Deal or No Deal - Brexit VAT Guidance

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The Government yesterday offered clarification to UK businesses that supply and receive goods to or from other jurisdictions, applicable to the (increasingly likely?) position where the UK leaves the EU in a "no deal" scenario.

Whilst there was a small amount of positive news – applicable mainly to those businesses that bring goods into the UK from overseas - the announcements did little to alleviate the prevailing concern that Brexit will likely bring with it an administrative and financial burden which simply does not exist for those currently transacting with the EU and beyond.

In Summary

Briefly, the announcements confirmed the following:

• The relatively positive news that in a "no deal" Brexit, the government will introduce "postponed accounting" for import VAT on goods brought into the UK. This means accounting for import VAT (both the 'output' and allowable 'input' elements) via a VAT return, rather than paying import VAT at or near the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries and represents a positive shift in policy from a cash-flow perspective.
• Customs Duties will apply to the importation of goods to the UK from the EU, which is currently not the case. Crucially, unlike import VAT, Duty is not recoverable – either in whole or in part - and therefore will unfortunately represent an additional absolute cost to doing business in the way it has always been done.
• Subject to specific exceptions, import VAT will become due on vehicles brought into the UK from EU member states, which is not the case currently.
• Businesses will no longer be able to use the UK’s Mini One Stop Shop ("MOSS") portal to report and pay VAT on sales of digital services to consumers in the EU. Instead, businesses that wish to continue to use MOSS accounting will be required to register for the VAT MOSS non-Union scheme in an EU Member State, which brings with it further considerations and complexities.
• Rules will change around VAT on goods entering the UK as parcels sent by overseas businesses. The current position - Low Value Consignment Relief - under which a threshold is applied before goods are subject to import VAT, will not apply post Brexit.  This means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT.

Commentary

With little over six months until these changes are stated to take effect, it is likely that these announcements will be further cause for concern to businesses affected by Brexit.

Alongside the cash flow impact of more transactions being within the scope of import VAT, the Customs Duty aspect to Brexit will arguably be equally, if not more, challenging for some businesses than the VAT position. This is because whilst VAT may be a familiar (yet unwelcome!) concept to some organisations, Duty may be wholly or overwhelmingly unknown if there has never been cause to consider it in the past – which would likely be the case for example if all business is UK or EU-centric.

Customs Duty is a complex regime, and we anticipate that businesses unfamiliar with its operation may need support in arriving at – amongst other things - the correct classification and valuation of imported goods, the various administrative requirements which must be fulfilled, and to identify which of the many Duty reliefs they may be able to benefit from.

How can we help?

We understand that the lead-up to Brexit may be a daunting time for affected businesses and for this reason have worked with many client clients to understand the increased financial and administrative cost, and also to implement any feasible mitigation steps which exist. What we have found to work well is an initial Brexit "impact assessment" or "readiness review" in order to identify and quantify the ‘cost’ of Brexit on various levels, which is then built upon and developed to provide bespoke solutions.

If you wish to discuss how Armstrong Watson can assist, please do not hesitate to get in touch.