It is important to emphasise that these changes are only expected to happen if there is no deal, which the government describes as ‘unlikely’.
Some changes are expected to the way VAT is accounted for on the trade in goods and services between the UK and the EU.
- If the UK leaves the EU Customs Union, there will be a Customs border between the UK and the EU, meaning that goods will be subject to import VAT and Customs Duties, be it on entry to the UK from the EU, or from the UK into the EU. HMRC 's no deal guidance confirms that postponed import VAT accounting will be introduced. This will be welcomed by businesses because it will ensure their cashflows for EU trade remain as they are now. Note that postponed import VAT accounting will also be applied to goods entering the UK from non-EU locations, which would bring a cashflow advantage compared to current import VAT arrangements.
- Postponed import VAT accounting is only expected to apply to VAT, so Customs Duties would still need to be paid before the goods are released into the UK, and import declarations will still be required.
- UK businesses exporting goods to the EU will most likely have to make import declarations in the EU and pay Customs Duty, which will impact on margins if the increased costs cannot be passed on. The no deal guidance says the sales from the UK would qualify for zero-rating (be they to a business or a consumer) but the EU Distance Sales registration scheme would no longer be available, potentially resulting in a VAT registration in the EU destination country(s). Businesses engaged in trading goods with the EU should check the overseas VAT registration position in the countries in which they store or sell goods, including whether they also need to appoint a fiscal representative as part of an overseas VAT registration requirement.
- The no deal guidance says that EC Sales Lists will no longer need to be submitted. It does not mention changes to / withdrawal of the Intrastat regime.
- Businesses reviewing their supply chains as a result of Brexit may want to consider using international trade reliefs such as Customs warehousing, Inward Processing Relief or Temporary Admission; all of these can bring import taxes savings or cashflow savings.
- The no deal guidance confirm that the UK's main place of supply rules (rules which establish the country in which VAT is to be paid) would remain the same post-Brexit. However, the services rules contain a number of sector-specific variations which are generally EU-wide simplifications that may no longer be available for UK businesses.
- The Mini One Stop Shop (MOSS) EU simplification would no longer be available to UK businesses selling digital services to consumers in the EU. The simplification allows these businesses to account for the EU VAT due on their sales through the VAT return in their home Member State, avoiding the need for multiple overseas VAT registrations. In a no deal situation this could mean UK businesses either having to use the Non-Union MOSS scheme, which has a greater number of conditions applicable to it, or having to VAT register in each Member State where sales are made.
- Businesses that reclaim EU VAT via the EU VAT refund system should be able to continue to do so, but would need to do so under the existing arrangements between the EU and non-EU countries. However, not all EU countries agree to make such repayments to non-EU countries (or operate a list of ones to whom they do make refunds) and the conditions, claim processes and time limits can vary.
- The EU Tour Operators Margin Scheme is identified as an area where changes may happen and HMRC says that it ‘has been engaging with the travel industry ...to minimise any impact.’
- For UK businesses that supply insurance and financial services the input VAT deduction rules applicable to financial services may change. HMRC notes that it ‘will update businesses with more information in due course.’ If a change is made, this is unlikely to be a surprise to such businesses.
- The EU VIES database could still be used by UK businesses to validate EU Member State VAT numbers. UK VAT numbers would no longer be part of this service and HMRC's guidance says that it is ‘developing a system so that UK VAT numbers can continue to be validated.’
The no deal guidance highlights the unique position of Northern Ireland, which could have the UK's only land border with the EU.
The government has repeatedly said that there will not be a physical border between Northern Ireland and Ireland, but the guidance lacks any detail as to how trade arrangements will operate.
It notes that the Irish government will need to consult with the EU in the event of no deal, and recommends that businesses consult with the Irish government for guidance on the preparations needed.
The no deal guidance also details some changes which may not have a widespread impact, but nonetheless would be significant for those to whom they apply.
- Changes to VAT on goods entering the UK as parcels sent by overseas businesses
The current Low Value Consignment Relief will no longer apply to any parcels arriving in the UK. All parcels arriving in the UK would be subject to VAT in the same way, irrespective of from where they are sent. For parcels with a value up to £135, a technology based solution will be implemented so that the supplier pays the UK import VAT. This will require overseas sellers to register for a new digital service. For goods worth more than £135 the current procedures for parcels from non-EU locations would be extended to cover EU-based sellers. The current system requires the UK recipient of the parcel to pay the import VAT due.
- VAT on imported vehicles
The current system (known as NOVA, Notification of Vehicle Arrival Procedures) for vehicles brought to the UK from non-EU locations will be extended to include EU countries. The existing reliefs from import VAT will also be extended.