On 31st January 2021, the United Kingdom officially left the EU and the 11-month transitional period ended on 1st January 2021.
This means that there are new rules, regulations and changes for businesses that wish to continue trading with the EU.
From 31st December 2020, the UK is no longer part of the EU VAT Territory. All businesses in the UK should make sure they are aware of the changes that came into effect from the 1st January 2021.
Great Britain is no longer subject to VAT legislation, this includes England, Wales & Scotland.
Northern Ireland is still subject to EU VAT legislation for transactions involving goods, but not services.
Goods purchased from overseas
Any purchase from the EU is now treated as an import which will change the way that these are logged on your VAT return. A Postponed Accounting system has been introduced which will apply to imports from all over the world. This is to help individuals & businesses to operate as normal without the disadvantage of paying the importation tax upfront and waiting to reclaim the tax at a later date which could cause serious cashflow issues. Using this new system, you can defer your importation tax and declare it to HMRC in your VAT return for that period of importation.
If you are importing a low value consignment and the VAT exclusive value does not exceed £135, this will no longer be subject to import VAT. Instead, UK VAT is due on the supply at the point of sale and if they are sold on an online marketplace, the seller is responsible for charging VAT to the customer.
If the goods are not sold via an OMP, the overseas seller is required to register and charge VAT in the UK. One exception to this rule is where the customer is VAT-registered; in this case the customer can declare the VAT due on the seller's behalf, by way of a reverse charge.
Goods sold to overseas customers
Dispatches (zero-rated sales of goods to business customers in EU member states) are treated as exports. Exports are zero-rated, provided certain conditions are met.
Distance sales (sales of goods to non-businesspersons in the EU) are also treated as exports. The EU distance-selling regime and thresholds no longer apply to UK suppliers.
If you are supplying services internationally, there have only been a few minor changes to the rules. These apply to the supply rules of B2B services, however, suppliers of digital services to B2C customers have been impacted the most.
Previously, these suppliers declared and paid the EU VAT due on B2C digital services via HMRC's EU VAT MOSS system. This system is not available for services supplied after 1 January 2021 and, instead, B2C digital service suppliers need to register for a non-EU VAT MOSS scheme operated by a tax authority in a member state of their choice.
EU VAT refunds
HMRC's EU VAT Refund system is only available to businesses in Great Britain until 31st March 2021 for those claiming refunds for VAT incurred prior to 1 January 2021. After this date, businesses will no longer be able to claim a refund using this system.
To claim a VAT refund for VAT incurred in an EU member state after 1st January 2021, businesses will need to follow the non-EU VAT refund procedures set by the tax authority in the member state where the VAT was incurred. The process for this will be different for each state.
As the UK how now left the EU, it now operates a full external border. This will affect imports from the EU coming into the country. These new border controls are being introduced in stages and there will be customs declarations for goods which are not controlled being delayed until 30 June 2021.
You will need to declare 'controlled' products to customs such as alcohol and tobacco. This will also apply to other products that fall into the 'controlled' category.
There will be additional declarations that need to be made for live animals and high-risk animal or plant products.
From 1st April 2021 you will need to declare imports of any animal origin or plants.
From 1st July 2021 there will be Import declarations for non-controlled goods imported within the last six months. If you are importing non-controlled goods from 1st January 2021, it is important to keep a detailed record of these as you will need to submit a declaration.
There will be new rates of Customs Duty from the 1st January 2021 where the UK has not agreed a trade deal with a specific jurisdiction, these are detailed in the UK Global Tariff. The UK and the EU reached a trade deal on the 24th December 2020 which stated (in principle) that trade in goods between the UK and the EU will be tariff-free.
To check the tariffs that apply to different categories of imported goods, please see https://www.gov.uk/guidance/uk-tariffs-from-1-january-2021.
Trading between Great Britain and Northern Ireland
As part of the Withdrawal Agreement between the government and the EU, Northern Ireland left the EU, but from 1 January 2021 maintains alignment with the EU's rules for VAT and Customs in respect of goods. For services, Northern Ireland follows the VAT rules applicable to the rest of the UK. This situation adds a great deal of complexity to Northern Ireland's VAT rules and adds extra considerations for businesses in Great Britain that trade with Northern Ireland.
What you need to do now
Preparation is key to continuing to trade with the EU and there are a number of things that you can do now to prepare for this.
One of the things you will need to trade with the EU post Brexit is an Economic Operator Registration and Identification (EORI) number. This is free and you can get this by visiting the GOV.UK website https://www.gov.uk/eori.
You can employ the services of an agent freight forwarder to help you make your customs declarations. Click here for more information and guidelines about the services they provide https://www.gov.uk/guidance/appoint-someone-to-deal-with-customs-on-your-behalf
Make sure you are aware now of the status of the goods you import into the UK and if they are classed as 'controlled'. Checking the declarations that are required will help you to continue to trade. For more information, please see https://www.gov.uk/guidance/list-of-goods-imported-into-great-britain-from-the-eu-that-are-controlled.
Find out the rate of Customs Duty on the goods you import, you will need to check the UK Global Tariff.
Decide whether to use the Postponed Accounting System to defer your import VAT. It is important to familiarise yourself with the procedure for declaring the deferred VAT for import items on your VAT return.