No deal Brexit – what about VAT?
Feb 11, 2019
Business Advice VAT
There are still more questions than answers relating to Brexit, and more specifically how a ‘no deal’ scenario could affect businesses. Nevertheless the Government and HMRC have recently updated their collection of high-level guides called ‘partnership packs’. These are intended to help those businesses involved in importing and exporting to prepare for changes to customs procedures after 29 March 2019, in the event of a ‘no deal’ scenario.
If the UK exits the EU without a deal, UK businesses will have to apply customs, excise and VAT procedures to goods traded with the EU, in broadly the same way that already applies for goods traded outside of the EU.
In the event of a ‘no deal’ Brexit the government’s aim will be to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses.
However, there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU countries.
Postponed VAT Accounting for Imports
The government has announced that in the event of a ‘no deal’ Brexit, it 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 VAT at, or soon after, the time that the goods arrive at the UK border. This procedure will apply both to imports from the EU and non-EU countries.
Low Value Consignments
If the UK leaves the EU without an agreement, VAT will be payable on goods that enter the UK as parcels sent by overseas businesses. Low Value Consignment Relief (LVCR) will no longer apply to any parcels arriving in the UK. For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK.
VAT Mini One Stop Shop (VAT MOSS) will come to an to end
A further change if the UK leaves the EU without an agreement is that the UK will stop being part of EU-wide VAT IT systems such as the VAT Mini One Stop Shop which currently simplifies VAT reporting for UK businesses.
Customs changes in the event of a no deal
Businesses can currently move goods freely between EU countries. For customs purposes, this means that businesses trading with the rest of EU do not have to make any customs import or export declarations, and their trade with the EU is not subject to import duty.
In the event of a ‘no deal’ Brexit there would be immediate changes to the procedures that apply to businesses trading with the EU. It would mean that the free circulation and movements of goods between the UK and EU would end.
HMRC is currently introducing its new Customs Declaration Service (CDS), which replaces its Customs Handling of Import and Export Freight (CHIEF) system.
From 11pm on 29 March 2019, businesses trading with the EU would have to apply the same customs and excise rules to goods moving between the UK and the EU, as are currently applied to goods moved between the UK and non- EU countries.
This means customs declarations would be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration).
For imports into the UK, a separate safety and security declaration needs to be made by the carrier of the goods (usually the haulier, airline, freight train operator or shipping line).
For exports from the UK, the export declaration includes the safety and security declaration.
The Transitional Simplified Procedure (TSP)
In the case of a no-deal, the UK tax authority has said that it will relax the border to EU imports during the first year after Brexit, in order to avoid congestions at ports. This process is called the Transitional Simplified Procedure (TSP), and should give those VAT-registered businesses which are transporting goods from the EU into the UK longer to prepare themselves for import processes. They will be able to delay paying import duties at the border, and won’t be required to make a full customs declaration. Businesses can register for the TSP now, and will be given at least 12 months’ notice before it will be withdrawn. You can read more detailed information and register for the TSP on the Gov.uk website.
The British Chamber of Commerce has produced a Business Brexit Checklist to help businesses plan in advance what actions they may need to take. The checklist covers workforce, cross-border trade, taxation, currency, intellectual property, contracts, regulatory compliance and data protection.
Please get in touch if you wish to discuss any of the issues surrounding the UK’s impending departure from the EU.