If your business exports goods or services to the European Union, your VAT world has been shaken up since the UK left the EU. As of 1 January 2021, UK businesses have to work within new customs procedures for trade with the EU and Northern Ireland.
For those who had previously only experienced the free flow of goods across EU borders, the customs and VAT rules have caused some major headaches. Whilst a customs broker or freight forwarder can help to a certain extent, there’s no substitute for solid VAT advice from an experienced accountant, like Alan Sowden, Technical Director at CRM Oxford, for instance.
A closer look at VAT on exported goods and services
Export VAT is a tax on goods and services provided outside the UK. It is dependent on where your UK business is based; where your customer is based; whether your customer is VAT-registered; whether you sell goods or services and how much you sell.
Generally, export VAT only applies to sales within the EU so goods and services sold outside the EU can be zero-rated, as long as you keep adequate records. For export VAT purposes, Northern Ireland is classed as part of the EU.
Exported goods are categorised as direct and indirect. For VAT purposes, when a supplier sends goods to a non-UK destination, the transport of these direct goods is the responsibility of the supplier (or appointed freight agent). An indirect export is when an overseas customer collects the goods from the UK supplier and takes them outside the UK.
Whether direct or indirect, exported goods are zero-rated in the UK as long as conditions are met. VAT and customs duties are paid in the destination country so it’s vital that all parties agree who is responsible for paying the necessary fees.
Import VAT can be deferred until goods reach their final destination and some customs procedures can be completed away from the border by using the Common Transit Convention (CTC). Some businesses may need to provide a guarantee to cover import VAT and customs duties during transportation.
Rather than completing an EC Sales List, British VAT-registered businesses exporting zero-rated good to EU businesses should retain evidence that goods have left the UK. Businesses in Northern Ireland are still required to complete the EC Sales List.
Import of goods
A recent change concerns the accounting for VAT on the import of goods. Previously, you needed to pay import VAT either to the shipping agent or direct to HMRC and then reclaim on your VAT return. Now you can account for this by postponed VAT accounting, meaning you pay the import VAT on the same VAT return on which you reclaim it, as a reverse charge. It makes sense to take advantage of this option to avoid the cashflow detriment of paying the VAT out in order to reclaim it. On a practical point, each shipping agent has their own defaults, so you may need to notify your delivery agent of your option. HMRC guidance on this point is available here.
The supply of services to EU customers
Supplying services to the EU is treated the same for UK VAT purposes as for customers outside the EU. The VAT ‘place of supply’ rules continue to apply except for digital services to non-business customers where the VAT is due in the EU member state where the customer resides. Insurance and financial services also fall under this rule where they were previously exempt.
EU VAT refunds
Businesses can no longer recover VAT incurred in other EU countries using the standard electronic system, this now needs to be done using the existing refund system for non-EU businesses. Each EU country may have a different system in operation.
EU VAT Registration Number validation
UK businesses can continue to use the EU service to check the validity of an EU customer’s VAT Registration Number but UK VAT numbers are no longer included. HMRC has a service for checking UK VAT numbers.
To fully get to grips with the ins and outs of the current export and import VAT situation, contact the experts at CRM on 01865 379272.
