Now the Brexit transition period has ended, most of the UK VAT rules that applied to non-EU countries will simply apply to EU countries. One important change is the introduction of postponed VAT accounting. This affects you if you are a VAT-registered business and you import goods into the UK from all countries.
The UK VAT rules relating to UK domestic transactions are unchanged.
Supplying services to the EU
The supply of services to customers in the EU from 1 January 2021 is treated the same as those to any customer outside the EU.
The VAT treatment will be covered by the VAT ‘place of supply’ rules. The rules continue to apply broadly as they did previously:
- When your client is a consumer: You continue to charge UK VAT as before.
- When your client is a business: Reverse charge VAT is applied as before. This is where both output VAT to be paid and input VAT to be recovered are declared at the same time. This means no payment is ever made, and it’s just a paper reporting exercise.
Some exceptions to note are:
For UK businesses supplying digital services to non-business customers in the EU, the ‘place of supply’ continues to be where the customer resides. VAT on those services is due in the EU member state in which the customer resides.
For UK businesses supplying insurance and financial services, the input VAT deduction rules change from 1 January 2021, as supplies that were previously exempt become outside the scope with recovery. This is an alignment with the existing rules for supplies of such services to customers outside the EU.
Postponed VAT accounting
Postponed VAT accounting was introduced from 1 January 2021. It affects you if you are VAT-registered and you import goods into the UK; particularly if you are a smaller business and you do not currently use the Duty Deferment Scheme. Postponed VAT accounting will apply to goods imported into the UK from all countries, regardless of whether they are in the EU or not.
What is postponed VAT accounting?
The main points are:
- You can use postponed VAT accounting from 1 January 2021 if your business is registered for VAT in the UK and you import goods into Great Britain from anywhere outside the UK or into Northern Ireland from outside the UK and the EU.
- There are no changes to the VAT treatment of goods moved between Northern Ireland and the EU, or in the way in which the VAT is accounted for.
- VAT becomes payable on imports if they are over £135
- You declare and recover VAT on the same VAT return, similar to the reverse charge. This is beneficial as it means that you do not have to pay the VAT upfront and recover it later.
- Normal VAT rules continue to govern what can be reclaimed.
- It is important to note that use of the postponed VAT accounting scheme is optional as you still have the option to pay the VAT upfront when the goods enter the UK. However, if you defer the submission of customs declarations, then postponed VAT accounting is mandatory.
Can anyone use it?
Yes, you can start to account for import VAT on your VAT return from 1 January 2021. You do not need to be approved to do so.
You can account for import VAT on your VAT return if:
- you import goods for use in your business;
- you include your EORI number, which starts with ‘GB’, on your customs declaration; and
- you include your VAT registration on your customs declaration where needed.
If you use customs special procedures, you can account for the import VAT on your VAT return when you submit the declaration to release those goods into free circulation.
What changes on the VAT return?
You will need to download a monthly statement that shows the total import VAT postponed for the previous month which you will need to include on your VAT return. The statements are only available for 6 months from the date they are published so save them for your records.
One key difference with the introduction of postponed VAT accounting is that there are changes to the way you complete the boxes on your return form. You are required to account for postponed import VAT on the return for the accounting period for the date you imported the goods.
The changes affect Boxes 1, 4 and 7 on the return:
- Box 1: include the VAT due in the period on imports accounted for through postponed accounting.
- Box 4: include VAT reclaimed in this period on imports accounted for through postponed accounting.
- Box 7: include the total of all imports of goods shown on your online monthly statement, excluding any VAT.
Note, that if you are eligible to defer your customs declarations, you must account for import VAT on the VAT return that covers the date on which you imported the goods.
HMRC has provided well-written guidance on postponed VAT accounting which can be found here.
Consignments not exceeding £135
VAT on imported goods with a value of up to £135 is collected at the point of sale not the point of importation. This means that UK supply VAT, rather than import VAT applies.
However, where the business customer is VAT registered and provides its registration number to the seller, the VAT will be accounted for by the customer using a reverse charge.
EC Sales list reporting is no longer required
UK VAT registered businesses no longer have to complete an EC Sales List. Instead, UK businesses exporting zero-rated goods to EU businesses need to retain evidence to prove that goods have left the UK. Such evidence is already required for exports to non-EU countries. However, businesses in Northern Ireland will still need to complete EC Sales Lists.
HMRC has provided clear guidance on import VAT which is a useful read. If you have other questions get in touch to find out what the changes mean for your business.