There are new procedures for VAT reporting after Brexit from 1 January 2021 for EU sales lists, Intrastat returns, the flat rate scheme (FRS) and the retail export scheme.
VAT Reporting After Brexit – VAT Flat Rate Scheme
There will be three main changes:
Goods purchased from EU suppliers
Under the current rules, a scheme user accounts for acquisition tax in box 2 of their return but does not claim input tax in box 4, unless the goods relate to capital items exceeding £2,000 including VAT, in which case input tax can be claimed in box 4. This would apply where the UK business buys a new machine from Germany.
From 1 January 2021, EU acquisitions will become imports. A scheme user can still adopt postponed accounting for VAT purposes but the VAT entry on the FRS return will move from box 2 to box 1. Box 4 treatment is the same.
Goods sold to EU customers B2C
If FRS users sell goods to non-VAT registered customers in other EU countries until 31 December 2020, they will charge UK VAT. It is unlikely that an FRS user would have exceeded the distance selling thresholds and be registered for VAT in the customer’s country. The gross sales figure is included in the FRS calculations.
From 1 January 2021, these sales will be zero-rated for UK VAT purposes (export of goods) and subject to VAT and import duty when they arrive in the destination country. Zero-rated sales are included in the FRS turnover figure, so this creates an unwelcome VAT liability for scheme users.
It is only sales which are outside the scope of VAT that are excluded from the FRS calculations, such as most services supplied to B2B customers based outside the UK.
Boxes 8 and 9 will always be zero for a GB business because EU purchases and sales of goods are no longer classed as arrivals and dispatches.
VAT Reporting After Brexit – EU Sales Lists
Great news – these are not needed after 31 December 2020 for a GB-based business! This is the case for both goods and services.
EU businesses will not need to complete ESLs in their country for sales they make to VAT-registered businesses in GB because Great Britain (UK excluding Northern Ireland) will be a non-EU country. The status quo continues for Northern Ireland based businesses, so they will continue to complete ESLs for the same sales as they do now.
VAT Reporting After Brexit – Intrastat Returns
Partial good news here – the arrivals returns need to be completed by GB businesses for 2021 at least, and possibly longer. This is because the opportunity to defer customs declarations until July 2021 for most imports means the returns are important for the government’s trade statistics.
Arrivals reports must be completed by UK businesses that annually buy goods from EU suppliers exceeding £1.5m.
The reason that the government will not require Intrastat dispatch returns is that it can collect this information from export customs declarations.
VAT Reporting After Brexit – Retail Exports
The retail export scheme means that retailers can sell VAT-free goods to shoppers if the goods are taken out of the EU. The government has announced that the scheme will be abolished on 31 December 2020.
An alternative option is for the retailer to directly ship the goods outside the EU, acting instead as an exporter and making a zero-rated sale of goods. Otherwise, tourists will have to pay 20% VAT in the same way as domestic buyers.
VAT Reporting After Brexit – EORI Numbers
I am still hearing tales that some businesses who import or export goods have not yet applied for their GB Economic Operator Registration and Identification (EORI) number from HMRC.
This should be done as soon as possible, so give your clients a nudge if needed. The EORI application process only takes about 15 minutes, and numbers are usually issued within seven days.
Irrespective of whether we get a deal or no deal with the EU, there will be changes to VAT reporting after Brexit.Brexit