What post-Brexit VAT rules could mean for your business

Stephen Patey

By Stephen Patey

Now that the Brexit transition period has ended, UK businesses moving goods between the UK and the EU have to decide how they will proceed as the VAT impact on the movement of goods in and out of the EU becomes clearer.

The changes that came into force on January 1 will most notably affect UK businesses selling to individual consumers across the EU. But there will also be an impact felt by UK businesses selling to EU businesses.

UK businesses selling to individual consumers (B2C) within the EU could previously make use of the distance-selling thresholds that were in place. Provided the value of sales made to a particular country did not breach this threshold (approximately €35,000 per annum), a UK business could charge UK VAT to the customers and not be required to register for VAT in the EU country of those customers

Since January, these distance selling thresholds are no longer in place, meaning that the first sale by a UK business of any goods delivered to a consumer in another EU member state will mean VAT registration is required in that member state.

When considering how to proceed, a UK business should be aware of the rules being introduced for EU B2C sales from many UK businesses have decided to suspend all sales to the EU until July 2021 when the IOSS is introduced

July1. From then, the EU is removing the distance selling thresholds, but will be launching a new ‘Import One Stop Shop’(IOSS). This allows a business to charge the relevant VAT rate in the country where the goods are being sold, but these sales would be declared on a single IOSS return, removing the requirement for businesses to register in every EU member state they are selling to.

UK businesses will be eligible to use the IOSS if they register for VAT in one EU member state. We therefore might expect to see an influx of UK businesses looking to register for VAT in Ireland, given the shared language.

For this reason, many UK businesses have decided to suspend all sales to the EU until July 2021 when the IOSS is introduced. However, for those who cannot afford to suspend all sales into the EU for six months, what are the alternatives?

One option is to simply bite the bullet and register for VAT in each of the EU countries the business is selling to. This option may be worthwhile if the business is only selling to a few, and has a reasonably strong level of sales.

But for those selling to a larger number, the registration and ongoing compliance costs will likely be off-putting. This is without considering the delays and additional administration costs of registering in these countries.

Alternatively, businesses could choose to treat supplies to customers in the EU as being zero-rated exports for UK VAT purposes. This can be done by selling on ‘Delivered-at-Place’ (DAP) terms, passing on responsibility for the payment of any Import VAT and Duty to the end customers, who would need to pay these charges to receive the goods. Although likely to be most cost-effective for the UK business, it is also potentially the least commercially viable, as requiring EU customers to pay additional costs for their parcels, even if these costs were incorporated into the price of the products, could deter them.

Interestingly, EU businesses selling to UK customers are facing a similar scenario, and will have to decide whether they register for VAT in the UK, or pass on the requirement to pay import VAT and duties to the UK consumers.

Another option is to hold stock in one EU country and fulfil orders from there. The UK business would need to register for VAT where the stock is being held, but this removes the requirement for VAT registration in the other countries, because the onward sale of the goods from the EU warehouse would be deemed to be ‘intra-EU supplies’ and subject to the normal distance selling thresholds until July.

The loss of the supply and install simplification could also now lead to UK businesses having to register in an EU member state if goods are being installed in that country

From this date, the UK company could then simply register for the IOSS, as they would already be registered in the EU member state where the stock is held.

It has been widely reported that some bigger organisations (such as JD Sports) are going down this route. However, many UK SMEs will not be able to bear the additional costs and logistics of operating the extra premises and distribution of the goods.

For UK businesses selling to other businesses in the EU, the end of the Brexit transition period will likely have less of an effect, as in most cases their sales will be done on a DAP basis, so the customers are responsible for the importation of the goods and could usually reclaim any import VAT.

However, care should be taken here, as if the goods are sold on a ‘Delivery Duties Paid’ (DDP) basis, EU VAT registrations will be required. A more significant impact on UK businesses is the loss of access to several EU simplifications from which they could previously benefit.

For example, the loss of the “Call-offstock” concession now means that any stock held by a UK company in an EU member state that is sold to a client will now lead to a requirement for the UK company to register for VAT in that member state.

Similarly, the loss of the supply and install simplification could also now lead to UK businesses having to register in an EU member state if goods are being installed in that country, when previously the customer would take responsibility for the VAT.

There are myriad issues and considerations for businesses post-Brexit, and this is just scratching the surface on the decisions facing UK businesses now that the transition period has come to an end. But decisions need to be made, and soon, to navigate the months ahead.

Stephen Patey is Senior Manager of haysmacintyre