Posted: Wed 12th Oct 2022
In this blog, we're joined by Dan Barlow from Deloitte UK. Dan is an indirect tax adviser of more than 25 years, first as a VAT inspector with HMRC then with Deloitte.
Dan's been working with Enterprise Nation on the content we've been publishing for the International Trade Hub. Here, he answers some of your questions around VAT and duty as it relates to international trade and importing and exporting.
His key message is this: don't be daunted by the VAT and duty rules when trading internationally! They are complex, but once you've figured them out, they're pretty easy to navigate.
How did VAT work in the EU before Brexit, and what has changed now the UK has withdrawn from the union?
Before the UK withdrew from the EU, if you were selling goods on a business-to-consumer (B2C) basis into the EU, you probably had to register for VAT in the EU for something called distance selling.
And for this, there was a threshold. Once your B2C sales to a particular EU member state exceeded around €30,000, the distance selling rules meant you had to register for VAT in that member state.
Not much has changed, although the scheme itself is slightly different. Now, instead of having to register for distance selling, you have to register through the new electronic portal known as the Import One-Stop Shop (IOSS). So, if you're selling goods into the EU on a B2C basis, you probably need to register for VAT using IOSS.
If you're selling goods to other businesses – that is, on a business-to-business (B2B) basis – you might have to register for VAT in the EU if you're storing those goods in the EU – in a warehouse there, for example.
Neither have the rules changed much when it comes to selling services into the EU. If you're selling on a B2B basis, you probably won't have to register for VAT as your customers will self-assess. On a B2C basis, however, you might need to register.
What do I need to pay if I'm importing goods from the EU?
When importing goods from the EU, you'll have to pay both import VAT and import duty.
Import VAT is due at the rate that applies to the particular goods you're bringing into the country. Most goods come in at the import VAT rate of 20%.
Some may carry a rate of only 5%. If you're importing books, for example, they are zero-rated, which means they carry an import VAT rate of 0%. As a result, you don't pay any import VAT on them.
Normally, this is anywhere between 0% and 6%. If the goods you're importing originate from the EU, they will likely carry a 0% duty rate under what are called "preference arrangements". These were agreed as part of the UK's withdrawal from the EU.
What is postponed VAT accounting and how does it work?
The postponed VAT accounting scheme allows you to both pay the import VAT on your VAT return and recover it. In the past, paying import VAT could be quite expensive. From a cash-flow point of view, you'd pay 20% import VAT and then have to wait a month or so to recover it.
With postponed VAT accounting, you can both pay it and recover it on the VAT return, which means there's no impact on your cash flow.
How to set up postponed VAT accounting
You can apply for the postponed VAT accounting scheme at the government's website. Then, when you import your goods, you simply have to declare whether you're using a freight forwarder or a piece of software.
Typically, you just have to quote your postponed VAT accounting number to make sure HMRC know that they don't have to charge you the import VAT, and that you'll pay it on your VAT return.
You'll get a statement each month so you know exactly how much import VAT you need to put on your VAT return that you haven't had to pay at the border.
Is it worth getting a customs broker to deal with all this?
Yes, although it can be quite expensive – the government says small businesses pay about £50 per customs declaration. But you can use your freight forwarder (if you have one) or an independent customs broker.
If I'm exporting, what do I need to know about VAT? Is there anything I must do in advance?
There are a number of things to be aware of.
No export duty
If you're exporting from the UK to the EU or further afield, there are no export duties. There isn't a tax on exports. So that's a good thing.
You need to do a customs declaration. Now, for goods to leave the UK, you must complete a customs declaration. You can get your freight forwarder or customs broker (if you have one) to do this for you, or use some software (such as CustomsClear).
When your goods arrive at the ferry or the Eurostar, for example, they will not be cleared for export. So it's important to do your export declaration.
For B2C sales, there is a simplified export declaration. If you're using Royal Mail or one of the logistics companies (Whistl, for instance), they will typically help you complete the simplified export declaration. Those e-commerce logistics providers have good arrangements for doing that sort of thing.
