VAT and Customs Duties Post Brexit

Posted: 12th Feb
VAT and Customs Duties Post Brexit

There have been a number of changes to VAT and customs duties as a consequence of the UK leaving the EU VAT and customs areas on 31st December 2020.

This update summarises the key considerations when trading with overseas business customers.

Please be aware that this is relevant to you if you have any of the following scenarios:

  • Selling goods to Northern Ireland
  • Selling goods to business customers in the EU (Rest of World is unchanged)
  • Importing goods from anywhere in the world (albeit imports from outside the EU have been simplified)
  • Selling or receiving services to/from EU based businesses (changes are restricted to the disclosure of the transaction on the VAT return).
  • There are different VAT considerations when supplying consumers (ie individuals) outside the UK. If your business makes supplies direct to non-UK consumers, please contact us directly for specific guidance.

VAT and Customs Duties

It is important to draw a distinction between customs duties and VAT. The UK VAT territory remains the whole of England, Scotland, Wales and Northern Ireland.

However, the UK Customs territory only covers England, Scotland and Wales. Northern Ireland is in both the UK and EU Customs territories and this can give rise to practical problems when sending goods to Northern Ireland (“the Northern Ireland Protocol”).

Northern Ireland

If services are being supplied to a VAT registered (business) customer in Northern Ireland, VAT continues to be charged in the normal way. However, there are new complications as a result of the Northern Ireland protocol where goods are supplied to Northern Ireland.

As Northern Ireland remains within the UK VAT area, VAT continues to be charged in the normal way when shipping goods directly to VAT registered business customers in Northern Ireland.

Further, customs duties do not apply when shipping goods to customers in Northern Ireland provided that the goods fall into the exemption for goods not likely to leave Northern Ireland, or the EU tariff is zero.

Find out more about Northern Ireland Goods Duty check

There are no customs duties on goods moving from Northern Ireland to Great Britain. For more information see Moving Goods from Northern Ireland to the UK

If a business is storing goods in Northern Ireland then there may be a requirement to “self-supply” the goods for VAT purposes, to apply for an XI EORI number, and to manage Customs clearances. Please contact us directly for specific guidance if this applies; these complex rules were put in place to avoid Northern Ireland being used as a “back door” for goods to be slipped into the EU given the lack of a physical border in Ireland.

Further details and support when moving goods to Northern Ireland are available through the government’s Trader Support Service.

EU, Republic of Ireland and Rest of the World

These destinations are all now treated in the same way.

VAT should be charged at 0% where the supply is to a business customer (ie not an individual) located outside the UK. If supplying to non-UK individuals, please contact us for further advice.

When importing goods, import VAT is charged at 20% and can be recovered by the business on its VAT return. There is no longer any need to pay over the import VAT to HMRC when the goods enter the country and it is instead treated as a book entry on the company’s VAT return, in a very similar way to the way in which VAT on goods imported from the EU has been treated historically. This is known as “postponed VAT accounting”. In practice this gives a cash flow advantage when compared to the previous position for non EU imports.

As the UK now allows postponed VAT accounting on all imports (not just on those from the EU) it is no longer necessary to open or maintain a deferment account for VAT purposes alone.

Different EU countries have their own arrangements regarding postponed VAT accounting. In many cases the importing customer has to pay over import VAT on imports to their local tax authority at the point of import and then claim it back through their VAT return. This presents a cash flow disadvantage and is a barrier to customers trading with the UK particularly if the customer has not previously imported goods from outside the EU.

Customs Duties and Clearances
These are more likely to give rise to cash costs which cannot be recovered. Freight forwarders are the experts in this area.

In almost all cases the rate of customs duty applying to EU imports from the UK, or to UK imports from the EU is nil, and so when trading with the EU, the customs paperwork as opposed to duties themselves is the primary problem.

However it is also important to consider that customs duties apply “rules of origin”. These rules are designed to stop goods being transported through a third country in order to lower duties; for example goods imported from China to the UK and then immediately (without any work being done on them) re-exported to the EU would still be likely to be considered Chinese origin when EU import paperwork is completed. The rules are complex, and again freight forwarders are the experts in this area.

There are however a number of potential solutions to avoid needing multiple customs clearances of the same goods (and the potential for multiple customs duty charges) where shipping logistics mean that goods need to come in and out of the UK (or EU). We can discuss the possibilities with you, but it is likely that your freight forwarder / logistics supplier will also need to be involved.

Given the UK-EU trade deal provides for a nil rate of duty in almost all cases, businesses which are trading only with the EU are unlikely to need to apply for a deferment account (or to funnel these charges through a freight forwarder) as there should be no duties payable, and postponed VAT accounting applies to all imports to the UK. However these businesses should still consider whether a freight forwarder should be used to manage imports and exports due to their expertise in looking after import / export documentation.

Computer Systems
The changes to VAT accounting mean that businesses need to consider whether their accounting systems are up to date and can correctly account for VAT going forward. For example imports from the EU no longer go in boxes 2 and 4 of the VAT return, but instead in boxes 1 and 4. Boxes 8 & 9 (EU acquisitions and dispatches) will now be zero for a business in England, Wales and Scotland. See HMRC guidance:

In Summary

If you are dealing with any of the following there are changes to your VAT accounting:

  • Selling goods to Northern Ireland
  • Selling goods to business customers in the EU (Rest of World is unchanged)
  • Importing goods from anywhere in the world (albeit imports from outside the EU have been simplified)
  • Selling or receiving services to/from EU based businesses (changes are restricted to the disclosure of the transaction on the VAT return).
  • For further help with any of the above please contact Harts and we will be happy help.

Call or email us at Harts if you have any queries about topics covered above or to find out more about our services at Harts.