Brexit is almost upon us, so now is the time to familiarise yourself with the changing VAT rules, says Melanie Lord.
It’s easy to forget that we still have Brexit to deal with. The VAT rules are changing for any goods coming into the UK from January 2021 so now is the time to make sure you know how this is all going to work. There is a lot of detail to absorb so this summary aims to provide an overview.
Essentially, what the new rules mean is that, one way or another, VAT will have to be charged on all goods being brought into the UK. Just to make this into even more of a challenge there are different rules according to:
- the identity and location of both the supplier and the goods being supplied;
- the nature and value of the goods;
- whether the customer is a consumer (B2C supplies) or
- a VAT registered business (B2B supplies).
In broad terms:
- Where a UK VAT registered business imports goods from either the EU or Non-EU, the same import system will apply. The business importer will pay and reclaim import VAT under new postponed VAT accounting rules via its VAT return.
- The Low Value Consignment (LVC) Relief that currently ignores imports below £15 is being abolished and new low value rules are being brought into operation.
- The new ‘low’ consignment value that plays a key part in the new rules is £135 and this will apply for both Customs Duty and Import VAT. For these consignments the importer will still need to make simplified Customs declarations but import VAT will not be due. Instead UK VAT must be charged on the supply to the customer and declared under a UK VAT registration in the name of either the seller or an Online Marketplace (‘OMP’) – see also point 9.
- The same rules will apply to all imports where the consignment value is up to £135 irrespective of whether the goods are supplied B2B or B2C (subject to limited exceptions including Excise goods; gifts & C2C sales and some goods from the Channel Islands).
- The £135 ceiling applies to the value of the consignment, not to each individual item within the consignment. If the overall consignment value is over £135 then normal VAT and Customs rules will apply so that HMRC will charge import VAT and normal VAT accounting will apply to any onward sale.
- The same rules will apply irrespective of where the business selling the goods, or where any OMP involved in the sale, (see 9 below) is established.
- Customers that are UK VAT registered and provide their VAT number to the supplier, will account for the VAT due on the import of goods up to £135 under the reverse charge (effectively as currently operates for EU Acquisitions). However, if a business customer does not provide a VAT number they will be treated as though they are B2C and charged VAT.
- To ensure that VAT is charged on all sales of imported goods, all overseas sellers will have to either register for UK VAT (even if turnover is below the threshold) or sell through an OMP. This applies even if goods are sent from overseas after being sold directly to UK consumers as the sale will be deemed to take place in the UK and so UK VAT will fall due.
- If the sale is via an OMP, it is the OMP and not the seller that has to charge UK VAT to the customer and pay that UK VAT over to HMRC. The new rules are shifting the responsibility for accounting for UK VAT away from the overseas seller and on to the OMP that facilitates the sale. The OMP will be deemed to be making the supply to the UK consumer and as this supply will be deemed to take place in the UK, it will be liable to UK VAT.
- The customer will have to be issued with a VAT invoice irrespective of whether it is the seller or an OMP that is liable to account for the VAT on the sale.
The rules mean new VAT registrations will need to be set up by all businesses selling goods direct to UK customers and any OMPs facilitating sales of goods to UK customers. Registrations are required irrespective of where the supplier or OMP is established or where goods are located when they are sold so this is a significant change.
To decide how to deal with VAT for imports and for sales of imported goods the following facts will have to be established:
A. Are the goods being imported by a UK VAT registered business for their own business purposes? If so, then the importer can use postponed VAT accounting to account for the import VAT due on goods imported from anywhere in the world. This means the business will declare and (subject to normal recovery rules) recover import VAT on the same VAT return. Postponed accounting will benefit cash-flow as the importer will not have to pay import VAT upfront and recover it on a later VAT return. Output VAT will then fall due in the normal way according to how the goods are used. Detailed rules will apply.
B. Is the import consignment value below £135? If ‘No’ then normal import rules apply. If ‘Yes’ then the following factors become relevant and either the seller or their OMP must charge VAT:
– Are the goods that are to be sold to UK customers owned by an overseas seller?
– Is the seller registered for UK VAT?
– Is the sale being handled via an OMP?
– Are goods owned by an overseas seller already located in the UK on 31/12/2020? If so, detailed rules apply covering how to handle associated VAT accounting.
HMRC’s risk focus will be on ensuring suppliers are properly VAT registered and on the values declared on the consignments. Given that (per point 9, above) all consignments need to be accompanied with a tax invoice, HMRC intend to run risk-based checks at the border to ensure that consignment values being declared are accurate. In addition to risk-based checks at the border, HMRC have also stated that it will, as now, carry out extensive risk-based compliance activities away from the border.
These will be informed by various data sources in order to identify and tackle any fraud or non-compliance with the rules.
It seems clear from these new rules that there is a serious push to use Brexit to block the VAT leaks that have been happening on B2C sales of imported goods. It has to make sense to get busy now to make sure systems and processes are battle ready.
• Melanie Lord is a director of AVS VAT. Email email@example.com or call 01438 716176 for a free 30-minute conversion.