When the United Kingdom left the European Union at 11pm on 31 December 2020, the world of indirect taxes and particularly VAT changed in an instant. Some changes have gone largely unnoticed but others have created headaches and nasty surprises.
Here we highlight some of the key changes that have taken place. First, the good news...
For private individuals, duty-free shopping from the EU has returned. Duty-free allowances now mean that each person can bring back 42 litres of beer, 18 litres of still wine, and either four litres of spirits or nine litres of sparkling wine, fortified wine or any alcoholic beverage less than 22% ABV.
However, if you used to fill up the boot of your car in France with wine or beer, and come back through the EU's dedicated blue channel, having paid lower French taxes, beware! Any amounts above the limits above may be liable to UK duty and VAT so you may end up paying both UK and French taxes.
For businesses that import goods, having to pay import VAT to HMRC before the goods could clear customs is a thing of the past. Most VAT-registered businesses now elect to pay the import VAT when they submit their VAT returns, and if they are entitled to full VAT recovery, they reclaim the import VAT at the same time.
This means no costly cash flow issues.
The travel industry has been hit hard by the pandemic and is slowly recovering with airports seeing more passengers following the vaccine roll-out and easing of travel restrictions.
The additional good news for tour operators is that their margin – the difference between the selling price of the holiday and the bought-in flights and accommodation – is now VAT-free for package holidays taken outside the UK. While the UK was in the EU they had to pay 20% VAT to HMRC.
The EU trade declarations, called Intrastat, have almost gone (arrivals still need to completed for period), as have the returns showing sales to EU businesses called EC Sales Lists. The removal of these onerous trade reporting requirements will be well received by those who deal with EU business customers.
A niche area where EU departure is beneficial is that businesses that sell financial or insurance services to EU customers can now recover their VAT. This levels the playing field for them with the rest of the world. While the UK was in the EU, these services were exempt preventing VAT recovery on costs.
Of course, there is bad news too...
Businesses that trade with the EU face an increased compliance burden as customs declarations are needed for both goods going to the EU as well as coming into the UK. These have replaced the EU statistical declarations known as Intrastat declarations.
Furthermore, many online retailers are still finding their feet under the new rules for selling goods to EU consumers. Where the retailer has not taken positive steps, many EU consumers have been faced with unexpected demands for payment on the doorstep, as the delivery company has been obliged to collect local VAT and a handling fee. Since 1 July 2021, the situation has theoretically eased as retailers can opt in to the 'Import One-Stop Shop' (IOSS) and deal with the consumer’s VAT at the point of sale for items valued up to €150.
Even UK businesses providing services, including electronically supplied services, to EU consumers have had challenges. They are no longer able to register within the 'Mini One-Stop Shop' (VAT MOSS) but have had to re-register for the 'Non-union One-Stop Shop', which has been available since 1 July.
Finally, one of the most complex areas has been the movement of goods between Great Britain and Northern Ireland. Under the Northern Ireland protocol, this part of the UK remains under the EU for goods purposes.
This has led to the need for business trading across the Irish Sea, or with bases in Great Britain and Northern Ireland having to complete customs declarations to move goods. The new checks and paperwork are complicated in that they depend on the type of goods, who is moving the goods and where they cross the borders. There are also additional VAT considerations in determining when to charge UK VAT and through which VAT number.
While Brexit has created some positive outcomes in the area of indirect tax, with some niche VAT benefits, many businesses may feel that the present challenges outweigh these.These are not insurmountable, however, with due consideration and appropriate planning.
If you would like to discuss any of these points or other indirect tax issues, please contact Paul Wilson.