VAT News

Brexit – the “No Deal” Implications for VAT & Businesses

30.08.2018

Technical Papers released on the 23 August by the UK Government finally start to illustrate the range of VAT issues that will affect businesses. These “No Deal” issues - certainly for VAT - would be the same even if there were a “deal” if it included an exit from the Single Market. This is because leaving the Single Market removes the UK from the EU VAT regime and free movement of goods systems with all the associated recording (EC Sales Lists) and tax processes (Acquisition Tax, Distance Selling, Triangulation) that we have been familiar with since we entered the Single Market in January 1993.

For many businesses the only VAT rules they will have known will have been under the Single Market, therefore a removal – whether under a “No Deal” or otherwise - represents a major change to business transactions bringing process and cash flow consequences.

For businesses that traded prior to 1993 some of these “No Deal” potential outcomes will be familiar, if a little hazy in their memories, as we see talk of the return of Postponed Accounting for goods imported from the EU to the UK.

Much is made in the preamble to all the papers of the ongoing desire of the UK Government to secure a “good deal” and that these papers “allow businesses and citizens to understand what they would need to do in a “no deal” scenario, so they can make informed plans and preparations.”

As noted, our concern is that these issues will arise on leaving the Single Market in any case so have a higher likelihood of arising than is inferred. In addition, some points remain unanswered – access to the EU Triangulation relief for example.

What do these papers tell us then?

  • A VAT system will remain in the UK – The Tax Revenues are “vital” for government funding of Public Services
  • VAT Rules relating to UK domestic transactions will continue unchanged – implication is that calls for increased zero rating reliefs which would benefit the Charity and Education (Universities/Colleges) sectors will not be acted upon. We can only presume that the VAT zero rating relief on female sanitary products will not be addressed either.
  • UK businesses will not be able to use the EU VAT Refund system – this enables a much quicker, on-line recovery route for UK business to claim back VAT incurred on business trips and activities in EU member states. Having to revert to an individual EU country claim process will see a return to delays in repayments, as anyone who ever tried to get a refund out of the Italian Tax Authorities will know.

  • Content of the EU VAT registration number validation website (VIES) will change – currently this is used to undertake VAT compliance checks on customers. UK businesses will be able to use the website to verify that their EU customer’s number is valid, but UK VAT numbers will no longer be held on it.

    The impact being that EU or UK suppliers would not be able to verify a potential customers’ UK VAT number to get certainty when setting them up as a new customer. This check helps in demonstrating VAT registered businesses are taking “reasonable care” and that assists if penalty assessments are threatened by HMRC. An alternative service is being developed by HMRC therefore to enable UK VAT numbers to be validated.
  • Trade with Northern Ireland – put simply the papers give no specifics on what the trading implications will be. The sense is that talks with the Irish Government are ongoing, but that Ireland will not agree any regulations until the matter is discussed with the European Commission and Member States should a “No Deal” situation occur.

    Businesses are caught between a rock and a hard place on this one as the paper acknowledges businesses need to plan for a “No Deal”, however unlikely it suggests it is, but cannot guide businesses as to what those actual implications could look like. Their recommendation is that businesses “should consider whether you will need advice from the Irish Government about preparations you need to make.”!

 

  • Exporters & Importers of Goods & Services – The Specifics

    Goods imported from the EU will be treated in the same way as non-EU imports – this means VAT and Duty is payable at the point of entry which would have major cashflow implications for businesses. To ease that impact HMRC will bring back Postponed VAT accounting for the VAT.

    This puts the UK importer in the same position as now for EU sourced goods in that the VAT will be “paid” on the VAT return not at the entry point. It’s not clear whether this will mean that Box 2 on the VAT return will disappear along with Box 9 (these boxes deal with the VAT on and Value of EU Purchases).

    An added feature of this Postponed VAT Accounting system is that the paper states that non-EU sourced imports can be treated in the same way as EU but only for the VAT accounting.

    Customs declarations and payment of other taxes would still be required at point of entry.

    Businesses will need to establish how this may benefit them especially if they currently hold Duty and VAT Deferment Accounts.

    Specific Issues:

             
    • Postal Imports face a major VAT change – Low Value Consignment Reliefwhich is set at £15 for the value on the goods imported will be removed. VAT will be due on all goods imported unless the items qualifies for zero rating as food or children’s clothes for example.

      How this will be achieved is through a new “technology-based solution”. Goods up to £135 in value will have VAT charged on them by the overseas supplier of those goods. They will declare that VAT to HMRC through this planned digital solution. It states that this digital solution will be available prior to 29 March to allow overseas businesses to register and set systems up. A further pointer, we feel, that this would be the future system irrespective of a “No Deal”. 

      The VAT due on Goods imported over £135 in value will continue to be paid by the UK customer as is the current practice.

