On 22 October, the UK government published guidance to support businesses in the event the UK leaves the EU without a deal. The guidance covers the VAT and customs duty treatment that will apply to trading with the EU in this scenario. Given the real possibility of a “no deal” Brexit and the timescales needed to implement new systems, businesses should take steps to plan for this now.
In a “no deal” Brexit, the government will introduce postponed accounting for import VAT on goods brought into the UK. This means VAT registered businesses importing goods from the EU will account for the VAT due on their VAT returns (as they do at present), rather than paying VAT when the goods arrive at the UK border. This avoids a significant cash flow cost for business. This will also apply to imports from non-EU countries, in order to help businesses make the most of global trading opportunities.
However, the EU is unlikely to reciprocate this treatment, so EU customers of UK businesses may still face a VAT cash flow disadvantage.
Where a UK business sells goods to EU consumers, current “distance selling” rules will no longer apply and the supplier will not need to charge VAT. However, the customer is likely to have to pay VAT and customs duty on the import in their country. Where overseas businesses send parcels valued up to £135 to the UK, a new technology-based solution will allow the overseas business to register with HMRC and pay the VAT, so the customer does not need to do so.
Other immediate VAT changes will affect businesses that provide digital services to EU consumers and who claim refunds of VAT incurred in EU countries.
Under “no deal”, the UK will be outside the EU Customs Union and imports of goods from the EU will be subject to customs duty and controls in the same way as imports from outside the EU (and vice versa). The UK will no longer apply the EU’s Common Customs Tariff and will establish its own UK trade tariff, meaning duty rates could differ from current EU duty rates.
Businesses importing and exporting will need to make import and export declarations, as appropriate, for each consignment. Businesses will need to familiarise themselves with complex customs rules, including those relating to classification, valuation, origin and the availability of reliefs and customs special procedures which could mitigate the impacts.
For businesses trading across the border between Northern Ireland and ROI, the government has said they will provide an update on applicable customs arrangements in due course. They also recommend that businesses consider advice from the Irish government.
Businesses should take steps now to plan for these potential changes, considering the impact on their supply chains and customers, how they will deal with customs formalities, changes to contracts, and steps they can take to mitigate the impacts.
For further information or advice on this or other Brexit-related or VAT and indirect tax issues, Lee Squires can be contacted at firstname.lastname@example.org