Brexit VAT changes: a practical step by step guide

The Brexit transition period ended at 11pm on 31st December 2020, and there are changes that you need to be aware of when preparing your VAT return. 

Some of the key changes relating to businesses in Great Britain and their implications on the running of their business are outlined below. Please note however that businesses in Northern Ireland are subject to a new NI protocol and that the rules below don't apply to them. 

VAT Returns 

Boxes 8 and 9 were used for reporting sales of goods to, and purchases from the EU, so those will no longer be required for transactions from 1st January 2021 onwards. You will however need to report any transactions which took place prior to 1st January. These boxes will eventually be removed from the VAT return format. 

Box 2 was used for reporting ‘acquisition tax’ on goods bought from EU VAT registered businesses. From 1st January this box will only be used by businesses in Northern Ireland who buy goods from the EU. 

Service supplies

Business to Business (B2B) supplies of services

The general rule is that the place of supply is where customer belongs  and that does not change. So treatment of these sales will remain the same.

• EU customers will continue to account for local VAT in their own countries via the Reverse Charge.
• EU suppliers will continue to supply their services to UK businesses free of any VAT.  UK businesses must continue to account for reverse charge VAT on receipt of these services.
   

Business to Consumer (B2C) supplies of services

The general rule is that the place of supply is where the supplier belongs  and that does not change either. So UK VAT will continue to apply (note there are some exceptions to the general rule).

 

There is an another exception for businesses making B2C supplies of digital services as the current threshold of £8,818 no longer applies from 1st January (see below for more details).

Goods sold to the EU 

Goods sold to a EU customer will now be reported as zero rated sales - regardless of whether the customer has an EU VAT registration number or not. 

UK businesses who sell to non-VAT registered EU individuals will need to consider whether they or their customer will be responsible for paying EU VAT when the goods arrive in the EU. This must be made clear to the purchaser in the terms and conditions of sale. If the UK business is responsible then it will need to register in the relevant EU countries. 

Brexit done! Now what happens to VAT?

Today is the last day the UK is in the EU. Or is it? As the UK has agreed to leave the EU with a deal, there is now a transition period until 31 December 2020 (or later if both parties agree to extend that transition). What it means in terms of VAT, the most visible EU linked tax, is that nothing changes immediately. During the transition period, the UK will remain part of the single market and customs union meaning that we will continue to follow the rules regarding Intra-EU movement of goods set out in VAT Notice 725. In other words, that means one can continue to zero-rate their sale of goods, as long as they have their customers EU VAT number and the goods are sent or transported to another EU member state and that they keep valid commercial evidence that the goods have been removed from the UK within the relevant time limits. And it also means that one must continue to submit EC sales lists monthly or quarterly as appropriate.

Now some people might have been advised by HMRC to obtain an EORI number ahead of the EU exit, in case the UK left the EU with no deal. This reference while of no use for now should be kept as we are still likely to need this at the end of the transition period. Equally if one has registered for Transitional Simplified Procedures (TSP) for imports, one should keep this paperwork ready for the end of the transition period.

Lastly, during the transition period, businesses will still be able to submit valid EU refund claims via HMRC, and those businesses that are registered for VAT MOSS because they supply B2C supplies of digital services to EU consumers, may continue to submit VAT MOSS returns for the time being in the UK, rather than needing to register in an alternative EU member state.

In other words, no change for now!