The Effects Of Brexit On VAT For Businesses

Over the past year or so, it’s fair to say that many businesses have had lots of things to consider. One thing that seems to have slipped off the radar is the effects of Brexit on businesses.

At the time of writing (April 2021), polls by YouGov show that less than 30% of respondents consider Britain leaving the EU to be an important issue facing the country.

However, the effects of Brexit on businesses remain profound. 

Furthermore, as new legislation and cooperative technologies are introduced over the coming months and years, it’s likely to be an ongoing concern for many.

The details of exactly what and how Brexit will alter the day-to-day for businesses is yet to be fully realised. 

effects of brexit

Trade Deal

However, following the UK-EU agreements announced in December and January’s publication of the Trade and Cooperation Agreement (TCA) or ‘trade deal’ as it is commonly termed, there’s plenty for businesses to be getting to grips with.

Unfortunately, there’s no getting around the fact that the agreements are very complicated. 

The only way to be absolutely certain that you continue trading correctly is to seek expert knowledge for your individual situation. Our VAT team can help you with this.

But, to help you to begin to understand the VAT implications for your business, this article will outline some of the important parts of the agreements.

The effects of Brexit on the amount of VAT payable by your business

Following the end of the Brexit transition period, a ‘hard’ regulatory border now exists because the UK has left the Customs Union.

This means that VAT becomes payable on all goods (over the value of £135) imported into Great Britain (England, Scotland, Wales and the Isle of Man) from the EU as well as the rest of the world.

This is called import VAT.

The only exception continues to be Northern Ireland which remains part of the EU customs and VAT regime. 

Current guidelines suggest that goods moved between Great Britain and Northern Ireland will largely be treated as they are today in respect of VAT and won’t be subject to import VAT.

The amount of import VAT payable is dependant on the valuation of goods received is and normally charged at the same rate as goods supplied in the UK.

effects of brexit

Importing goods from the EU following Brexit

You’ll need to get your business ready to import goods as you (or your representative) will be responsible for declaring them.

Generally speaking, as far as customs are concerned, the following is now required for importing goods from the EU:

  • In order to complete customs procedures, you’ll need an EORI number so that EU customs authorities can identify you. You may have already received this. If not, you can apply for an EORI number here.
  • You’ll need to specify the origin, classification and customs value of the goods you’re importing. For this, you’ll need an accurate statement from your supplier in the EU that contains this information. Values taken from an invoice may not suffice
  • You’ll need to declare any controlled goods that have additional excise duty applied. Just like you do at the airport if you’re bringing back alcohol or tobacco from your holiday.
  • Pre-notification and relevant health documentation is required for any products of animal origin (POAO) or regulated plant and plant product.

VAT registered businesses

To help businesses in England, Scotland and Wales that are VAT registered to adapt to the changes and to speed up the customs declaration process, ‘Simplified Customs Declarations’ can be applied for

This process (which is also referred to as the Customs Freight Simplified Procedure) allows authorised companies to make an entry into their own commercial records or complete a simplified frontier declaration prior to importing goods. 

At a later date, a supplementary declaration is required to complete a full customs declaration.

For a limited amount of time (until the end of June 2021) the requirement to send the supplement declaration and pay customs duty can be delayed for up to six months (or 175 days).

As of July 1st 2021, authorised companies may continue to make simplified declarations prior to importing goods, but supplementary declarations and full payment must be received by the fourth working day of the month after the initial, simplified, declaration is made.

For more information, or to get started importing goods into the UK, the government website contains step-by-step instructions.

Ways to pay import VAT

Once you’ve made your declarations and your goods have arrived in the UK, there’s import VAT to pay.

Unmanaged, import VAT has the potential to cause delays, this is because goods may be held in customs until payments are made.

Furthermore, physically paying import VAT each time you import goods can have a negative impact on your business’ cash flow.

To avoid these issues, if your business is registered for VAT in the UK, you have the option to use a new system called postponed VAT.

This allows you to account for import VAT on your VAT return, rather than paying for it immediately at the port of entry.

If you’re a regular importer, it may make more sense to pay monthly. 

Businesses authorised to use the Simplified Customs Declaration may also apply for a Duty deferral account

You’ll still be required to use postponed VAT (as this is a pre-requisite to the Simplifed Customs Declarations process) but you’ll be eligible to pay VAT and excise duty on a monthly basis. 

If you’re not registered for VAT, or a non-established taxable person, you’ll need to get someone to deal with customs for you.

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How Brexit will affect your VAT return

As you might expect, with all of these changes, VAT returns submitted for the March 2021 quarter will be very different.

Businesses will need to take extra care before firing their returns off to HMRC as the figures in many cases will be incomparable with those from the previous term.

Information that was only relevant whilst the UK was part of the EU will need to be removed as it is no longer required. 

For those businesses that opted to postpone VAT accounting on goods imported from the EU, values from VAT statements downloaded from HMRC’s Customs Declaration Service will need to be entered in addition to those for the net value of the goods received.

As a result, businesses should be prepared for higher or lower VAT payments than they are used to depending on how they choose to manage import VAT.

The effects of Brexit on your business

From a VAT perspective, the effects of Brexit on your business will be entirely dependant on where you import goods from and how you choose to manage import VAT.

For example, for some businesses that are used to importing goods from outside the EU, postponed VAT can provide cash flow benefits because it removes the need to account for the import VAT typically due.

Service-based businesses and those that reply on goods supplied from the UK will be largely unaffected by the way VAT is accounted for, and the amount of VAT payable.

For those businesses that are affected, the main impact likely to be experienced, on a day-to-day basis, is administrative. 

The declaration process and VAT deferrals will take some getting used to. 

Additionally, when it comes to customs, you may find that additional documentation is required.

effects of brexit

Is there an easier way to understand it all?

Unfortunately not. As mentioned above, the new legislation is very complicated.

If you’re finding it difficult to navigate, you’re certainly not alone. 

Talk to our experienced VAT team for more information on your individual situation. We’ll help you to make sure everything is in place so that you can continue to trade confidently.