Customs & VAT Since Brexit
What Brexit Means For VAT In Your Business
Domestic VAT rules remain the same but there is no longer any difference in the VAT treatment of imported goods from European countries and the rest of the world.
Import VAT is applied is applied when the value exceeds £135 and at the point the goods are to enter free circulation and this should be considered the VAT tax point.
This might be at the port of entry but it could be when the goods are released from customs warehousing, if customs special procedures are used.
You’ll need to collect evidence from HMRC regarding the point the goods entered free circulation for your VAT records.
The VAT can be paid at the tax point if you choose and monthly C79 reports should be obtained from HMRC in order to reclaim the VAT.
Instead, most businesses are likely to make use of the Postponed VAT Accounting system detailed below.
EORI Numbers: Imports
You need an Economic Operators Registration and Identification (EORI) number to move goods between Great Britain (England, Scotland and Wales) or the Isle of Man, and other countries.
It’s now a necessity for both customs and VAT documentation.
You may need additional EORI numbers based on where you import and export, up to 3 in total.
Find out more and how to apply in the UK here.
EORI Numbers: Exports
You’ll need to know the EU EORI number for the European business you’re exporting to.
If it hasn’t got one, it will need to apply for one in its own country.
You should contact all the businesses you export to in the EU to ensure they have an appropriate EORI number.
If you’re moving goods to your own warehouse in the EU, you’ll need your own EU EORI number.
Imported Goods: Delayed Customs Declarations For Up To 6 Months
Import VAT is applied when the value exceeds £135 and at the point the goods are to enter free circulation. This should be considered the VAT tax point.
The VAT can be paid at the tax point if you choose and monthly C79 reports should be obtained from HMRC to reclaim the VAT.
Instead, most businesses are likely to make use of the Postponed VAT Accounting (PVA) system to avoid cash flow issues.
This lets businesses importing goods into the UK account for the VAT on their next VAT Return and means the goods can be released from customs without the need for VAT payment.
An online monthly statement is available which shows the import VAT postponed for the previous month on a transactional basis and when you should include it in your VAT Return (that is, the correct tax point).
There is no need to make immediate import declarations for most goods at the UK border, or to get authorisation in advance. Instead, you can defer declarations (and customs payments) for up to six months, up to and including 30 June 2021.
The exceptions are controlled goods (such as alcohol, tobacco and hydrocarbon products).
- Your business must be in Great Britain and be registered for VAT.
- The goods must have been in free circulation in the EU prior to import to the UK.
- Authorisation from HMRC to use simplified customs declarations.
- Registration for the CHIEF system and have CHIEF-compatible software if you make declarations yourself, rather than via a third party.
- A Duty Deferment account.
You can either:
A) Make a simplified frontier declaration for each import, known as Simplified Declaration Procedure (SDP), or
B) Make an entry in your own records for each import, known as Entry In Declarant’s Records (EIDR).
Choose which scheme to apply for depending on the needs of your business and the way it operates.
For either option you’ll also need to make a supplementary declaration within six months of the import. You might have to make an Intrastat declaration too.
After 1 July 2021 when the scheme ends, you can switch to making a full customs import declaration or you can continue using simplified declarations – but you will need to provide the supplementary declaration by the 4th working day of the following month following the date of import.
Using PVA in Xero
Xero have developed a PVA update at no extra cost to customers using Making Tax Digital (MTD) or the new non-MTD VAT. Flat rate and old non-MTD VAT Returns will not have PVA functionality.
The first VAT Return that will offer PVA will be due around 7 March 2021, for any period ending 31 January 2021. You’ll need to make sure you include your EORI and VAT registration number on your customs declaration. This will help HMRC calculate your Monthly Postponed Import VAT Statement (MPIVS), which will be available in your HMRC portal.
When creating a VAT Return in Xero you’ll just need to select the ‘PVA option’ button and add the amount from your MPIVS. Xero will then populate your VAT Return automatically, no accounting transactions required. If you can’t or don’t want to use PVA, there’ll be no change to the way you deal with VAT on imports for your business.
Commodity Codes (CC)
Commodity Codes are required for import and export documentation, and they decide the tariffs and VAT (if any) that you’ll have to pay. Therefore, it’s important to use the correct commodity code.
These are 8 digits long for exports and 10 digits long for imports and the government offers a free look-up tool online.
Tariffs (also referred to as duty) are a form of tax paid on imports, applied by the country to which the import is made. Tariffs in the UK are payable to HMRC.
You can check the tariff for an import using the government’s website look-up tool.
Review the commercial terms of trade (Incoterms) in your contracts relating to importing and exporting goods.
These will help you to understand who is responsible for customs duties, import VAT, any additional transportation and insurance costs as well as when risk and liability pass from the seller to the buyer.
If making declarations yourself, you’ll need to register for and use the National Export System (NES), which will let you make declarations electronically. You’ll need what’s known as a CHIEF badge role.
Following this, you can make export declarations via the web, email, or using software.
To make web declarations, you’ll need a Government Gateway ID and password for your business.
To use email for declarations, you’ll need a standard email server (SMTP), and CHIEF-compatible software.
VAT On Exports
Exports to EU countries should be zero-rated for UK VAT.
No UK VAT is payable but you still have to include the exports as part of your VAT accounting and consider any requirements for VAT in the recipient country.
This will apply regardless of whether you’re exporting goods to a consumer (B2C), or to a business (B2B). There’s no longer any need to observe distance selling regulations or to verify the VAT status of the recipient business.
Businesses selling B2C to the EU may need to register for EU VAT and appoint fiscal representatives depending on the requirements of the countries in which they sell.
B2B sales of services continue to be generally subject to tax in the country of the customer and administered through reverse charge, with some exceptions.
B2C sales of services will continue to be generally subject to tax in the country of the seller, with some exceptions.
However, UK businesses that use the Mini One-Stop Shop (MOSS) system will need to register for the non-union MOSS and will no longer benefit from a €10k threshold before having to apply the place of supply rules.
VAT on imports £135 and under
Low Value Consignment Relief (LVCR) has been removed. Previously, this exempted imports with a value below £15 from import VAT.
Online marketplaces (OMPs), where they are involved in facilitating the sale, are responsible for collecting and accounting for the VAT.
VAT on imports with a consignment value of £135 or lower have VAT applied at the point of sale, rather than applied as import VAT at customs. For B2C transactions this UK VAT will be charged and collected by the seller but for B2B transactions the VAT will be reverse charged to the customer.
Foreign sellers sending goods into the UK to consumers will need to charge UK VAT and apply to be part of the UK VAT system when supplying goods with a value of £135 or less to end consumers (non-VAT-registered individuals).
If they ignore the VAT requirement it will be applied to the import by HMRC and collected by the delivery service (along with a processing fee).
Businesses that receive goods of £135 or less will have to account for the VAT as part of the reverse charge procedure, declaring the VAT on their next VAT Return. Normal rules apply for the tax point, which will usually be the invoice date.
The recipient business should ensure the seller knows their VAT number, or the seller will have no choice but to treat it was a B2C sale and apply VAT.
As always, feel free to get in touch if you have any queries and we’ll be happy to help.
MATCH Accounting Limited