To summarise some of the key VAT changes after Brexit and its impact on businesses, we have answered some of the frequently asked questions below.
The questions ranged from whether as a result of the VAT changes after Brexit, clients will need to register for VAT in mainland Europe, to distance selling and how Brexit will affect micro-businesses.
VAT changes after Brexit – Impact on Selling Goods
Q. Are we expecting many UK firms to have to register for VAT equivalents in other EU countries? Can you confirm which scenarios we need to look out for?
A. You could register for VAT in, say, the Netherlands. And then when you ship goods to your EU business customers, whether in Germany or wherever you would ship it from the UK using your UK EORI number.
And then you would receive those goods in the Netherlands with your Netherlands VAT number and your Netherlands EORI number, and the import duty and VAT will be declared there.
You would have to pay Netherlands import VAT, but you’ll get that back because you’re VAT registered in the Netherlands. If there is a duty to pay, then that’s just the cost of Brexit.
You don’t need an office or anything. It’s just sold on paper. So the sale would go from your Netherlands VAT return to your German customer. And because it’s Netherlands to Germany that is in the EU, that’s the old rule. So that’s just basically reverse charge, as long as the German customer has got a VAT number.
If you’re only going to be doing this once a year, then then it’s going to be expensive to register in another country. But if this is your bread and butter business, that you’re always supplying somebody Germany or France or whatever, set yourself up with that number in an EU country and then do it that way.
VAT changes after Brexit – Impact on Electronic Services
Q. Do we have to register for VAT in an EU country if we sell PDF copies of a magazine to EU customers?
A. PDF magazines are classed as an electronic service. Until 31 December, if you’ve got a UK business selling electronic services into the EU, then there’s a threshold of €10,000 on a calendar year basis. That means that until 31 December, we carry on charging UK VAT up to that threshold, even though we’re invoicing a private person in France or Italy, so there is a threshold.
From 1 January, two things happen: we’ve got a zero threshold for electronic services being sold by UK business into B2C into the EU so the threshold goes completely; and if the UK business was over the €10,000 threshold and was accounting for VAT in the rate that applies in the customers country (eg 25% Danish VAT, 20% French VAT, 23% Irish VAT etc) and declaring that tax to HMRC on a MOSS return, then the second big change from 1 January is [the need to] deregister from the MOSS with HMRC and then choose a suitable EU country. Let’s say, Holland.
With the Dutch tax authorities, you’ve got until the 12 February to do that to declare your January sales, submit the single non-union MOSS return to the Dutch tax authorities same principle collecting the VAT in the customers country. And at the current rate of VAT included on the non-union MOSS return.
What I think the practical outcome is in short, is that at the moment, a lot of UK businesses don’t need to worry about MOSS and charging VAT in Denmark and France because of the threshold if they’re just doing a few PDFs or a few software downloads.
But the threshold going down to zero will mean many more UK businesses will need to register for the non-union MOSS scheme from 1 Jan in order to do it correctly.
VAT changes after Brexit – Impact on Micro-businesses
Q. What does a UK non-registered, microbusiness need to do when exporting goods to the EU? What are the VAT implications?
A. Let’s say the goods land in Italy, then they’ll be subject to import duty and Italian import VAT. As a microbusiness, my view would be that the customer then will be responsible for paying the duty and the VAT.
So, in real terms, this means they’ll probably get that the recipient will get a postcard or something like that from the Italian mail, saying come down to the local depot you owe us €12, for example.
Then, once you’ve paid, you can come and pick up your parcel. I’m sure many of us have bought things off eBay or Amazon and we get the Royal Mail card that says come down to the depot and pay £28 or something like that.
That wouldn’t be a problem if everybody was used to just buying like that and having the postcard but because of the way the EU worked, it was a little bit different. So it’s a change of attitude from the EU customer’s perspective.
You could register for VAT in that country, but that seems excessive for a microbusiness. So it probably is going to be a case on the website when you’re selling it to make it clear to the customer that they may incur import duty and VAT and then at least they can’t complain if they end up having to work around the post office or the equivalent to post.
For the micro business in the UK, just that sale into Italy will be zero-rated for UK VAT purposes. So the income is included in the 85,000 registration test of the UK business. And that’s the thing with exporting goods; zero-rating that’s included in the £85,000 threshold.
For exporting services let’s say consultancy service to an Italian customer, that will be outside the scope of the VAT and ignored for the £85,000 registration threshold. And I think from 1 July 2021 it would be a little bit easier because, from that point, the UK micro-businesses could do the One Stop Shop scheme.
VAT changes after Brexit – Impact on Distance selling
Q. Regarding distance selling – I understand that all the country limits are disappearing. Will there be a different limit coming in, or will there will be no requirement to register in EU countries now based on the value of sales?
A. B2C is a customer without a VAT number in other countries. So the goods are sold B2C, they leave the UK and let’s say they arrive in Denmark.
And at the moment that’s UK VAT at the same rate as the goods being sold in the UK, so standard rates for clothes, zero-rated for children’s clothes, but then once you sell into that particular country, B2C on a calendar year, and you go over either 35,000 euros (or €100,000) and each country can choose one of those two limits (Denmark chooses €35,000 euros) you stop charging UK VAT and you get a VAT number in Denmark and charge the Danish rate of VAT which happens to be 25% and you submit Danish VAT returns.
When we come to the end of December, €35,000 or €100,000 becomes a complete red herring for GB business. And if you’ve got VAT numbers in other EU countries based on distance selling, then you can deregister.
The movement of those goods that start in GB, head to Denmark into Copenhagen, they hit import VAT import duty in Denmark, and that’s the way the tax gets to the Danish tax authorities. So there’s no need anymore for this distance selling threshold.Brexit, VAT