VAT rules for trading in the EU
Now the UK has left the EU, how do VAT rules work?
The VAT rules for trading in the EU are complex. Domestic VAT rules will remain the same, however imports and exports to and from the EU will see a change in rules. Before Brexit, UK businesses were part of the EU VAT regime. This regime meant that UK businesses did not need to register for VAT in each country. A common set of EU VAT rules were just applied.
Now, just like the rest of the world, trade with EU countries will no longer be referred to as dispatches and acquisitions. They will now be called imports and exports.
In simple terms, VAT is payable upon import (although this has been delayed in the UK). All businesses trading with the EU will require an EORI number from both the UK and EU.
Export of goods
Following Brexit, the sale of goods will be a zero-rated export from the UK. Import VAT will arise in the EU country that the goods are exported to. The deemed supply will arise in that country meaning that they give rise to the import of VAT. The importer of the record is the person named as the importer in the entry documents.
If the UK business (or an agent working on their behalf) is the importer of the record then the UK supplier will need to register for VAT in the EU country. They will need to pay the import VAT and then add the VAT to the supply. However, if the customer is the importer of the record then they will be liable for the VAT. There is no need for the UK supplier to register for VAT in that country.
There are some EU countries that require the importer of the record to be located in the EU. Therefore, the UK will not be able to sell goods to these countries unless the customer is the importer of the record.
Supply of services
The current rules differentiate between supplies to business b2b and supplies to consumers b2c.
If you are supplying to a business, then the general rules are that EU businesses are dealt with under the reverse charge procedure. Therefore, the purchaser accounts for both output VAT and input VAT through their own VAT return. The UK supplier will not charge VAT as it is deemed that the supply took place in the EU country where the customer is.
As the place of supply under EU law is the UK, they should not be VATable in the country that the customer resides. There will also be no requirements to register for VAT in that country in order to supply customers.
However, if the supplies within one particular country are above the VAT/GST registration threshold then the business would need to register for VAT/GST there. It is a very complex area so it is always best to seek professional advice on your individual circumstances.
When supplying services to a consumer, your services are supplied where your consumer resides. Therefore, they are outside of the scope of UK VAT. This is just like any service provided to a consumer in the rest of the world. This is a very complex area and it is always best to seek professional advice to clarify your VAT status.
There are some exceptions to the above VAT rules. Those suppliers in relation to the following are all being treated as being produced in the UK and are subject to VAT:
- UK land.
- Catering. Transport.
- Broadcasting. Electronically supplied services.
- Hiring goods situated in the UK.
- Telecommunication services and admission to events in the UK.
Where services are supplied to the UK, the reverse charge regime will apply in the same way it does for the USA, India or Australia.
Northern Ireland Protocol
The above does not cover the issues raised in the Northern Ireland Protocol. The Government has committed to provide extensive support for businesses engaging in new processes. They will also establish a new trader support service.
This will be a free optional service for businesses who will be moving goods between Great Britain and Northern Ireland. As well as importing goods into Northern Ireland from outside the EU. HMRC is asking businesses to register their interest here.
VAT registered businesses in the UK will be able to account for import VAT for goods imported from anywhere in the world on their VAT return. Import VAT will be declared and recovered on the same VAT return. This will be instead of paying it upfront and recovering it a later date – postponed accounting.
Postponed accounting can be used for import VAT in the following circumstances:
- The business has an EORI number which is included in the customs declaration.
- The goods imported are for use in the business.
- The business has added their VAT registration number to their customs declaration.
Imports under £135
All imports valued under £135 were exempt from VAT, this has now changed, and they will become taxable. The place of supply will always be treated as the UK, so the EU supplier will need to register for VAT in the UK.
This will affect small EU businesses which sell goods to the UK via the internet. Online marketplaces such as Ebay and Amazon will be responsible for collecting and accounting for the VAT on sales through their website.
The VAT rules for trading in the EU since Brexit are a very complex area and we would always recommend that you seek advice.
If you have any questions, please contact the friendly team at Clear Vision Financial Management on 01794 330 025 or email firstname.lastname@example.org.