The transition period with the EU ended on 31 December 2020 and the UK has now left the European Union.

What does this mean for small businesses trading with the EU?

From 1 January 2021, there are new rules for dealing with imports and exports from the EU to reflect the UK’s position as a separate customs territory.

This article looks at the new rules for the import and export of goods to/from the EU and the VAT implications.

Importing goods into UK before Brexit:
Where a VAT registered UK business imported goods from the EU, it paid no VAT on import. This is because the EU supplier applied zero rated VAT to the sale.

When the UK Business filed its VAT return, it paid acquisition VAT to HMRC. It could also recover this VAT as it would for input VAT.

A non-VAT registered UK business importing goods from the EU would be charged EU VAT by the EU supplier. There would be no import VAT to pay when the goods arrived in the UK.

Importing goods into UK after Brexit:
A UK business wishing to import goods from the EU must have registered for a GB EORI number (Economic Operator Registration Identification Number).

VAT registered businesses

HMRC will have already allocated your business a GB EORI number which should start look like this: GB followed by VAT Registration Number followed by 000.

When the goods arrive in the UK, there will be no import VAT to pay by VAT registered businesses. They will pay VAT on the imported goods via the VAT return. This is called postponed VAT accounting.  HMRC say that there will be an online monthly statement available for download that shows the previous months’ postponed VAT that needs to be declared on the VAT return.

Box 1 of the VAT return will show the postponed VAT due to HMRC on imported goods

Box 4 of the VAT return will show the VAT to be reclaimed on goods purchased (imported or not)

Box 7 of the VAT return will include the total value of all imports on the monthly online statement excluding VAT

However custom duties will be payable on arrival of the goods.

Non-VAT registered businesses

The EORI number is GB followed by randomly generated numbers.

When goods arrive in the UK, the importer will have to pay import VAT before the goods are released along with custom duties.

Goods under £135

Where the imported goods have a value of less than £135, the rules differ.

If the recipient is a UK consumer, then then the foreign exporter should register for UK VAT and pay the VAT due on the goods. If the exporter doesn’t do this, then the UK consumer will pay the import VAT to HMRC, via the delivery company.

If the recipient is a UK VAT registered business, they will pay the VAT via the reverse charge procedure in the VAT return.

Exporting goods to EU before Brexit:

Where a VAT registered UK business exported goods to the EU, the goods were zero rated for VAT if the EU recipient was VAT registered.  Goods were standard rated for VAT if the EU recipient was non-VAT registered e.g. a consumer.

Exporting goods from UK after Brexit:

UK businesses wishing to export goods to the EU, need to complete a UK customs declaration which requires a GB EORI number (Economic Operator Registration Identification Number).

UK Businesses will also need to complete an EU import customs declaration.

VAT registered business will charge zero-rate UK VAT on exports to EU countries. But the EU country will charge EU Import VAT on arrival.

Non-VAT registered businesses can export as usual to the EU but again there will be EU import VAT charged on arrival.

Useful Links

https://www.icaew.com/brexit/uk-vat-after-the-transition-period

https://www.gov.uk/government/publications/accounting-for-vat-on-goods-moving-between-great-britain-and-northern-ireland-from-1-january-2021/accounting-for-vat-on-services-between-the-uk-and-eu-member-states-from-1-january-2021

https://www.gov.uk/guidance/vat-imports-acquisitions-and-purchases-from-abroad

Clayton Accountants January 2021