Brexit update: Indirect Tax Impact of Intra-Community trade

The UK is scheduled to leave the EU on 31 January 2020, but what does that mean for businesses that trade with the UK and EU from 1 February onwards?

The Withdrawal Agreement (‘WA’) renegotiated between the UK and the EU on 17 October 2019 and recently backed by the House of Commons, provides for a transition period for the UK where it will, to all practical intents and purposes, remain in the EU for a period of time after Brexit occurs at 11pm on 31 January 2020.

Under the terms of the WA, the Transition Period will come into effect immediately (ie at 11pm on the 31 January) and last until 31 December 2020. At this point the terms of the future relationship, intended to be an extensive free trade agreement (FTA), would take effect.

During the transition period, the UK will continue to be part of the Single Market, EU VAT regime and Customs Union. This means that businesses will have a period of certainty where they can continue to trade using existing VAT and customs procedures – in other words nothing should change during this period.

There is a provision in the WA that should both the UK and EU agree, an extension of up to two years could be applied, however, the length of any extension must be agreed before 1 July 2020 which would mean a maximum period ending on 31 December 2022.

Should the terms of a trading relationship not be agreed by 31 December 2020 and there is no extension to the current transition period, the UK could still face a no deal Brexit.

Main Brexit VAT and Customs considerations after the transition period ends

  • Goods will no longer cross the UK/EU border freely. There will likely be import and export formalities as well as VAT and customs duties. This is particularly relevant for businesses which use the various EU VAT simplifications available such as triangulation, call-off stocks, etc. as these may no longer be available to UK businesses and create additional VAT compliance requirements. 
  • In the event of a no-deal Brexit, the Northern Ireland (NI) protocol will come into force to avoid the introduction of a hard border on the island of Ireland. While the movement of goods between NI and ROI will follow the normal EU VAT rules (ie no tariffs or restrictions), goods moving directly from Great Britain to NI will be subject to a tariff if the goods are “at risk” of being moved into the EU afterwards. Similarly, goods from non-EU countries arriving in NI will be subject to the UK tariff unless they are at risk of being moved to the EU. Further rules and guidance are to be determined by the UK/EU Joint Committee in due course.
  • The government will introduce a new import VAT accounting method which will effectively relieve importers from their requirement to pay VAT at the time of import. This will assist with the cash flow impact of goods no longer crossing the UK/EU border freely. It should be noted that the postponed method has so far, only been confirmed for a no-deal Brexit scenario, but it is possible that this method, or something similar, could be introduced should a deal be agreed. The remaining EU member states, have their own rules in regard to the accounting or payment of import VAT. 
  • More than two-thirds of EU member countries require some form of fiscal representation for VAT purposes for non-EU established businesses. This requirement will extend to UK businesses by virtue of the UK no longer being part of the EU after the transition period has ended. 
  • Currently, UK/EU businesses seeking to obtain a VAT refund in another member state are able to do so by filing a simplified online claim. Post-transition period, EU businesses seeking a VAT refund in the UK, or vice versa, will need to use a different paper-based method which is more onerous and has shorter filing deadlines. 
  • UK business providing telecommunication, broadcasting and electronically supplied services will need to register for the Mini One Stop Shop (MOSS) in another EU country since the UK’s scheme will no longer operate after the transition period has ended. 

Given the complexity of some of the potential changes, we recommend businesses start preparing now to ensure that any required transitions are as smooth as possible and to identify the opportunities and mitigate the threats Brexit will bring. RSM can assist with this process by reviewing your current supply chain, intra EU activity, and provide appropriate recommendations and actions to ensure you are ready to continue trading with the EU post Brexit.

If you would like to discuss this further, please get in touch with Ian Carpenter.