EU flags

No deal Brexit: The likely UK VAT changes applicable to EU trade

Robert Marchant, Partner, VAT
EU flags

For the most up-to-date information - read our latest article 'Updated ‘no deal’ Brexit guidance for moving goods between the UK and EU' .

With Brexit due soon many UK businesses will be required to apply the same processes to EU trade that currently apply when trading with the rest of the world.

We have outlined details of some key VAT changes that may arise:

Economic Operator and Registration Identification (EORI) numbers/importation processes

Businesses who currently buy/sell goods just with the EU must act now to ensure that they are prepared in the event of a no deal EU exit as such shipments become imports and exports after the UK leaves the EU. An action to take is to apply for an EORI number which allows businesses to import/export goods from/to outside the EU. Without this number, you would be at risk of not being able to import/export your goods into/from the UK and/or not being able to reclaim import VAT.

In addition, HMRC has announced Transitional Simplified Procedures (TSP) to make it easier for businesses to import goods from the EU. Once businesses are registered for TSP, they will be able to transport goods from the EU into the UK without having to make a full customs declaration at the border, and will be able to postpone paying any import VAT or duty. The new procedures should reduce the amount of information importers need to give in an import declaration when the goods are crossing the border.

We recommend that all businesses who will be importing goods into the UK from the EU speak with their freight agent in order to familiarise themselves with the administrative requirements.

Exported services

Most countries (certainly those in the EU and some non-EU) operate exported services rules that mean they do not charge with local VAT when providing services to overseas business customers. The local country VAT rules consider the ‘place of supply’ (i.e. the country in which VAT is due) and, while there are some exceptions, such as for land transactions and admission to events, most services provided to an overseas business customer are not subject to local VAT. We would not expect the UK leaving the EU to result in a change when UK firms purchase professional services from EU based suppliers.

The same principles apply for services provided outbound from the UK. For example, if post Brexit a UK firm was to charge an EU business for professional services then it would raise an invoice without UK VAT on the basis that the service has been exported from the UK (in the same way it would currently do for a US business customer). This is because of the place of supply and we expect the same place of supply rules as currently operate in the UK to apply after a ‘no deal’ Brexit.

One area that will need to be monitored is the UK and EU’s VAT ‘use and enjoyment’ rules which amend the place where VAT is due to the location where the service is ‘used and enjoyed’. These apply to certain services supplied by a local business to a non-EU customer. The UK becoming non-EU could mean that an EU country requires their country’s VAT to be applied on charges to a UK customer on the basis the service was ‘used and enjoyed’ in that local EU country. The EU Member States have a certain amount of discretion as to which services are subject to a ‘use and enjoyment’ override so this is an area that would need to be monitored as it is an area of potential change should the UK leave the EU. The same is true for UK suppliers of services to EU customers; at the moment, ‘use and enjoyment’ would not apply but post Brexit UK suppliers may have to charge with UK VAT. The UK currently only applies a ‘use and enjoyment’ override to telecommunication and broadcasting services, electronically supplied services and the hire of goods.

Specified supplies

One area that will need to be kept under review is the consequence for input VAT recovery of supplies by UK businesses of insurance and financial services to non-UK customers. At the moment supplies of such services currently fall within the Input Tax (Specified Supplies) Order which provides for input tax recovery only when these services are provided to customers outside of the EU. The government had originally indicated that the restriction on VAT recovery for customers in the EU would be extended to all non-UK customers (which would have a negative impact on VAT recovery for UK businesses). However, in what will be welcome news for businesses, the government appears to have changed direction and has provided draft law that supersedes the previous draft and appears to place EU and non-EU customers on equal footing but, perhaps surprisingly, in a way that extends the VAT recovery rule i.e. VAT would be recoverable when the customer is outside of the UK. It remains to be seen what final position will be adopted in the event of a ‘no deal’ Brexit.

Claiming EU VAT refunds

The deadline for reclaiming any EU VAT incurred during 2018 using the EU VAT refund electronic system (formerly known as an EC 8th VAT Directive claim) will be 23:00 on Friday 29 March 2019. This supersedes the previous deadline of Monday 30 September 2019.

After Friday 29 March 2019, businesses must claim VAT refunds from EU Member States by using the relevant Member State’s existing procedures for businesses based outside the EU.

