With Brexit occurring on 1 January 2021 those moving goods between the UK and EU should prepare for a variety of changes which will be introduced. This blog will address the main changes which includes:
- You will no longer need to add UK VAT on goods sent to the EU from the UK,
- Local VAT will have to be paid instead. As a default – this will be the responsibility of the end customer,
- To avoid your customers being burdened with paying VAT to release goods – you will have an option to pay the VAT on their behalf. This can be arranged with the shipping company.
- You will now need an EORI number when trading with the EU. This is something you are already likely to have. You can check on EORI number validation (europa.eu) – your number should be GB(9 digit VAT number)000
- Mini import one-stop-shop being introduced from 1st July 2021
Until 31 December 2020, UK business selling goods to consumers in other countries were facing an obligation to charge and collect local consumption taxes. The EU has created a special regime, known as Distance Selling, to simplify the administration and burden as far as possible to encourage free trade in the zone. The basic rules were as follows:
Retailers may initially sell to private individuals in other EU states under their local VAT number at their home VAT rate. For example, a UK retailer sells bracelets at the UK VAT rate of 20% to German customers instead of German VAT rate of 19%.
Once they pass the respective country’s distance selling annual threshold, they must register as a non-resident VAT trader in the country. Continuing the example, if the UK retailer sold more than €100,000 worth of goods in Germany they would have to register for German VAT and charge 19% VAT on all B2C sales in Germany.
Changes post Brexit
From 1 January 2021, the supply of goods from the UK to an EU member state will be treated as exportation from the UK and importation into the EU. Previously sales to EU customers (who are not VAT registered) were charged with 20% UK VAT but this will no longer be the case post Brexit.
Generally, the EU country to which the goods are imported will look to charge its standard rate of VAT on the import transaction. This must be settled via payment before the release of the goods from customs after which they will be in “free circulation” in the EU.
Sellers will have the option to arrange with their shippers whether the VAT is paid by sellers on behalf of their customers or whether the VAT cost should be passed onto customers when their goods are received.
The exporter of goods from the UK will need a UK EORI number used to identify the exporter with customs authorities. Any EU businesses who are acting as the UK exporter will need to apply to HMRC for one. Regarding the EU import process, those who will be the importer on record will need to have an EU EORI number in order to ensure that the freight forwarder and transport provider will accept the shipment. If the EU customer is the importer of record then they will be liable for the import VAT.
It is essential to note that all post-Brexit trading of goods with the EU will require an EORI number. This will allow goods to be moved between the EU and the UK.
The EU’s mini Import One Stop Shop (IOSS)
From 1 July 2021, a new optional regime will be introduced in the EU concerning the distance selling of goods (with a value of less than €150) involving the importation of goods into the EU by a third party. If the UK is not treated as a Member State at the time in which goods are dispatched from its territory, the sale will not fall under the previous Distance Selling regime and the goods will be treated in line with their intrinsic value (with differences above and below €150).
Under this regime, the seller will charge and collect the VAT at the point of sale to EU customers and declare and pay that VAT globally to the Member State of identification in the IOSS. These goods will then benefit from a VAT exemption upon importation, allowing a fast release at customs.
Where a supplier chooses not to use the IOSS, VAT will be collected from customers on their behalf by a customs declarant (e.g. a courier). Where the value of the goods exceeds €150, the supplier will be required to treat them as imports and exports with a full customs declaration required.
These changes outlined above can be complex so please do not hesitate to contact FKGB Accounting for any VAT advice.
