VAT and customs duty as Brexit concludes

18 July 2020

The UK government announced last month that it will not be seeking an extension to the current transition period, meaning that barring a significant change in the parties' current negotiating position, the UK will leave the EU’s single market and customs union on 31 December 2020.

This article focuses on:

  • information from the UK government on the border controls and customs procedures that will be applied to goods imported into Great Britain from the EU with effect from 1 January 2021; and
  • EU VAT changes which will affect e-commerce providers selling to EU member states after 1 July 2021.

Simplified border controls

Contrary to its previous announcement in February (that the UK would implement full border controls on imports coming into Great Britain from the EU) the Government has now recognised the impact of the coronavirus crisis on business. As a result, the UK now plans to introduce new simplified border controls in three stages taking effect on 1 January 2021, 1 April 2021 and 1 July 2021.

Critically, these measures only relate to imports of goods into Great Britain from the EU. They do not apply to the flow of goods between Northern Ireland and the Republic of Ireland, or between Northern Ireland and Great Britain - these supply routes  are subject to a separate protocol

It is also important to note that this simplified approach is a unilateral policy applied by the UK alone, and goods moving from Great Britain to the EU are expected to face full customs checks when they enter the EU from 1 January 2021.

The three stages are as follows:

From 1 January 2021

Businesses importing 'standard' goods, covering everything from clothes to electronics, will have up to six months to complete full customs declarations and pay duty. However they will be required to keep sufficient records of imported goods to be in a position to make the subsequent declaration. While goods imported after 1 January 2021 will be liable to duty , based on the recently published UK Global Tariff , payments can be deferred until the formal customs declaration has been made.

Businesses will also need to consider how they account for import VAT; our interpretation is that it reflects the fact that importers will have the option to use postponed accounting to account for the import VAT liability on their VAT return. 

There will be checks on controlled goods such as alcohol and tobacco, as well as physical checks at the point of destination or other approved premises on all high-risk live animals and plants.

From 1 April 2021

All products of animal origin and all regulated plants and plant products will also require pre-notification and the relevant health documentation. Animal origin products include meat, pet food, honey, milk or egg products.

From 1 July 2021

From this date, importers in Great Britain will be required to make full customs declarations at the point of importation of goods from the EU and pay relevant tariffs. Additionally, full safety and security declarations will be required, while goods subject to sanitary and phytosanitary measures (SPS commodities), will see an increase in physical checks and sampling  which will take place at Great Britain border control posts from this date.

The clear inference is that the normal physical and documentary requirements of imports of animal and plant derived goods will not apply between 1 January 2021 and 30 June 2021.
There will be a support package for the ‘customs intermediary sector’, with £50m funding to support recruitment, training and supplying IT equipment to help handle customs declarations. 
Additionally, the Government has rather belatedly committed to developing the facilities in Great Britain for completing customs formalities and checks, such as customs compliance, transit, and SPS checks. Due to the development of channel ports during the UK’s membership of the single market, there is no available space at some ports for new infrastructure; therefore new inland border control sites to carry out these checks and other activities will be developed. The Government is consulting with ports to agree what infrastructure is required.

Confined to the footnotes of the document setting out this revised approach was confirmation that responsibility for the delivery of new border controls has been transferred from HMRC to the Cabinet Office.

VAT changes from 1 July 2021

The EU has been amending VAT legislation for more than a decade in response to the increase of e-commerce and applying a broad principle that VAT should be due in the member state in which the customer is located, but balanced by a recognition that affected organisations should have access to systems that simplify this process.

With that in mind, the key changes to the VAT regime taking effect from 1 July 2021 (delayed from 1 January 2021 due to the coronavirus) are summarised below.

First, a new €10,000 EU-wide threshold will apply to ensure micro-businesses don't have to account for VAT in each member state.

If a business sells goods to EU consumers there are two changes. EU-based distance sellers will no longer have to separately register in each member state. Instead, a One-Stop-Shop (OSS) registration will allow VAT in every affected member state to be accounted for on one return. Non-EU businesses will no longer be able to sell goods into the EU VAT and duty free for less than €22. Instead they will be offered the opportunity to account for VAT under the Import One Stop Shop (IOSS) scheme. 

Digital marketplaces facilitating the sale of goods to EU consumers may be deemed for VAT purposes as the seller of the goods on their platforms. 

Finally, the existing Mini One Stop Shop (MOSS) scheme will be extended to sales of all services to consumers that should be taxed in the country in which the consumer is located (in the past it was limited to certain digital services).

All in all, these represent important changes which should form part of your organisation’s preparations for the UK's departure from the EU single market and customs union on 31 December 2020.

For more information please get in touch with Brad Ashton, Phil Munn or your usual RSM contact.

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