VAT Update – November 2020

6 Nov 2020

VAT Update

Welcome to our November VAT Update. This month we are focusing on Brexit again, as the end of the transition period looms ever closer. Specifically, the commercial and practical aspects of trading with the EU and how they impact customs and VAT positions.

We also comment on postponed customs declarations and the benefits a Customs Duty deferment account. Finally, we provide an update on the time limits for UK businesses submitting EU VAT refund claims for 2020, and if you couldn’t attend our latest webinar on VAT in the UK post-Brexit, you can watch the recording online.

Commercial aspects of moving goods between Scotland, England and Wales and the EU from 1 January 2021

Movements of goods between Scotland, England and Wales (GB) and the EU from 31 December 2020 will be subject to customs controls and declarations. Special and exceptional arrangements for movements of goods to and from Northern Ireland will apply. We will focus on the position for goods moving between GB and the EU.

There is a commercial discussion to be had between suppliers and customers about who is responsible for making customs declarations and will incur the cost of Customs Duties and import VAT where applicable. The ‘incoterms’ will normally determine between businesses whether it is the supplier or the customer who is responsible.

There are many different incoterms governing the international trade in goods, but Delivery Duty Paid (DDP) places the obligations on the supplier to declare the Customs Duty paid on goods. For example, a UK supplier importing into an EU Member State under DDP terms is likely to have Customs Duty costs and customs clearance obligations for the goods, as well as a local EU VAT registration obligation, which may require fiscal representation. These responsibilities inevitably increase costs and the complexity of the supplier’s supply chains.

Importers of goods need to obtain an EORI number for import declarations. This determines who is the importer of record for the goods. Importers into the UK need a UK EORI and importers into the EU will need an EU EORI. Without a UK EORI, UK importers will not be able to clear their goods or be able to take advantage of the customs easements and postponed import VAT accounting.

Comment: Whilst we must wait and see if there is a last-minute trade deal, we would still expect there to be customs controls introduced in some form between the UK and EU. It is vital for UK businesses to review their supply chains now and the incoterms that are in place with EU customers/suppliers of goods. An EU/UK EORI should be obtained as a matter of urgency and importers should be discussing who will be responsible for the practical aspects of making the customs declarations with their shipping agents.

Please contact Nick Hart for further information.

Use of duty deferment accounts for Customs Duty

When importing goods into the UK, UK established businesses can apply for a duty deferment account to delay paying customs duties. A duty deferment account allows businesses to make one payment a month through direct debit, instead of paying individual consignments. Only importers or someone representing an importer can apply for a duty deferment account.

Alternatively, businesses can also use the deferment account of a third party, such as a freight agent or customs agent, to settle their customs duties liabilities with HM Revenue & Customs (HMRC). The third party deferment account holder will usually charge a fee for the use of their deferment account and seek for repayment of the duty charges by means of a remittance invoice.

Businesses that wish to apply for a duty deferment account need to be aware that a customs guarantee is normally required as part of the duty deferment set-up process. The customs guarantee is an agreement to cover customs debts that either have arisen (ie actual debt) or will arise from certain customs special procedures (ie potential debt). Businesses can, however, apply for a guarantee waiver for their duty deferment account, allowing most businesses to open an account without needing to provide a guarantee.

Delayed customs declarations

Customs declarations will need to be made either by the business itself or by a UK established customs agent. Submission of a full customs declaration to HMRC can be delayed by up to six months. This easement will be available for goods that were in free circulation in the EU and that are imported into the UK between 1 January 2021 to 30 June 2021. However, controlled goods, such as excise goods, are excluded from the easement.

It is recommended that businesses take steps to have a robust process in place to make delayed declarations, to avoid compliance failures. Businesses should discuss this with their shipping agents and agree who will be responsible for making such declarations.

EU VAT refund claims for 2020 and the filing deadline for submissions

When the UK leaves the European VAT and Customs Unions at the end of this year, UK businesses will no longer be eligible to reclaim EU VAT incurred using the 8th Directive reclaim scheme. The VAT reclaimed typically relates to EU VAT incurred on business expenses, such as EU hotels and accommodation on business travel. UK businesses are not eligible to make such claims where they have a VAT registration (or obligation) in that EU member state.

HMRC has announced that UK businesses can continue to use the existing EU VAT refund portal to claim VAT refunds for 2020 until 11pm on 31 March 2021.

After 31 December 2020, EU VAT incurred by UK VAT registered businesses is likely to need to be reclaimed under the relevant 13th directive regime the relevant EU member state has in place for non-EU businesses. The current process for each country can be found on the European Commission Website. We expect further announcements will be made in due course as to how these rules will apply to the UK.

Likewise, EU businesses that were eligible, will no longer be eligible to use the 8th directive to reclaim UK VAT incurred from 1 January 2021.