Import VAT and duties
When the goods arrive at their destination – let's say you're sending them to the EU – like in the UK, there is normally some import VAT to pay, and sometimes some customs duty.
If your goods originate from the UK, however, there might be some preference of origin benefits that mean you don't have to pay the customs duty.
Import One Stop Shop (IOSS)
If you're exporting on a B2C basis, you need to account for VAT on your sales in the EU. If you're selling through an online marketplace, the marketplace very often has the responsibility of accounting for the VAT and will do that using its IOSS VAT registration number.
If you're making e-commerce B2C sales to the EU, however, you'll probably need to get your own IOSS VAT registration number. With that, you can account for the VAT you're liable for.
I'm in Northern Ireland. Are the rules different for VAT and importing from the EU?
Yes. The rules are different, but once you get your head around them, they aren't that complicated.
You'll likely have heard of the trading arrangement known as the Northern Ireland Protocol. The whole reason for the protocol is to avoid a hard border between Northern Ireland and the Republic of Ireland.
All the things we've just mentioned above – export declarations, import declarations, VAT accounting and so on – has the potential to implement a border between the Republic of Ireland and Northern Ireland, especially the import and export declarations.
If you're exporting from Dover to France, either the goods or the documentation can be inspected in Dover or France. That can't happen under the terms of the Good Friday Agreement and the Northern Ireland Protocol.
So what principles do apply? Let's take a look.
Goods moving within Northern Ireland and the EU are not subject to customs duty at the Irish border. So, while there may be customs duty due on goods moving between the UK and EU, that does not apply for movements across the Irish border.
Goods moving from Britain – England, Scotland and Wales – to Northern Ireland are not subject to duty, unless they're intended to move on, or at risk of moving on, to the Republic of Ireland.
Goods imported to Northern Ireland from outside the UK and the EU are obviously subject to duty.
If you have a supply of goods between Northern Ireland and Britain, they will be subject to VAT.
Supplies of goods between Northern Ireland and the EU – which includes the Republic of Ireland – are not treated as exports and imports for VAT purposes. Instead, they go through the old European system of dispatches and acquisition.
How should I handle my VAT? Should I find an accountant who specialises in international trade? Should I use software?
You can hand everything over to a bookkeeper or accountant if you want to, and there are plenty of fantastic bookkeepers and accountants out there who specialise in managing this.
In terms of software, Vertex has a software program called Taxamo Assure. That can help you determine the right VAT rate for sales of goods from the UK into the EU. It also has a feature that allows Vertex to take on the responsibility of accounting for that import VAT on your behalf.
Can you explain the difference between IOSS and OSS?
OSS stands for "one stop shop", and it's a term the EU uses for its various VAT accounting schemes for goods and services. There are a few different one stop shops and they are there to facilitate businesses that supply goods or services that aren't registered in the country where VAT is due.
When you're supplying to EU customers, the EU does the legwork in making sure that the right amount of VAT ends up with the right EU member state.
IOSS is the Import One Stop Shop and is the scheme for B2C businesses that bring goods from outside the EU into the EU.
Can I export if I'm not VAT-registered?
Absolutely – that isn't a problem at all. However, you'll probably need an EORI number, as that allows you to export. Typically, most exporters are registered for VAT but it isn't mandatory.
I've been told I need a local EU-based accountant to do the VAT and general compliance? Is that true?
That depends. If all you're doing is supplying from the UK on a B2C basis, I'd say it probably isn't true. You can use some of the IOSS schemes and do some research in order to do the VAT and general accounting yourself.
At the point that you begin holding stock, however, that tends to trigger VAT registrations and tax accounting in the EU. That's really when you begin to get reporting requirements.
Advice and information on how small businesses can successfully import, export and expand overseas, provided by Enterprise Nation in collaboration with Deloitte. Take me to the hub