Donald Reid Group

Brexit and VAT– what happens if there is no deal?

With Brexit looming, HMRC have issued several publications for businesses to consider how a “no deal” might affect them. 

Goods to and from the EU would have to be treated as we currently treat non-EU movements, which means import, export declarations and safety and security declarations would have to be made.

There would also be a significant impact on VAT on cross border transactions. Here, in this blog, we give an overview of the treatment on UK transactions to and from EU countries in the case of a no-deal scenario, based on recently published HMRC guidance.

We do strongly advise you to read in detail the HMRC guidance notes listed at the end of this article and to seek professional advice.

Accounting for import VAT for goods imported into the UK

If the UK leaves the EU without an agreement, postponed accounting for import VAT on goods brought into the UK will be introduced and will apply to imports from both EU and non-EU countries. This means that import VAT will be accounted for on the VAT return rather than paying import VAT on or soon after the goods arrive at the UK border.

If postponed accounting is introduced, there may be a cash flow benefit for those companies currently importing from non-EU countries as they would no longer be required to pay the import VAT at the point the goods arrive at the UK border.

VAT on goods entering the UK as parcels sent by overseas businesses

If the UK departs from the EU without an agreement, VAT will be payable on inbound parcels sent by overseas businesses. If the parcel has a value of up to £135, VAT will be charged at the point of purchase, and the overseas business can account for the VAT due via HMRC’s digital service. If the goods sent as parcels are valued over £135, VAT will be collected from recipients in the same way that parcels from non-EU countries are currently treated.

UK businesses exporting goods to EU consumers

Current distance selling arrangements will no longer apply to UK businesses in a no-deal scenario. This means that sales of goods to EU consumers will be zero-rated.

EU countries would treat these goods from the UK as they would currently treat goods from non-EU countries and would apply the relevant import VAT and customs duties due.

UK businesses exporting goods to EU businesses

In a no-deal situation, VAT registered UK businesses would continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists.

Those UK businesses exporting goods to EU businesses will need to keep records to prove that goods have left the UK, to support the zero-rating of the supply. Most businesses already maintain this evidence as part of current processes and the required evidence will be similar to that currently required for exports to non-EU countries with any differences to be communicated in due course.

Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries with associated import VAT and customs duties due when the goods arrive into the EU. Individual EU member states may have different rules for import VAT for non-EU countries and import VAT payments may be due at the border when importing goods. UK businesses should check the relevant import VAT rules in each of the EU Member State concerned.

Place of supply rules for UK businesses supplying services into the EU

The main VAT ‘place of supply’ rules will remain the same for UK businesses, should the UK leave the EU without an agreement – but be aware that there could be some sectors in which there are changes, such as finance and insurance.

The current ‘place of supply’ rules determine the country in which you need to charge and account for VAT, which are in line with the international standards and approaches laid down by the OECD (see OECD International VAT / GST Guidelines).

For UK businesses supplying digital services to non-business customers in the EU the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU Member State within which your customer is a resident.

UK VAT Mini One Stop Shop (MOSS)

If the UK leaves the EU without an agreement, businesses that sell digital services to consumers in the EU will be able to register for the MOSS non-union scheme, which can only be done after the UK leaves the EU. Alternatively, a business can register in each EU country, where it makes sales – further information on this can be found at “EU country specific information on VAT”.

If you do have any questions about VAT and the possible impact on your business of the UK leaving the EU without a deal, please do get in touch with the team at DRG Chartered Accountants.

Further Reading

UK government’s preparations for a ‘no-deal’ scenario  

How to prepare if the UK leaves the EU with no deal

VAT for businesses for there is no Brexit deal  

Trading with the EU if there’s no Brexit deal

OECD International VAT / GST Guidelines

EU country specific information on VAT


DISCLAIMER: This information is for guidance only, and professional advice should be obtained before acting on any information contained herein. We will not accept any responsibility for loss to any person as a result of action taken or refrained from in consequence of the contents of this publication.

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