January 2021 VAT update: VAT and movement of goods
15 Jan 2021
The end of the transition period has come and gone and a trade deal was struck at the eleventh hour between the UK and the EU. This article outlines the key VAT points which relate to trade in goods between the UK and the EU post-Brexit.
The headline was “tariff-free trade between the UK and EU”. This only partly tells the story. It is correct, but only for goods which originate in the UK or EU and there are complicated rules to determine the origin of goods. Customs advice may be required to assist in navigating the origin rules, the various conditions and the documentary requirements. For those looking for guidance, gov.uk contains a useful starting point with regards to the rules of origin of goods.
‘Tariff-free’ does not mean VAT-free, and import VAT is still levied when goods enter the UK from the EU (unless the goods are subject to 0% VAT under UK legislation).
Postponed import VAT accounting
Shortly before Christmas, HM Revenue & Customs (HMRC) released details of how importers could access the import VAT statements under Postponed import VAT accounting (PIVA). PIVA is the new mechanism by which importers can pay import VAT through their VAT returns. Prior to 1 January 2021, VAT was payable at the point of customs clearance, or monthly through deferment account arrangements. Importers must sign up to the Customs Declaration Service (CDS) (through a Government Gateway account) and it is through the CDS that the import statements will be available each month (relating to the previous months imports). This registration process starts here: www.gov.uk/guidance/get-your-postponed-import-vat-statement.
Non-residents who are registered for VAT in the UK, and to import goods into the UK, are also eligible for PIVA.
It is important to note importers need to advise their freight agent, or other party dealing with the customs documentation, that they wish to pay the import VAT through their VAT returns under PIVA. Instructions to customs agents and freight agents relating to tax and duties will be new for those who only have business with the EU. Clear instructions to agents are essential.
Deferred customs declarations
Whilst deferred customs declarations are available until 1 July 2021, it is not clear at this stage how many importers will take advantage of this opportunity. There are significant risks in deferring customs declarations in terms of then being able to make accurate declarations before the six-month window is closed. It is our experience that few clients have decided to defer declarations, preferring instead to have more certainty and transparency over their current imports.
The UK Global Tariff
The UK Global Tariff (UGT) is now the UK’s tariff for customs purposes and it will apply to most imported goods. The UGT determines the rate of customs duty applied to the importation of goods into the UK, and it reflects terms of trade agreements the UK has with other countries (including the new UK-EU trade agreement), as well as in other specific circumstances. Businesses new to importing should check the UGT to assess what rate of customs duty they will incur as such duty is a direct cost. The UGT is a classification system and therefore rates vary depending on the nature of the products.
Inbound retail/low value consignments
Whilst the abolition of low consignment relief is not a Brexit-related measure, it is another change that businesses need to be mindful of. For imports of goods in consignments of £135 or less, VAT is no longer collected at import, but rather when the goods are sold.
Businesses making sales of goods of £135 or less in value (per consignment) to customers in the UK, where the goods are outside the UK at the point of sale, are liable to register and account for VAT on those sales.
Where the sale of low value consignment goods is completed through an online market place (OMP), the OMP is, in certain circumstances, responsible for collecting and accounting for the VAT due. However, the supplier is still required to register for VAT and EORI in the UK for import purposes. Where an OMP is not involved, overseas sellers are required to register and account for VAT in the UK. Import VAT should be accounted for (using PIVA) and UK VAT is due on the sale to the customer.
A reverse charge will apply for business-to-business supplies of imported goods (of £135 or less in value), under certain conditions.
Outbound retail sales
The UK no longer applies the EU distance selling rules for B2C supplies. For the time being, normal VAT rules apply. This means that if a UK e-commerce business agrees to import the product into the consumer’s country, this will likely mean a local VAT registration requirement is triggered.
UK e-commerce companies are therefore having to weigh up whether to push the import obligations onto the consumer, rather than face additional VAT compliance obligations and complexities. This is very much a commercial decision and in many case UK companies are registering for VAT in the EU now for fear of becoming unattractive in the market place because of additional burdens placed on consumers. It should be noted that multiple registration will be required – one for each country where the goods are delivered in a B2C supply chain.
From 1 July 2021, all imports into the EU will be subject to import VAT irrespective of value. This includes low value consignments that are currently exempt from import VAT.
