HMRC publishes guidance outlining impact of “no-deal” Brexit for VAT-registered Businesses

The UK Government today issued a raft of guidance to prepare UK Businesses for a no-deal Brexit. The guidance stresses on various occasions that a no-deal Brexit is unlikely; however, the notices outline the key changes that will impact any business that currently trades with the EU.

The main highlights of the guidance are as follows:

  • The UK will continue to have a VAT system after it leaves the EU on 29 March 2019, as VAT is the tax that provides the second-biggest level of revenue for the Government (after Income Tax) and so is vital for funding public services.
  • The VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now.
  • VAT procedures will continue as close as possible to what they are now, however there will be some key changes.

We have summarised the ‘VAT for businesses if there’s no Brexit deal’ guidance below.

1. UK businesses importing goods from the EU

In what is possibly the biggest potential impact to UK businesses, in a no-deal scenario the current rules for imports from non-EU countries will also apply to imports from the EU.

Accounting for import VAT on goods imported into the UK

If the UK leaves the EU without an agreement, the government will introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT-registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply to imports from both the EU and non-EU countries.

This will help to mitigate any adverse cash-flow impacts, keeping VAT processes as close as possible to their pre-Brexit status and preventing businesses waiting up to 3 months to recover import VAT. Businesses importing goods will be able to account for their import VAT from non-EU countries in the same way, which will help UK businesses make the most of trading opportunities around the world. Customs declarations and the payment of any other duties will still be required.

Any Customs Duties payable will not be recoverable o this should be factored into cost structures.

2. UK businesses exporting goods to EU consumers

In a no-deal scenario, distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero-rate sales of goods to EU consumers.

Current EU rules mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU. Any businesses affected by this will have to be mindful that consumers in EU countries will have to bear these additional charges, so this may have to be communicated up front on points-of sales such as websites and sales materials.

3. UK businesses exporting goods to EU businesses

VAT-registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists or Intrastat declarations.

UK businesses exporting goods to EU businesses will need to keep evidence that proves the goods have left the UK, in support of the zero-rating of the supply. Most businesses already maintain this evidence as part of current processes, and the required evidence will be similar in nature to that ​currently required​ for exports to non-EU countries. Any differences will be communicated by HMRC in due course.

Current EU rules mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries. Associated import VAT and customs duties will therefore be due when the goods arrive into the EU. Individual EU member states may have different rules for import VAT for non-EU countries, and import VAT payments may be due at the border. UK businesses should check the relevant import VAT rules in the EU Member State concerned.

4. UK businesses selling their own goods in an EU Member State to customers in that country

If the UK leaves the EU without an agreement, UK businesses will be able to continue to sell goods they have stored in an EU Member State to customers in the EU in line with current Rest of World rules.

Current EU rules mean that UK businesses will continue to be required to register for VAT in the EU member states where sales are made in order to account for the VAT due in those countries.

5. Place of supply rules for UK businesses supplying services into the EU

If the UK leaves the EU without an agreement, the main VAT ‘place of supply’ rules will remain the same for UK businesses.

The current ‘place of supply’ rules determine the country in which you need to charge and account for VAT. These rules are in line with international standards set out by the Organisation for Economic Co-operation and Development (OECD). The rules around ‘place of supply’ will continue to apply in broadly the same way that they do now. Areas of potential change are:

  • For UK businesses supplying digital services to non-business customers in the EU, the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU Member State within which your customer is a resident.
  • For UK businesses supplying insurance and financial services, input VAT deduction rules for financial services supplied to the EU may be changed. HMRC will update businesses with more information in due course. Any business that requires assistance with this can contact Chiene + Tait.

6. EU Tour Operators’ Margin Scheme

The Tour Operators Margin Scheme is an EU VAT accounting scheme for businesses that buy and sell certain travel services that take place in the EU. HMRC has been engaging with the travel industry and will continue to work with businesses to minimise any impact.

7. Businesses supplying e-Services (UK VAT Mini One Stop Shop (MOSS))

If there is no Brexit deal, businesses that sell digital services to consumers in the EU will be able to register for the MOSS non-EU scheme. There is currently an EU scheme so most providers will already be registered for this. The non-EU scheme is similar but will require UK businesses to register in one EU country.

MOSS is an online service that allows EU businesses that sell digital services to consumers in other EU member states to report and pay VAT via a single return and payment in their home Member State. Non-EU businesses can also use the system by registering in an EU Member State.

This can only be done after the date the UK leaves the EU. The non-union MOSS scheme requires businesses to register by the 10th day of the month following a sale. You will need to register by 10 April 2019 if you make a sale from the 29 to 31 March 2019, and by 10 May 2019 if you make a sale in April 2019.

Alternatively, a business can register in each EU Member State where sales are made.

8. EU VAT refund system

UK businesses will continue to be able to claim refunds of VAT from EU member states after a no-deal Brexit, but will no longer have access to the EU VAT refund system. In the future they will need to use the process already in place for non-EU businesses.

This process varies across the EU, so businesses will need to be aware of the processes in the individual countries in which they incur costs and want to claim a refund.

Summary

The UK Government’s updates today are welcome, in particular the measures they have introduced around import VAT deferrals. We expect there will be more detail once the “deal or no deal” position is finalised.

We recommend that any business affected by these changes undertakes a review as soon as possible to prepare for the changes that Brexit will bring.  Chiene + Tait has been working with its clients over the past 12 months to undertake these reviews and we would be happy to discuss this with affected businesses.

Contact

Iain Masterton, Head of VAT and Indirect Taxes:

0131 558 5800

iain.masterton@chiene.co.uk