    • VAT on Vehicles imported into the UK – business will continue to use the Notification of Vehicle Arrival Procedures to ensure VAT is accounted for on imported vehicles. This will include those vehicles coming from the EU.

     

    Exports of Goods to the EUClear advice in the paper that businesses need to plan for differing VAT processes and Customs requirements that each member state will have in event of a “No Deal” but again in leaving the Single Market our concern is that the same issues will arise without specific agreements to address movements of goods.

    • Whilst the EC Sales list will no longer be required some other recording of these sales will take place but how is not commented upon.

      It is highlighted that other EU States may have differing requirement in terms of payment of VAT at the point of entry of non-EU goods, so work will be needed by businesses to evaluate the impact in the EU countries they currently sell to.

    • Export Evidence requirements should be an area to keep an eye on as HMRC are particularly open to raising VAT assessments where they feel that evidence does not meet their requirements. Businesses will need to ensure the new Customs Declaration Service delivers the “Official” proof of export and that this is retained. Again, a point to watch for further news upon.

      If you sell goods from stock held in EU States, you’ll continue to need a VAT registration in that country to account for the VAT on those sales.

    • Distance Selling Regulations – UK businesses that sell Goods to EU Consumers as opposed to businesses will no longer be covered under the Distance Selling Regime. This means that they will be able to zero rate their sales subject to holding proof of export and not be required to register in the EU State of the customer should their sales in country exceed the Distance Selling Threshold. That will be good news for on-line retailers.

     

    Suppliers of ServicesThe place of supply rules, which govern in which country a supply of services is deemed to happen, will “broadly” stay the same.

    • UK businesses that supply Digital Services to private consumers will continue to have to charge the VAT for the country in which their customer resides, but that UK business will not have access to the UK Mini One Stop Shop (MOSS) but can register to use the non-union version of MOSS. To use the non-union MOSS system the UK business would have to become VAT registered in another EU State.

      Unfortunately, a UK business affected in this way cannot pre-empt the 29 March date and register from another EU country to access the scheme. With a 10-day registration requirement this will mean that should a “No Deal” arise and the business make a MOSS related sale in the period 29-31 March they’ll have to register by the 10 April 2019 on the non-union MOSS or by the 10 May if their MOSS related sales only arise from the 1 April 2019.

      The alternative to using the non-union MOSS would be that the UK business VAT registers in every member state where it makes a sale. Not sure that idea will appeal to many SME’s due to the costs involved in having to appoint Fiscal Representatives in each EU state.

    • Suppliers of Insurance and Financial Services – there is an interesting comment in the paper for these businesses to take note of. It states that “input VAT deduction rules for financial services supplied to the EU may be changed.”

      VAT recovery is heavily restricted in these businesses as they make VAT Exempt supplies. Could this signal that, to protect this sector from an adverse “No Deal” where they may choose to take jobs from the UK, the UK Government would look to change the VAT treatment and allow them more VAT recovery?

      Alternatively, it may refer to the need to change a specific Input VAT recovery rule. This allows VAT recovery by Insurance and Financial services providers, on costs relating to their supplies to a person who belongs outside the EU. It may mean that this will be changed to cover services supplied to persons outside the UK. A point for any Insurance or Financial Services business to monitor.

    • Tour Operators – the TOMS scheme – Tour Operators Margin Scheme is an EU VAT accounting scheme and there is no guidance as yet as to how the travel sector, hotels or indeed any operation (bus operators or Charity Challenge type charities) that offers a supply which combines a travel or transport element with an accommodation package will be affected if a “No Deal” arises. Talks with the Industry continues we are told.

     

    It’s important that we start to see the direct of travel on these VAT issues, so these papers are to be welcomed. Clearly the Government is taking a prudent line in issuing these “No Deal” positioning papers for businesses to take on board but our view is that much of this may arise as a result of leaving the Single Market under some agreed “Hard” Brexit.

    Brexit Planning interaction with Making VAT Digital

    March – April 2019 is certainly a period which UK businesses are focused on from the VAT perspective. Our concern is that Government is underestimating the VAT management challenges that many businesses already face in getting ready for the Making VAT Digital roll out on 1 April 2019.

    To cope with the VAT issues arising from the Making VAT Digital roll out, as well as VAT management and supply chain processes coming through in these papers will add to the challenges those in VAT registered organisations are already facing.

     

    © Centurion VAT Specialists Ltd 29 August 2018

    An award-winning VAT team is what you’ll find at Centurion – evidence of the quality of our VAT advice and service can be shown by our long-term retention of clients. Whatever your VAT issue – BREXIT, Making VAT Digital, Partial Exemption or Property then do make contact with a call or email emailus@centurionvat.com. “VAT – It’s what our people do”