Prepare now for VAT changes if the UK leaves the EU with No Deal on 31 October

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Around a quarter of a million UK businesses, and many more in the EU27, will face major changes in their VAT arrangements if or when the UK leaves the EU without a deal on 31 October.

This is because under a No Deal (i.e.WTO) scenario, the UK will become a ‘third country’ in terms of its dealings with EU member states. The main changes will impact goods imported to the UK.

The good news is that one major potential disruption has been avoided by the Government’s decision to allow postponed accounting for VAT on imports. This will apply to VAT-registered businesses importing from any country, including EU member states, immediately after exit day. Consequently, businesses will be able to account for, and pay, VAT on imports with their usual VAT returns, rather than at the time of the import itself. This change has avoided potentially very serious cash-flow implications for SME importers.

HOWEVER, please note that other duties (Customs & Excise) remain payable prior to release of goods. We will elaborate further on these in a later Ed Note.

Importers will lose access to VIES (the VAT Information Exchange System) as the way to check counter-parties’ VAT numbers. HMRC indicates that it will set up a UK-based equivalent, but we have yet to see this.

Claiming VAT refunds after exit could become significantly more complex, with UK businesses losing access to the EU’s electronic refund system at 17:00 (UK time) on exit day. Thereafter, a business will need to claim VAT refunds using the procedures of the specific member state, not the EU itself. This brings added complexity, and an important need for preparation, because different states can have different:

  • Claim deadlines
  • Requirements for certificates of taxable status (to support claims)
  • Requirements for local representation in the member state itself

In addition, for businesses receiving goods entering the UK as parcels, VAT will become payable on consignments valued below £135. The Government has decided not to extend Low-Value Consignment Relief to goods entering the UK from the EU after exit.

Exports of goods from a UK business to other EU businesses will be less impacted as they are currently zero-rated for UK VAT. Currently, the UK supplier compiles an EC Sales List, to allow reconciliation with any VAT due in the destination member state. Under No Deal, such exports would remain zero-rated for UK VAT, but the obligation to maintain EC Sales Lists would disappear.

However, UK suppliers of digital services will lose access to ‘MOSS’, the mini one-stop-shop for VAT returns across the EU. So they will need to register with MOSS in another member state, prior to exit day.

In summary, if you currently do business solely with EU countries, you need to understand the impending changes to VAT procedures. While we have highlighted a number of issues here, you need to look in depth at the individual changes impacting your specific business. Preparation can be expensive, but lack of preparation will certainly be more so.

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