UK VAT and the implications of Brexit

Paul BeareFounder, Paul Beare Ltd

Among the many uncertain implications of Brexit, the impact on the UK’s VAT regime is still unclear. Domestic VAT rules remain the same following Brexit. However, how UK VAT is charged when importing and exporting to the EU will change. Although the government says VAT procedures will be “as close as possible to what they are now”.

As it stands, the UK will leave the EU VAT regime on 31 December 2020. Within the Withdrawal Agreement (WA)  is a provision to potentially extend this to up to two years until the end of 2022 as an ‘implementation period’.

For those who are engaged strictly in UK-based commerce, there will be little change. Businesses selling goods and services to fellow UK companies will still need to focus on making sure they are properly registered according to their status.

However, for those who are concerned with doing business with EU countries, however, the picture is less clear. But it’s fair to say that whatever happens with Brexit, there will inevitably be some changes to how UK VAT is levied and collected.

How will VAT rules change for those selling goods to businesses outside the UK?

Assuming there are no radical, unforeseen changes, we can be fairly sure that the following will apply when a UK VAT-registered firm sells goods to a German counterpart:

  1. The sale would be zero-rated as an export, assuming proof of export is held.
  2. An export declaration would be required (although it may be that a simplified reporting arrangement would be put in place – this would be up to the UK).
  3. When the goods reach Germany (for example) an import declaration is likely to be required and import VAT would become payable as the goods enter Germany
  4. Depending on the trade deal in place other customs duties that do not currently apply may also be payable.
  5. Whether the UK supplier has to register for VAT in Germany and charge German VAT will depend on who acts as the importer of record. If this is the German customer no VAT registration will be necessary. If the UK supplier acts as importer then it is likely that it will need to register for VAT in the EU and account for EU VAT on the sale.
  6. Assuming no special alternative arrangement exists, the UK supplier will no longer be obliged to submit an EC Sales list or an Intrastat declaration in the UK.

So what would a no-deal Brexit change?

Firstly, it is likely that exports will remain zero-rated (although they will probably no longer be classed as dispatch).

UK businesses will also benefit by no longer needing to complete intra-community reporting including the EC Sales list and Intrastat reports, the monthly obligation for companies who move goods cross-borders in the EU (subject to value thresholds). It presently enables governments and the EU to track trade between countries for statistical purposes.

Under that scenario, the EU business that you’re selling will most likely need to account for VAT and also customs on the goods. In practice, it would make sense to talk to them about that immediately so they can prepare.

Next week we’ll look at how you may be affected if your business sells goods to consumers or non-VAT-registered businesses.

In the meantime, you can contact us for help and support in a number of areas, from tax and payroll to accounting and banking.