Liz Maher No Comments

With 60 days before B-Day here’s a roundup that Centurion VAT – the team that deals with complicated VAT – has brought together of VAT related arrangements should a No Deal arise.

HMRC’s has published a range of technical notices on Customs, Excise and VAT to alert businesses to the eventuality of a “No Deal” Brexit. Research suggests 245,000 UK businesses trade only with the EU and within that 144,000 are VAT registered. These should – by now – have received an HMRC letter to “encourage” them to review their “No Deal” impact areas.

Everything currently suggests that a “No Deal” Brexit is not the preferred exit route but how can businesses plan in the current climate of continued uncertainty? After taking the deep breath for the keep calm bit then the next sage advice is plan for the worst and hope for the best but “plan” we must.

Here at Centurion as noted we concentrate on the complicated areas of VAT and Brexit certainly has the potential of being that – but let’s work through what we do currently know from a VAT perspective:

Trade in Goods:

In the event of the UK leaving the Single Market (whether that is a part of a Deal or a “No Deal”) HMRC have advised that they will introduce a ‘postponed accounting’ treatment for goods imported from countries within the EU and indeed outside of the EU.

This is a return to a system that was in place prior to the EU and will avoid any cash flow issues with regards to import VAT and can provide a cash flow advantage.

Postponed accounting will enable importers to account for import VAT on their VAT return, rather than paying the tax up front i.e. allowing businesses to offset import VAT through their monthly/quarterly VAT returns.

While postponed accounting is a welcomed benefit, other implications of a no-deal Brexit will incur additional cost e.g.  goods imported from the EU will be subject to import duties which must also be paid and cannot be reclaimed as import VAT.

Postal Imports:

If you import goods as 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 HMRC 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.

Online Marketplaces Operators:

UK based On-Line Marketplace operators will become “Jointly and Severally” liable for the VAT that overseas suppliers should be paying. This reflects HMRC concern that non-UK based suppliers are charging and collecting VAT on their online sales but not declaring that VAT to the UK Revenue Authority.

UK Suppliers that use Online Marketplaces:

Amazon has warned UK Businesses that to meet delivery deadlines to customers they should send stock to its European “fulfilment” centres. Downside is this creates a VAT registration in that EU country for that UK based business as the place of the VAT accounting is determined by where the goods are when sold. Not something to rush into therefore without first taking advice.

Services:

VAT Treatment should broadly remain the same as the “Place of Supply Rules” are international standards controlled by the OECD (Organisation for Economic Co-operation and Development).

Some Service Sectors will have specific issues though, so they’ll need to watch out for sector specific announcements over the next weeks:

  • UK Insurance and Financial services businesses.
  • Businesses using the Tour Operators Margin Scheme covering travel services.
  • Digital Services Businesses using the Mini One Stop Shop UK system.

General Legislative Position:

Statutory Instruments (SI’s) – the legislation to enact change – have been laid and will apply in the event of a No Deal Brexit. We have notices which cover:

  • Aligning the VAT Exemption on Fund Management Services with the EU
  • To enable the UK to continue to collect statistical information on trade in goods in the same way as the Intrastat should the Customs Declaration route not provide the information required
  • A mechanism for businesses to continue to check the validity of UK VAT numbers as we will be denied access to the EU VIES system
  • How to deal with Postal Imports as noted above

We continue to monitor for new SI’s laid before Parliament.

HMRC Guidance:

In addition to the HMRC letters to the 144,000 VAT registered UK business who trade only with the EU they have plans to publish additional information covering areas including:

  • VAT rules for low value parcels coming into the UK
  • the UK’s Tariff
  • registering for an EORI (Economic Operator Registration and Identification) number
  • submitting safety and security declarations
  • a framework for the export of goods to the EU
  • the tax treatment of goods brought into the UK by travellers
  • the customs, VAT and excise arrangements at the Northern Ireland land border which will recognise the unique economic, social and cultural circumstances of the land border and will seek to avoid a ‘hard border’ for tax purposes

Financial Cost for business is acknowledged by HMRC.

The HMRC Impact Assessment issued on the 4th December 2018 comments on a cost to UK businesses who import and/or export of c£6.5billion. These costs will come from a range of administrative areas they suggest including:

  • cost of appointing a customs agent if electing to do so
  • familiarisation with a new UK tariff
  • setting up a payment method
  • additional record keeping requirements – customers will need to keep records for at least 6 years, and this may require new systems and processes
  • one off cost for arranging for a deferral account
  • costs of securing a guarantee to take advantage of deferring/suspending the payment of import duty

In addition, for those larger businesses that might look at applying to be an Authorised Economic Operator (AEO) to reduce the risks of delays of goods at points of entry there are other costs to consider which are likely to include the following:

  • hiring external agents to help with the AEO application process
  • purchasing of additional software to ensure the record keeping is maintained to certain standards
  • initial familiarisation with procedures and complying with requirements

To reduce Duty and VAT costs businesses could look at using other special procedures to help with the movements of goods and reduce Duty and VAT costs – these regimes include reducing or suspending the payment of Import Duty, Import VAT and Excise Duty on goods used in the business – in processing or during repair.

You can also look at removing these costs altogether where the goods imported are then re-exported. Customs procedures to consider would include:

  • Customs Warehousing
  • Inward Processing
  • Temporary Admission (temporary import or export of goods for samples or professional equipment; items for auctions, exhibitions or demonstrations in the UK or the EU
  • Reductions for certain Authorised Use purposes.

In Summary:

Information is out there but you do need the time to sift through it to work out the relevance to your business. In Wales there’s a Business Wales Brexit Portal and a Brexit Resilience Fund has been announced to support businesses and help them meet the costs they will face on getting advice on the changes needed to the business systems, structures and supply chain.

As VAT Specialists we comb the technical information on VAT and Customs plans, ensuring our clients access the latest information to plan for a Deal or “No Deal” situation posting updates on our website or sharing that information directly with clients as we review the Brexit effect on their business.

We’ve been supporting our clients for over 20 years to ensure they identify the known and plan for the unknown – vital as Brexit looms.

Take time out to talk to your business advisers and specialist teams such as Centurion – about where your Brexit implications will lie – in people, customer markets, supply chain, corporate structures, pricing – whatever your list looks like the key is to get that impact list established now.

Half the battle is in working out where to start – hopefully this update has helped to either add or remove some items of your particular list!

Watch this space for more news…..

Liz Maher OBE – Director of Centurion VAT

© Centurion VAT Specialists Ltd

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