Brexit – a new way of working for UK businesses
The UK is officially no longer in the EU in so far as trade and related indirect tax matters are concerned. There have been almost daily reminders over the past few months of the various difficulties facing UK businesses, especially in and trade with Northern Ireland. At the forefront, stand our agricultural and farming sectors.
In this article, we outline some of the key international import and export VAT and customs points arising and which are of pertinence to the rural sector, whether farming or trading in the food or the agri services sector (providing agricultural farm equipment, machinery and vehicles). This is intended to provide a summary of matters which need to be taken into account when looking to trade with EU based customers; buy from EU based suppliers and when thinking of cash flow and ease of movement of goods around these indirect tax aspects.
24th February 2021
Ian Mullen See profile
EU sales of goods are now exports. Purchases of goods from EU suppliers are imports. Apart from the name change, certain procedures when moving goods out or into the UK have changed, primarily the need to pay import VAT and customs duty. VAT accounting procedures have changed for EU imports.
Any business looking to trade abroad and dealing in goods rather than services must hold an EORI number. This was already the case when selling or buying with businesses outside the EU. Now that the UK is also outside the EU, and so considered a rest of world (ROW) customer or supplier by EU trade counterparts (with the exception of Northern Ireland as it’s still regarded as part of the EU in some instances), an EORI is now needed for EU buying and selling. Not having an EORI will otherwise delay movements of the goods between the UK and the EU. Even if you only occasionally trade with the EU, our advice is to obtain an EORI now, so that you are ready when the time comes. HMRC should turn this round within three working days, often much more quickly, unless they have any queries.
There are no changes in relation to the way in which UK sellers trade in goods with rest of world (ROW) customers or suppliers. However, there are VAT and customs duty changes for UK – EU trade.
EU sales of goods are now categorised as exports which means additional paperwork may be required to move goods across to EU customers.
Exports are zero rated when the goods leave the UK within three months of sale or collection by a customer. Invoices and commercial documentation must show both the customers’ EU VAT number – and this must be correct for the country to which the goods are transported – and their EORI number – where the customer is responsible for the importation of the goods. This includes showing these on any invoices issued. Proof of movement from the UK to the country in which the customer is VAT registered must still be held.
If your business still owns the goods as they reach the EU border, i.e., ownership does not pass to the customer until the goods are delivered or when the goods are paid for, then your business may incur import VAT. The terms of trade and incoterms may also mean that any import VAT or customs duties payable are your responsibility as the goods enter the EU, e.g., DDP (Delivered Duty Paid). You may need to register for VAT in the EU.
Farm machinery and equipment can be a big investment for a business – if you regularly import, then both VAT and duty payments (if applicable) will impact your cash flow unless you use a deferral method. This can be operated by your agent or by your business. The most common method is duty deferral which also defers import VAT payments for up to six weeks.
There is a new way to postpone paying import VAT by instructing whoever deals with your import entries to note your EORI and VAT number in the import declaration as well as ticking the box which shows you are using postponed VAT accounting (PVA).
This allows payment to be made in the VAT return relating to when the import was made – the import VAT claimable is netted off against this – effectively allowing up to four- or five-months’ cash flow benefit. PVA can be used for all imports, not just EU ones and can be accessed via HMRC’s Customs Declaration Service (CDS).
Export sales: Intrastat (Supplementary Statistical Declarations) and EC Sales Lists are no longer required for EU sales after 31 December 2020.
VAT returns: Box 8 entries (EU removals of goods) are no longer required for sales as from 1 January 2021.
Imports: Intrastat (Supplementary Statistical Declarations) are still required for EU acquisitions of goods until 31 December 2021. This covers EU purchases of goods valued over £1.5 million in a calendar year.
If VAT is paid under duty deferment or faster payments arrangements, only import VAT is claimed and customs import VAT certificates (C79), or supplementary declarations (C88 or equivalent) are required.
If PVA is used, then having registered to receive VAT certificates via your HMRC VAT portal via CDS, the import VAT is both paid and claimed on the same VAT return.
VAT returns: Box 9 entries (EU acquisitions of goods) are no longer required for imports as from 1 January 2021.
For VAT purposes, it’s important to establish upfront whether your current EU trading arrangements may require rethinking. For example, in cases where your customer is VAT registered in their own country, they may agree to act as the importer. As long as they are permitted to claim the VAT, then this would mean the difficulties around your own position in that country may be resolved.
Although basic foodstuffs or food grown or produced in the UK are generally zero rated when sold to UK customers, if import VAT is applicable then this will likely not be at the zero rate in the EU (with the exception of certain basic food products in Ireland). Most EU countries apply reduced VAT rates applying to basic foodstuffs and some drink products.
Bringing goods as owner into the EU may mean overseas VAT registration liabilities and payment of customs duty and import VAT. This could be resolved by selling to a distributor in the UK and letting them take the responsibility for the export and import procedures and costs. Alternately, it could mean other changes to the supply chain, such as setting up a facility such as a distribution hub, agency or subsidiary or branch within the EU. Some overseas suppliers already have UK VAT registered companies or branches, so purchases could be made through them rather than an overseas company.
An EU base could be of particular benefit if goods used in manufacture originate from the EU.
Goods of UK origin may mean they are duty free when entering the EU, but it is very important to be aware of where all components originated – if some of these are EU or ROW, then the customs duty position will change.
There are other methods of deferring customs duty and VAT, such as the use of customs warehousing or HMRC schemes to do the customs entries when the goods arrive at your premises in the UK. If duty and/or VAT costs are high for you, please contact me or alternatively click here…