It is imperative that the procedures for applying for VAT refunds from EU Member States are clearly understood, in particular the following:

  • Deadlines for reclaiming input (purchases) VAT incurred in EU Member States.
  • The documentation required to substantiate the VAT claim.

Any requirements to appoint a tax representative in an EU Member State.

Checking a VAT number

It will no longer be possible to check the validity of a UK VAT number on the EU’s VAT number validation service. Instead, UK VAT numbers can be checked on the website from Saturday 30 March 2019.

Existing EU VAT Simplifications for sales of goods

There are EU VAT simplifications for cross-border sales of goods that may not be available going forwards.

  1. Triangulation is VAT relief applicable in certain chain transactions. It allows the middle party in a chain of three to avoid having to maintain an overseas VAT registration. For example, a business established in EU Member State A sells goods to a trader established in EU Member State B who on sells the goods to a customer in EU Member State C, with the goods being delivered directly from A to C. The triangulation simplification allows B not to VAT register in the EU Member States of A or C.
  2. Call off stock is the description given to the transfer of goods (by a VAT registered business) from one EU Member State to another to create a stock of goods from which their customer can 'call-off' (i.e. use and pay for) the goods as and when they require them. The simplification allows the customer to account for the VAT due, rather than requiring the supplier to VAT register and account for VAT in the country of delivery

After 23:00 on Friday 29 March 2019, it is likely that UK companies will not be able to benefit from these reliefs, requiring them to maintain additional VAT registrations and resulting in changes to invoicing requirements. 

Notwithstanding the above, it is important to mention that UK VAT registered businesses will continue to be able to zero-rate sales of goods to EU businesses even if the UK leaves the EU without an agreement.

The Mini One Stop Shop (MOSS) VAT scheme

VAT Mini One Stop Shop (VAT MOSS) is a way of paying VAT on supplies of certain digital services if either:

  • you are a UK business who makes supplies to consumers in other EU Member States
  • your business is based outside the EU and you make supplies to EU consumers.

UK VAT registered businesses should continue to use the UK’s MOSS portal in the usual way to submit and pay the liability for the first quarter of 2019. This should include supplies made between Tuesday 1 January 2019 and 23:00 on Friday 29 March 2019 - the submission deadline of Saturday 20 April 2019 - will apply to these returns.

If you wish to continue to use MOSS after the UK leaves the EU, you will be required to register for MOSS in an EU Member State after Friday 29 March 2019. The deadline for registering in another EU Member State is Wednesday 10 April 2019. Those UK businesses currently utilising the UK VAT MOSS Union scheme can continue to use the MOSS system after Friday 29 March 2019.

Digital services threshold

Once the UK has left the EU, all supplies of digital services to consumers in EU Member States will become liable for VAT in the consumer’s Member State. The existing annual threshold of €10,000 for cross border sales of digital services to EU consumers will no longer apply. Indeed, one will have to charge VAT at the rate where your customer is based and declare those sales to the relevant EU Member State. It will also mean registering for VAT in the respective EU Member State unless your business continues to use MOSS.

EC Sales Lists/Intrastat

For exports (currently referred to as dispatches) when trading with the EU, businesses should not need to complete EC sales lists after 23:00 on Friday 29 March 2019 but will need to review the prevailing rules in individual Member States that apply to imports (currently referred to as acquisitions) when trading with the EU.Intrastat is the name given to the method of collecting information and producing statistics on the movement of goods between Member States of the EU.

It is a requirement to file an Intrastat return if your business’ dispatches (sales to other EU Member States) exceed £250,000 in a calendar year or if your business’ acquisitions (purchases from other EU Member States) exceed £1.5 million in a calendar year.

It remains unclear whether UK VAT registered businesses will be required to file Intrastat returns once the UK has left the EU.
Tour Operators' Margin Scheme

The Tour Operators' Margin Scheme (TOMS) is an EU VAT simplification which allows UK businesses not to have to VAT register in every country in which they operate. A ‘no deal’ Brexit could mean that the simplification is no longer available; increasing the VAT compliance obligations for businesses that currently benefit from the TOMS rules.

people in discussion

How we can help

To discuss these issues and how they apply to your business, please contact Robert Marchant, Partner, VAT.

Contact us

Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services