In our multistate practice, we often receive questions about doing business internationally. It’s important, in that case, to have a good referral partner for VAT and GST work, which Miles Consulting does not specialize in. We are pleased to feature another article this week by our colleague Richard Barrett of Vatglobal, describing the new landscape of doing business in a post-Brexit world. In our recent blog, we highlighted the Brexit transition period has now come to end, and the UK is no longer part of the EU for VAT purposes. This change brings with it a host of changes to the VAT treatment of supplies, many of which will directly impact US businesses who engage in transactions in the UK and EU. Below, Richard has highlighted some of the key areas that have changed.
Note that the vast majority of changes relate to the sale of goods, but there are subtle changes involving services which may also require consideration. Please find his contact information below. Thanks Richard!
Below, we have highlighted some of the key areas that have changed.
Note that the vast majority of changes relate to the sale of goods, but there are subtle changes involving services which may also require consideration.
Sales directly to UK consumers
As mentioned last time, the ‘low value consignment relief’ previously in place in the UK has now been removed, meaning that all sales to UK consumers from outside of the UK will be subject to VAT. However, where the consignment is less than £135, UK VAT is due at the point of sale rather than payable at the time of import (and then subsequently recovered).
This change will mean that US sellers who send goods directly to UK consumers under the threshold amount will have an immediate UK VAT registration obligation (a zero registration threshold exists). Note that US businesses can register directly in the UK and do not require a fiscal representative. Additionally, VAT registration is in isolation and does not automatically other taxation requirements (i.e. corporate tax).
Whilst the above will apply for direct sales, any sales made through online platforms will generally mean the platform operator is required to account for UK VAT. If a combination of direct and platform sales are made, this will require careful consideration to identify responsibilities.
Where the sale exceeds £135, or is a sale of non-qualifying goods (such as excisable goods), the above does not apply and the business will be liable to pay and recover import VAT at the time of import and charge UK VAT on the sale (subject to commercial terms).
EU to UK sales
Prior to 1 January 2021, if US businesses made sales of goods from the EU to the UK, the process was fairly straightforward. Indeed, where B2B sales were made, these would generally be zero rated with the UK business self-accounting for UK VAT on the supply (subject to conditions), and B2C sales would be subject to EU VAT in the country of dispatch (until the UK distance sales threshold was breached).
However, post Brexit, these supplies will now represent exports from the EU and imports into the UK. The export of goods from the EU can be zero rated provided that the supplier submits official export documents to customs and retains suitable transport documents. Upon arrival, UK import VAT will be payable (subject to sales value), as well as potential customs duties and the party responsible for paying this will be determined by the commercial terms.
The commercial terms must be carefully considered, particularly for B2C supplies, as if the customer is responsible for payment of duties/taxes this makes for a negative customer experience.
Another key consideration is around the export process. As a non-EU business, a US entity cannot be named as the exporter of goods, and an EU established representative will be required for these purposes. Similarly a UK established representative is required to import into the UK.
UK to EU sales
When considering the sales from the UK to EU, the reverse of the above will apply, and the sales will represent a zero rated export from the UK, subject to meeting conditions.
Again, the commercial terms of the sale must be carefully considered, and if the US supplier is responsible for EU import taxes and duties, this may give rise to numerous VAT registration obligations, at least until July 2021.
In July 2021, a new one-stop scheme will be implemented meaning certain transactions will be reportable on a single EU VAT return, rather than up to 27 separate returns. This will be based on sales up to €150 in value.
Again, a US business cannot be named as the exporter from the UK if they have no establishment, and so the requirement for a UK representative exists.
Transactions involving Northern Ireland
Whilst Northern Ireland is part of the UK, specific rules apply to goods entering or leaving the territory under the Northern Ireland protocol.
At a high level, goods moving between the EU and Northern Ireland (and vice versa) will continue to be treated as an intra-EU supply of goods, subject to the pre-Brexit rules and reporting.
Where goods move between Northern Ireland and mainland UK (and vice versa), this will be a domestic supply in the UK subject to UK VAT, however customs documentation will be required to be submitted for these transactions.
If goods move to mainland UK from the EU via Northern Ireland, particular rules will apply which should be carefully considered.
Supplies of services
The VAT changes as a result of Brexit largely relate to the supply of goods but services may be affected in limited circumstances.
Whilst the UK currently retains much of the EU VAT law for the treatment of services, the use and enjoyment rules have been extended further in the UK.
The effect of this is where a supply of certain services is made to non-UK parties, and the supply is effectively used in the UK, UK VAT will now be due on the supply, where it hadn’t been previously to EU customers. Particular services caught by these rules are the letting on hire of goods and telecoms.
Brexit has brought about many changes, many of which will impact US businesses. We would be happy to conduct transaction reviews and advise on requirements for businesses to remain compliant, whilst being as VAT efficient as possible.
Richard Barrett CTA ATT, is the Head of Consulting at London based firm Vatglobal.
