You may be wondering what changes, if any, might affect you from 1 January 2021. For clients who provide consultancy services, there is little to no change, and just the first few paragraphs here will be relevant. Here is a summary of the main points.
Services provided to businesses or individuals outside the UK
If you provide services to another business overseas, nothing is changing. All such services will be treated the same, whether EU or non-EU and be outside the scope of UK VAT. The supply is deemed to be made in the country where the customer is based, and no UK VAT is chargeable.
There are some exceptions to the above that have special rules, such as admission to events, services related to land, digital services and services affected by the use and enjoyment over-ride.
These rules will continue to apply from 1 January 2021.
Currently, certain services provided to individuals who are based in the EU, such as accountancy and consultancy, are subject to UK VAT because the place of supply is deemed to be where the supplier resides. From 1 January all such services will be outside the scope of UK VAT, whether made to an EU customer or a non-EU customer and so no UK VAT will be chargeable.
Services purchased from an overseas supplier
Services purchased from the EU will continue to be treated as a reverse charge. Therefore, you should record the UK VAT in Box 1 of your VAT return and in Box 4 (provided your business can recover purchase VAT). The value of the reverse charge should be included in Boxes 6 and 7. You should continue to advise all overseas suppliers that you are a business, by providing them with your VAT registration number, otherwise, they may apply VAT to the cost.
Insurance and financial services
Input tax related to these services can currently only be recovered if they have been provided to non-EU customers. From 1 January 2021 input tax recovery will be extended to all overseas customers.
Can I recover foreign VAT on expenses incurred outside the UK?
You can continue to claim refunds of overseas VAT incurred but this will now need to be done via paper and is likely to be a much lengthier process. The system will vary by country and will depend on the existence of a reciprocal agreement. If you regularly incur large amounts of overseas VAT on things like hotels and subsistence, you might want to engage one of the specialist companies that arrange the recovery on your behalf.
What about EC Sales Lists?
You will no longer need to complete an EC Sales List. However, businesses exporting goods will need to retain evidence to prove when the goods left the UK.
These are downloads from a website or app with minimal or no human intervention. Examples are films, music, software, games, or training courses.
Digital services provided by a UK business to an EU business are currently treated as a reverse charge and so no UK VAT is payable. This will continue for all digital supplies made by a UK business to any business outside the UK. An exception is an override called ‘use and enjoyment’ which currently applies to non-EU business customers, but will now apply to all overseas business customers. The override applies when the product is used (enjoyed) in the UK and shifts the place of supply to the UK so UK VAT would be chargeable.
For digital services supplied to individuals (non-business customers), the place of supply will continue to be where the customer resides and so VAT will be due in the country where the customer lives. The current EU Mini One-Stop Shop (MOSS) scheme will no longer be available to deal with these supplies. There is an option to register for the non-Union scheme to account for the VAT or you will need to register for VAT in each member state to which your customers belong.
Use and enjoyment
Apart from digital services, the use-and-enjoyment rule also applies to some other services such as telecommunications, broadcasting, and hiring of goods, which could result in more businesses needing to register for VAT in another EU country.
Import of goods
Acquisitions from the EU will now be called imports and will be treated the same as those from outside the EU.
The £15 low-value consignment threshold is to be abolished in the whole of the EU from 1 January so import VAT will be due on all imports.
HMRC are introducing a new ‘postponed accounting’ option for dealing with the import VAT on goods brought into the UK. This means you will be able to account for import VAT on your VAT return, rather than paying the VAT on arrival at the UK border, which will be a great help for cash flow. You will need to record the VAT in box 1 of your VAT return and, provided you are able to recover the VAT on the purchase, also in Box 4, and the net value in Box 7. A monthly statement will be available online showing these amounts.
The declaration and payment of any other duties will still be required. Customs duty will be payable unless the consignment is less than £135 (€150 equivalent).
Vat on consignments that have a value of up to £135 will be collected at the point of sale rather than on importation and therefore UK VAT will be due on these. For goods sold directly to UK individuals, the overseas seller will be responsible for accounting for the UK VAT due to HMRC. Goods sold business-to-business will also be subject to these new rules. However, if the business customer is VAT registered and provides its registration number to the seller, the VAT can be accounted for by the customer by means of a reverse charge. It is therefore important to provide the seller with your VAT registration number, otherwise, it will be treated as a sale to an individual and UK VAT charged.
Export of goods
Exports to all businesses outside the UK will be zero-rated. There is no requirement to obtain the customers’ VAT numbers. The customer in the EU will account for the import VAT and any import duty.
The distance selling thresholds relating to goods sold to individuals in the EU will be withdrawn and all exports will be zero-rated.
An EORI number is currently required by all UK VAT-registered businesses that make imports or exports between the UK and non-EU countries. From 1 January 2021, this will be required for the movement of goods between Great Britain and any overseas country. If you do not have an EORI already you should apply for one as soon as possible.
Trade between Great Britain and Northern Ireland (with a BT postcode)
The Northern Ireland Protocol sets out different rules for trade between GB and Northern Ireland and is an area which is still under discussion. However, Services to and from Northern Ireland are expected to continue to be treated as if made within the UK and fall under UK VAT rules.
The withdrawal agreement provides that Goods moving between Great Britain and Northern Ireland, should be treated as exports and follow EU rules. However, the UK intends to treat these sales as domestic sales which will continue to be reported as a UK supply and so no import VAT will be due.
HMRC has set up a free Trader Support Service (TSS) to help guide businesses that move goods between Northern Ireland and Great Britain.