With the news that the UK is now officially out of the EU, there are significant adjustments in play for businesses that use export operations and consideration needed for post-Brexit VAT rules.
The rules for supplying services between Great Britain and EU members states are now the same as the rules for supplying services from the UK to outside the EU.
In considering whether VAT should be charged on exports, two distinct areas are affected, the supply of goods and the supply of services, each with different aspects to take into account.
The supply of services depends on who the supply is being made to as there are different rules for business to business and business to consumer.
For a business supplying to a customer the place of supply (where it is happening) is where the supplier belongs, irrespective of the location of the customer. If you are a business supplying to a business the supply is made where the customer belongs. Supplies of services related to land are generally considered to be made where the land is located.
If the supply is in the UK it is subject to UK VAT, which must be charged and accounted for if due. If the supply is in an EU member state it is outside the scope of UK VAT, meaning you or your customer may be liable to account for any VAT due in the EU member state and in some cases requiring the UK business to register for VAT in the member state.
If you sell, send or transfer goods out of the UK you do not normally need to charge VAT. This is called zero rating. Zero rated goods are still VAT taxable, but the rate VAT businesses must charge to customers is 0pc. Appropriate export documentation must be maintained in order to prove the goods were consumed outside the UK.
Zero rate exporting applies from Great Britain to any destination out of the UK and from Northern Ireland to outside the UK and EU. Care must be taken to account correctly for any supplies of goods that are routed via Northern Ireland.
In addition to the UK VAT rules, businesses and individuals need to take account of relevant import duties levied in the destination country.
The government’s advice is to hire a customs broker, freight forwarder or similar to help with customs relating to importing and exporting, but it helps to have a friendly and reputable accountant to guide you along the way.
SME Brexit Support Fund
The SME Brexit Support Fund is a government grant scheme that opened for applications on the 15 March and will close on 30 June, unless the £20 million set aside has been utilised by then.
The grant is for up to £2,000 to pay for practical support including training or professional advice in the wake of Brexit. This can be used to cover fees associated with getting specialist advice from accountants or business advisors.
The eligibility criteria is pretty broad with businesses qualifying if they have fewer than 500 employees and no more than £100 million annual turnover and export or import with the EU.
Is your business ready for the new rules after Brexit?
If you trade with countries in the EU, then you need to be prepared for the end of the Brexit transition period on 31 December 2020. After this date, there will be changes to customs procedures and VAT reporting.
A new customs border will be created between the UK and the EU – regardless of whether a Free Trade Agreement is reached or not. This means that full customs procedures will be required for goods crossing the UK/EU border and customs declarations for imports or exports will have to be submitted to HMRC. If your business does not have the expertise to manage this new paperwork, you can employ an agent to assist you. This will come at a cost to your business, but if goods turn up at the border without the right paperwork, they will be stuck in the port.
There is some initial support from HMRC when the EU transition period ends. The customs grant scheme has been changed to allow more businesses access to the funding. Traders who are new to customs can apply for up to £1,000 to support with the initial costs of basic customs training. Authorised Economic Operators who have had a base in the UK for less than 12 months can also apply.
The co-funded training project grant allows customs intermediaries, as well as traders who complete their own declarations, to receive up to €2 million.
Grants will be issued on a first come, first served basis, with the closing deadline being 30 June 2021. This may well be earlier if all available funding has been allocated before this date.
Implications in respect of VAT need to be considered too. How will VAT be charged on trade with the remaining 27 member states?
In theory, UK VAT could be removed altogether. In reality, this is very unlikely to be the case.
The reporting requirements will change as a result of the UK becoming a ‘third country’ in the eyes of its relationship with the EU though.
Currently, zero-rating is likely to be applicable when goods are exported from the UK to the EU (so long as a valid VAT number is held for the EU customer and shown on the sales invoice, along with proof of export etc.) due to the trade agreement. Reporting requirements currently consisting of an EC Sales list and Intrastat, where thresholds are exceeded.
From 1 January 2021, assuming no special relationship is in place, UK VAT would not need to be charged, meaning zero-rating would still be applicable (proof of export would be required as is currently the case).
However, an import declaration will be required with import VAT and customs duties likely to be payable on importation.
UK businesses (as well as EC businesses trading in the UK) will need to consider how it will clear and pay import VAT and duty on goods both entering the UK and going from the UK to the EC.
A UK seller may well have to register for VAT in the EU country of where the goods are exported should the buyer not act as the importer. It should be noted that VAT rates and thresholds vary from country to country.
Some good news for those not fond of forms at least – no EC Sales list or Intrastat sales reports will be required in the UK, as things stand.
This has been an incredibly challenging year for businesses, who have already seen a huge amount of interruption to their day-to-day management. Having to deal with the changes that come with Brexit have, understandably, been pushed to the side. However, if your business has any interaction with countries in the EU it is very important to take some time now to understand the changes that will need to be made to ensure that your business can continue to operate.