EU Imports and Exports: New VAT Rules for Goods Explained
With the Brexit transition period now behind us and a new agreement in place, the UK is out of the EU’s VAT regime. If you do business with EU customers, there are VAT procedures and rules changes you’ll need to be aware of, even if you are not VAT registered.
To help you navigate the new situation, here’s a rundown of the recent changes…
Importing goods from the EU
As from 1 January 2021, imports from EU and non-EU countries are treated in the same way.
The government now has a system of ‘postponed accounting’ in place for import VAT on goods brought into the UK. Your EU supplier should zero-rate the supply to you. Instead of paying VAT at the point the goods arrive at the UK border, UK VAT registered businesses importing goods to the UK can now account for import VAT on their VAT return.
So in practice, you will record the VAT element of the transaction in box 1 of the VAT return. As long as the purchase is not exempt for reclaiming purposes (for instance, it would be exempt if it’s not legitimately a business purchase), you can reclaim the VAT in box 4 of your VAT return. Basically, there’s a zero net effect on your return.
Low value imports
There are new VAT rules for low value imports coming into the UK that you’ll need to be aware of. Under these rules, a shipment is treated as ‘low value’ if its value is less than £135.
Low value consumer imports
If you buy a low value consignment of goods from overseas for personal use, the seller should charge you UK VAT at the point of purchase. If the shipment is worth more than £135, and if you’re not buying it through an online marketplace, you will need to pay import VAT at the border.
Low value business imports
If the low value purchase is for your business, the seller does not have to charge UK VAT on the sale. If you are VAT registered, you can then account for the VAT as a reverse charge on your VAT return using postponed accounting. If you are not VAT registered, you pay the import VAT at the border.
Rules for imports purchased through an online marketplace
These rules apply if you are buying from an overseas seller via the likes of Amazon. For such transactions, you will pay VAT at the point of purchase. The marketplace must be registered for UK VAT (as opposed to the individual seller). These rules apply to both business and consumer sales.
Exporting goods to the EU
Selling goods to EU businesses
It remains the case that VAT-registered businesses can zero-rate sales of goods to EU businesses.
EU states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries. This means that import VAT is due when they arrive in the EU.
The rate applied is based on where the goods will ultimately be supplied to. So, for instance, if the company you are supplying goods to has its head office in Germany, but the goods are being purchased for their Austrian branch office, the place of supply is Austria, and Austrian VAT rates will apply. You ought to be able to use the Common Transit Convention (CTC) to complete customs procedures away from the border and defer import VAT and customs duties until goods reach their final destination.
Selling goods to EU consumers
As with the case for b2b sales, consumer exports should be zero-rated for UK VAT, which means you apply a 0% VAT rate as part of your VAT accounting. Although, of course, the buyer will still need to pay VAT in the country the goods are used in.
Now that the transition period has ended, the UK is no longer part of the EU distance selling rules for consumer sales. So essentially, you have two options for consumer sales:
1) Consider moving some of your stock into a storage facility based in the EU and register for VAT in the country where you hold the stock.
2) Register for VAT in each of the EU countries that you sell to. (A freight forwarder or customs agent should be able to advise you on the best option for your business).
Applying the rules around VAT is complicated. The above information is indicative only and incomplete. We would recommend getting in touch and speaking to us if you have any queries in relation to Brexit VAT changes. Also, see our post on Brexit changes to VAT on services for more information.
Looking to streamline your VAT, payroll, and other finance functions to focus on your core business? Speak to MJH Accountancy today.