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Markel Tax

01 Feb 2021

FAQs: How has Brexit affected VAT?

Since 1 January 2021, businesses in the UK have had to consider imports and exports in a new way.

Customs procedures apply to England, Wales and Scotland when it comes to trade with European Union (EU) countries, and when moving goods to Northern Ireland too.

And the way VAT is accounted for has also changed. For importing, this VAT change affects trade with both EU and non-EU countries.

That’s why, understandably, our VAT helpline has been busy with calls from those who trade oversees wondering how to navigate VAT in our new post-Brexit world. Below, we’ve answered some of the most commonly asked questions that have come into us.

Q: My client sells adult clothing from its Birmingham warehouse to businesses and consumers globally. Do they still have to charge UK VAT to consumers?

A: Only sales to UK destinations will carry UK VAT. Post Brexit, sales of goods shipped from GB to a non-UK destination can qualify for UK VAT at 0% (irrespective of the customer's business or VAT status) as long as the seller has the appropriate evidence of removal from the UK (as explained in detail in HMRC's VAT Notice 703 on exports).

For sales to the EU there will no longer be any Intrastat or EC Sales List reporting requirements and no distance selling considerations, although there may be export procedural requirements; these can vary depending on the nature of the goods. As with exports pre-Brexit, the seller will however need to consider contractual terms about which party (seller or customer) is responsible for the import into the destination country.

If the UK seller is responsible for the import, it may have customs duty, import VAT and VAT registration (or other tax) obligations to deal with in the destination country (for which advice should be sought from tax specialists in that country).

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Q: I have a client who sells high-volume, low-value, mobile phone accessories via both eBay and his own website to the consumer market. Order values are typically between £2 and £50. She supplies these from her warehouse in Wales. Do these new £135 rules apply to her?

A: No. As the client is based in the UK and the goods are already in the UK at the time of sale, the new £135 rules do not apply to her. For all sales, UK VAT will apply in the normal way; standard-rated (20%) VAT for all sales with UK delivery addresses and zero-rated for exports to outside the UK (subject to export zero-rating requirements).

If the client is not already UK VAT registered, all of these sales will count towards her UK VAT registration threshold.

Please note that for goods delivered to NI customers, there will also be a customs declaration required (but no customs duty to pay as long as under £135 and VAT accounted for in the same way as other UK sales) as this is now treated as an import into NI for duty purposes.

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Q: My Chinese client sells toys into the UK consumer market via online marketplaces like eBay and Amazon. My client's sale is direct to the consumer and, historically, if an invoice was ever requested, it is addressed by my client to the consumer. My client holds no stock in the UK and ships all orders direct to consumers from its Hong Kong warehouse. Order values can be anything from £5 to £200 but are mostly below £60. I understand Amazon and eBay are responsible for the UK VAT now and my client will not have to VAT register in the UK?

In part, yes. For orders under £135 the online marketplace is indeed responsible for accounting for the UK VAT on the sale to the consumers and these sales would not require the Chinese seller to become UK VAT registered.

However, for orders over £135, customs duty (likely to arise on this type of goods) and import VAT will need to be paid for by either your client or the consumer customer (but not the online marketplace). You will need to look at the terms of your sale to establish whether the customer (default) or seller is responsible for the import into the UK (and therefore responsible for the import declarations and payment of VAT and duty).

Note however that some online marketplaces make sellers use DDP selling terms; this means "delivered duty paid" and essentially makes the seller responsible for the import into the UK. If the Chinese seller is responsible for any of the over £135 consignments imported, then it will need to VAT register (zero threshold for non-UK businesses) and deal with the import duty and VAT and charge/account for UK VAT on these sales to the consumers.

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Q: My client is a GB-based trader selling second-hand items under the second-hand margin scheme. They purchase most of their items from dealers in the EU, but I have heard that since the UK is no longer in the EU they will no longer be able to sell the items bought from the EU under the margin scheme, is that correct?

A: Yes. This is because goods that arrive into GB from the EU are now imports, meaning import VAT will be payable on their full value at arrival. As VAT will have been separately incurred on the purchase of the goods, they become ineligible to be sold on under the margin scheme.

When the goods are sold on to UK customers, VAT at the relevant rate should be charged on the full value. If the goods are sold to customers outside the UK, then this will be an export which can be zero-rated subject to certain criteria being satisfied; these can be found in VAT Notice 703 section 3. As the goods will be used to make onward taxable supplies the import VAT will be recoverable, subject to holding the correct evidence.

Please note: the above does not apply if the goods being imported meet the definition of works of art, antiques or collectors’ items. For these items, traders can exercise an option to use the margin scheme - further details can be found in sections 10 and 20 of VAT Notice 718.

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Q: We complete tax returns for individuals who are based all over the world. Previously we would have charged UK VAT on the supplies to customers within UK and EU, however for those who were based outside the EU, we would not have charged VAT. Will we need to make any changes now the transition period has ended?

A: Accountancy services fall under special place of supply rules when sold B2C (along with certain other intellectual and professional services as per chapter 12 of VAT Notice 741a).

Pre-Brexit, the place of supply was where the supplier belongs for EU (inc. UK) customers, but where the customer belongs for non-EU customers.

Post-Brexit, the place of supply is where the customer belongs for all B2C sales, so outside the scope of UK VAT for non-UK customers. Local advice should, however, be sought in those countries to determine whether there are any local VAT/tax implications (e.g. VAT registration liability) there as a result of this change.

If you require any further advice, Markel clients can contact our in-house tax and VAT helpline using their usual contact details. If you’re not a Markel Tax customer and would like to find out more about partnering with us and our range of services, including our in-house helplines and our global VAT compliance service please call 0345 223 2727.

 
Tagged Value added tax (VAT) services
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Global VAT Compliance now available through Markel Tax!