Why UK businesses need to stay updated on post-Brexit VAT rules

After the UK government’s official withdrawal from the European Union small and medium businesses (SMBs) in the UK are finding it more difficult to do business with other EU nations due to the rise of barriers such as tariffs and shipping-related issues. 

Although the UK-EU signed a free trade deal that will benefit both the UK and EU-based businesses, SMBs cannot easily trade with EU-based businesses as they did before January 1, 2021.

If you have a small or medium business, you need to understand the changes that affect your company, including the post-Brexit VAT rules. 

In this article, we explain the major changes in the VAT rules after Brexit.

This post is sponsored by accounting experts Osome. Enterprise Nation community members can get one month off Osome’s services on bookkeeping and accounting.

Do I need to pay VAT when importing products from the EU?

Your business needs to follow seven steps for importing from the EU after Brexit:

1. Find out who is the Importer of Record (IOR)

The Importer of Record (IOR) is either the buyer or the official owner of goods being imported into the UK. The IOR is responsible for doing all the clearance, such as declaring customs import, tariffs and import duties (if any), and import VAT. 

The IOR could either be you, as the business owner, or the company from which you imported goods or a customs agent.

Pro Tip:

You need to get this done first before shipping your products or else it will be a mad rush against time for mandatory paperwork.

2. Get a UK EORI number

An Economic Operator Registration Identification or EORI number for short is your pass to trading with EU-based businesses. 

After getting your EORI, you need to enter this number for all UK customs declarations.

Pro Tips:

Many UK-based companies have already got their UK EORI. If you still do not have one, apply to HMRC right away. 

You also need to apply for an EU EORI. You can get that by contacting the tax authority of any member state.

3. Check if you need an import licence?

If your company imports chemicals, plants, agricultural products, medicines, weapons, or animals, then you need to get a special licence for importing goods into the UK. You will find a detailed checklist on the same web page.  

4. Make a strategy for integrating VAT

You can use any of the following three options:

• Make your customer pay under the Delivered at Place (DAP) Incoterms rules

• Pay the VAT yourself at customs

• Defer the payment of import VAT by using Postponed VAT Accounting 

5. Figure out a way to make all import declarations

To complete the formalities of import declarations, you can either use an internal resource or hire a customer intermediary. 

You have options to choose someone from custom agents/brokers, freight forwarders or fast parcel operators.

6. Get the UK intrastat declarations ready (if needed)

All the UK businesses with VAT registration that import products worth more than £1.5m from the EU every year need to make monthly Intrastat declarations. They have to declare the nature of the products, quantity and cost.

Pro Tip:

The UK Intrastat declarations will remain effective only until the end of 2021.

7. Take note of the latest £135 import rule

On January 1, 2021, a new import rule was rolled out for all products worth £135 or below. Going forward, e-commerce businesses have to charge VAT at the selling point instead of just paying VAT for regular import.

The earlier rule of not charging any import tax on parcels worth less than £15 no longer exists.

Do I need to pay VAT when exporting products to the EU?

There are the seven rules on VAT when exporting goods to the EU:

1. Identify the Exporter of Record (EOR)

Identify the Exporter of Record while exporting to EU nations. Usually, the UK supplier is the EOR.

2. Get a UK EOR Number

Getting a UK EOR number will help customs authorities to know who the exporter is.

3. Find out if an export licence is needed

You need to have an export licence if you intend to export specific types of products, such as food products, livestock, chemicals and excise goods.

4. Complete the formality of declaring export

You can complete the formality of declaring export yourself. Although, you cannot do that just by filling out a form. You need to buy commercial declarations software and your registration will be processed on the National Exporter System (NES).

After receiving the approval, you will get a special badge that you can use on the online custom systems of HMRC.

You may also hire a customs intermediary to do it for you. You can pick someone from custom agents/brokers, freight forwarders, or fast parcel operators.

5. Gather essential information

You have to submit the following information:

• The points of departure and destination: Where the products are going to or coming from.

• Details of consignee and consignor: The recipient and the sending company responsible for the product delivery. 

• Commodity code: It declares the goods that are exported, the material contents and their manufacturing method.

• The packaging type of the goods: States the nature of goods and the packaging type. 

• Exporter’s statement of origin: It is a form that makes sure that your importer does not get charged any additional tariffs.

• Licenses and certificates: If applicable.

6. Declaration of EU import customs

You also need to submit the declarations for EU import customs for your customers if you are exporting under a Delivered Duty Paid (DDP) system.

7. The Intrastat rule does not apply to exports

Effective from January 1, 2021, businesses do not have to send monthly reports while exporting products from the UK into the EU. However, you still need to make an Intrastat report on all the imports.

What about paying VAT when offering services to companies in the EU?

VAT rule for B2B businesses

If your business is located in the UK but you are offering products or services to an EU-based company, you need not pay VAT since it is for customers based in the EU.

Your customers can use the reverse charge process to make the VAT reflect in their return.

Example:

Dana is a professional copywriter, who needs to send a monthly invoice to a client based in the EU. She does not add VAT to her invoices, so her clients can declare it in their VAT return.

VAT rule for B2C businesses

When it comes to B2C businesses, the opposite rule will apply. It means you need to charge UK VAT to your customers based in the EU.

Although in specific situations, B2C businesses need to register for VAT in the supplier country. 

Here are a few examples:

• If you are bearing the cost of entrance into physical events

• You give services regarding land or property

• You work as an intermediary

Example:

Steve runs a business making custom-made tools in the UK and he exports them from his factory to EU-based customers. He includes UK VAT (set at 20%) in the total selling price. 

Once the travel restrictions of the pandemic are lifted, Steve has a plan to visit France to work as a consultant at a housing equipment project. After reaching France, he will have to register for French VAT and add the charge to the total receivable amount when sending the invoice to his clients.

Get professional help on post-Brexit rule changes

No matter whether you have a B2B or a B2C business in the UK, it will be affected by the post-Brexit regulatory changes. When new updates are coming up so frequently, it may seem tough to keep up. 

To stay updated with the latest rule changes in the post-Brexit era, you can consult our accounting experts – check out Osome’s UK accounting services here.  

Enterprise Nation community members can also get one month off Osome’s services on bookkeeping and accounting.