Posted: 26 / 11 / 2020

Brexit will bring a number of VAT changes for UK based businesses that trade with customers in the EU. Below, we have outlined some of the key points that need to be considered.

As of 1 January 2021, the UK will no longer be part of the EU Single Market. This means that controls will be placed on the movement of goods between the UK and the EU, and VAT will need to be accounted for in a different way than before.

Essentially, it means that goods sold from the UK to the EU will be treated as an export from the UK. The customer will then import the goods and may be liable to pay VAT at importation.

Do you need to register for VAT in other countries?

Under the current rules, where UK businesses sell goods to business customers in the EU there is no control over the movement of the goods. The seller does not charge VAT and the customer self-accounts for any VAT due through its VAT return. This means that the seller does not normally have any VAT obligations in the customer’s country.

However, it is worth noting that in some cases after Brexit, UK sellers may become liable to register for VAT in other EU countries. This might be the case, for example, if goods are sold on Deliver Duty Paid (DDP) incoterms. This is because the DDP terms mean the UK seller has to pay any import VAT and will therefore need to be seen as the importer of the goods. It would then need to account for VAT on a local sale (charging local VAT) to the customer.

Trading online?

There are also implications for online retailers selling to consumers in the EU (B2C).

Currently, UK businesses can charge UK VAT until they reach the so-called distance selling thresholds of each EU country. The distance selling thresholds are set at EUR 35,000 or EUR 100,000, subject to each country’s discretion.

Once the threshold has been breached, the seller has to register in the country concerned.

After 1 January, the B2C distance selling thresholds will not apply to UK businesses and they need to consider how they will be affected. For example, any current distance selling VAT registrations for UK businesses will become invalid, and goods sent from the UK to EU end consumers will become subject to VAT at entry into the EU.

Selling digital services in the EU?

Businesses selling digital services into the EU will also be affected.

At the moment, UK businesses normally account for VAT on such supplies through a Mini One-Stop Shop (MOSS) VAT registration in the UK. Going forward these businesses will either need to set up a new MOSS registration in another of the EU countries or register for VAT in every EU country they sell into.

Already VAT registered in other countries? You still may be affected.

UK Businesses that are already registered for VAT in other EU countries may find that they become subject to a requirement to appoint a ‘fiscal representative’.

This is a local entity that will be jointly and severally liable for tax debts in the country. Not all countries enforce this requirement but some that do include Belgium, France, Italy, Poland, Spain and Sweden.

What to do next

Every business is different, and the implications of Brexit will depend on the type of goods or services being supplied, the delivery terms and many other factors. It is important that all businesses review their VAT arrangements to ensure they know how they will be affected and take action as appropriate.

If you need support with your VAT, please speak to Sedulo Head of Tax, David Evans, in the first instance.