The United Kingdom (UK) left the European Union (EU) on 31 January 2020. In 2020, they reached an agreement on their new partnership, which sets out arrangements and rules that have been in force since 1 January 2021. The UK’s departure from the European Union – Brexit – has brought about a range of changes to the trade relations, customs regulations and tax rules between the UK and the European Union. These changes have affected both citizens and businesses, and have led to changes in procedures and regulations on both sides. In addition, new arrangements have been made to facilitate future cooperation and trade.
One of the key areas where the changes are being felt is VAT. In this blog, we discuss the impact of Brexit on VAT and what this means for businesses on both sides of the Channel.
What changes has Brexit brought about for businesses?
1. Customs and VAT on imports and exports
Before Brexit, the common market allowed goods to be traded freely between the UK and the EU without customs checks and without additional VAT formalities. After Brexit, goods shipped from the UK to the European Union – and vice versa – will be considered as imports and exports. This means that:
• Importers in the EU will now have to pay VAT when importing goods from the UK. This VAT can usually be reclaimed as input tax if the goods are used for business purposes.
• Exporters in the UK will have to comply with customs formalities and can apply for VAT exemption for exports.
In addition, businesses should prepare for longer delivery times and higher administrative costs due to the additional customs procedures. It is also important that businesses familiarise themselves with the new rules and requirements to avoid fines and delays. Finally, it is crucial for both parties to stay informed of any changes to the regulations that result from further negotiations between the UK and the EU.
2. Registration obligations
Many businesses in the European Union that do business with the UK may have to register for VAT in the UK and vice versa. This is because the threshold for distance sales such as online sales no longer applies and businesses will need to register in each country they sell to, depending on local thresholds and regulations. These changes could result in additional administrative burdens and higher costs for businesses as they will now have to comply with multiple tax regimes. In addition, businesses will need to ensure they meet each country’s specific VAT reporting requirements to avoid fines and penalties. Businesses that are not prepared for these changes could face delays in their operations and potential losses.
3. E-commerce and VAT One Stop Shop (OSS)
It is important to note for e-commerce businesses that the EU has introduced a new system called the One Stop Shop (OSS) to simplify VAT obligations for cross-border sales. Businesses outside the EU, including those in the UK, will need to register for the OSS when selling goods to consumers in the EU, to avoid having to register for VAT in multiple EU countries. This system allows VAT on distance sales to be declared and paid in a single return.
In addition, the OSS provides a centralised platform that reduces administrative burdens and simplifies regulatory compliance. However, businesses should pay close attention to the specific terms and deadlines to take full advantage of this scheme.
Ensuring compliance
Has Brexit also brought significant changes to your business? And do you need to adapt to new customs and VAT regulations to ensure compliance and avoid additional costs? Although these changes are challenging, you can continue to enjoy the benefits of trading between the United Kingdom and the European Union by staying up to date on the regulations.
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