A new VAT accounting simplification scheme will be introduced for EU sales – the Import One Stop Shop (IOSS). The scheme can be used by UK businesses selling low value consumer goods to customers in the EU (via their online store for example), although it will not be mandatory. It will require a VAT registration in one EU member state, with the requirement to account to that tax authority for all VAT due on EU sales. Multiple VAT rates will apply as the rate applicable will still be determined by the customer’s location.
If the IOSS is not used by non-EU businesses, the customers will need to pay local VAT before their imported goods are released to them.
No specific arrangements have been made with respect to ‘call-off stock’ held in the UK by EU businesses and vice versa. The UK-EU trade agreement has not provided a remedy and this means UK businesses with call-off stock located in the EU are required to register for VAT in the jurisdictions those inventories are located. Restructuring supply chains to ensure goods can still be delivered on time but with reduced reporting burden on the supplier could be considered.
Incoterms were revised on 1 January 2020 and it is usually the case they remain for 10 years before being revisited and revised.
Incoterms are playing a critical role in determining where the responsibility for customs and VAT reporting lies now the UK has left the EU. Delivered Duty Paid (DDP), in particular, is creating an issue, as suppliers who ship to customers under DDP terms often have customs and VAT compliance obligations to address in the country of import, which they are perhaps not prepared for.
Whilst supplying goods on a DDP basis would appear to be the right choice from a customer relationship perspective, it does create additional costs and complexity for the supplier, and time is required to address those issues.
Northern Ireland occupies a unique position in that it is part of the UK VAT system, but it is also still part of the EU VAT regime and Single Market with respect to the movement and supply of goods.
Broadly speaking, the VAT/Customs position of selling from Great Britain to Northern Ireland after 31 December 2020 is:
- Great Britain to Northern Ireland is a movement of goods subject to some customs control and an XI prefixed EORI number is required if a British seller is shipping to Northern Ireland, as the importer.
- VAT is charged as normal on the supply (unless the goods qualify for zero-rating under UK VAT law) and no import VAT is incurred (as though it’s a standard UK transaction) except in the following circumstances:
- Goods declared into a special customs procedure when they enter Northern Ireland or Great Britain.
- Supplies currently subject to domestic reverse charge rules, including sales of gold or gas and electricity to a VAT registered business.
- Movements subject to an onward supply procedure.
- Goods sold by an overseas seller through an online marketplace.
- Customs duty will not apply if the importer can declare to Customs the goods are not at risk of entering the EU single market. The importer must make a declaration to this effect and must also apply for authorisation for the UK Trader Scheme. If the goods are at risk the importer from GB will pay duty in Northern Ireland.
For suppliers shipping under DDP terms to Northern Ireland from Great Britain, they need to take the following steps:
- Advise HMRC that they are trading with Northern Ireland.
- Apply for an EORI number with an XI prefix.
- Apply for authorisation for the UK Trader Scheme.
HMRC guidance outlines the following circumstances when goods are not at risk:
- The applicable UK tariff is equal to or higher than the applicable EU tariff – for movements into Northern Ireland from Great Britain, this covers goods where the EU tariff is zero.
- Goods are brought into Northern Ireland for sale to, or final use by, end consumers located in Northern Ireland or, for internal UK trade, elsewhere in the UK.
Goods moved for sale to, or final use by, end consumers will be considered not at risk when moved by businesses authorised under the UK Trader Scheme.
The UK Trader Scheme is not available where goods enter Northern Ireland from a country outside of the EU and the UK, and the differential between the UK and the EU tariff is 3% or more.
There are also specific rules that apply if goods are entering Northern Ireland for processing.
Indirect customs representation
One point that UK businesses were perhaps not prepared for when trading with the EU under DDP terms, was the need to appoint an EU indirect customs representative to declare imports on their behalf. EU import declarations can only be processed by EU registered businesses. For UK companies shipping DDP, there is an issue with limited availability of firms providing indirect customs representation in many EU Member States. Being unable to engage with such a representative is causing supply chain costs and inefficiencies.
Have we seen the full impact of Brexit yet, on UK-EU supply chains? The answer is probably no and there is a sense that due to Brexit-related delays, and Covid-19 lockdowns, that we are not seeing the normal volume of goods being shipped between the UK and the EU, but that is expected to ramp up in the coming weeks and as it does it is anticipated that further complications will arise for UK companies doing business in the EU, and also for EU businesses trading with UK customers.
For advice or assistance with your VAT position, please contact your usual Saffery Champness partner or alternatively speak to Sean McGinness, VAT Partner, or Nick Hart VAT Director.
Get in touch