VAT On Low Value Imports
Several VAT changes for businesses that import and export goods were announced from January 1st 2021. It comes as rules that permit free movement of goods and people between the UK and the EU cease to apply from 11pm as of December 31st 2020.
All goods entering UK must be subject to VAT (different rules will apply for Northern Ireland). You should talk to your suppliers and find out which of these routes they will take:
• Sell without VAT added as a business to business transaction – you will need to provide your VAT number but must account for the VAT due as a reverse charge in your own VAT records.
• Register for VAT in the UK and charge UK VAT on all UK sales from 2021.
• Sell through an online marketplace which is registered for VAT in the UK, charging for VAT on the sale and issuing a sales invoice.
If your business purchases low value goods from abroad which cost less than £135 per parcel you need to factor in the cost of UK VAT from 2021. Currently many low value goods enter the UK with no VAT or duty paid, as they are not declared by overseas sellers.
VAT On International Services
The rate of VAT on services supplied to non-business customers in other EU countries normally depends on where the supplier is located. For services related to land, this will be where the land is located.
A UK-based business supplying services to individuals in other EU countries will currently charge UK VAT. However, services supplied now from a UK business to individuals in EU countries will not be subject to UK VAT. Many professional and legal services, including advertising and data processing, will be treated as outside the scope of VAT, meaning no VAT will be applied.
Services supplied between businesses across international borders have been treated as outside the scope of VAT for many years. The customer usually has to prove they are a business by supplying their VAT number. Your EU suppliers may wish to charge VAT to your business from 2021 as they may not accept your UK-issued VAT number as valid. Your UK VAT number will remain acceptable proof of your business status so it’s important to reiterate this and not be stung by any additional charges.
Refunds Of VAT On Overseas Expenses
Before the pandemic, any of us could travel freely to Europe to meet customers, vendors or even attend trade shows, but unfortunately this has now changed. HMRC’s VAT service cannot be used to reclaim overseas VAT incurred after December 31st 2020, as the UK will no longer be treated as an EU country.
UK-based businesses will have to reclaim VAT paid in EU countries by submitting claims directly to the tax authority of the relevant country. These claims normally need to be submitted on paper and in the country’s own language. Each EU country has its own refund claim deadline.
VAT on business expenses incurred in another EU country up to December 31st 2020 can be reclaimed through HMRC’s online VAT service. Such claims need to be submitted to HMRC by 11pm on March 31st 2021. Previous refund claims can also be viewed and amended until this date.
We hope this has outlined and informed you of the VAT Brexit changes and whether or not you will be affected. If you require any more information on the how Brexit may affect your business or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.