What is the potential impact of a 'No-deal' Brexit on Indirect Taxes?

The Government has today released a number of documents in which it provides advice in case the UK leaves the EU next year without a deal.

The documents cover a wide range of topics.  For Indirect Tax purposes, the salient points are:

Accounting for import VAT on goods imported into the UK

The Government says: “If the UK leaves the EU without an agreement, the government will introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries.”

Our view: Positive.  Import VAT will no longer be due before goods are released into the UK market.  This process will speed up the importation of goods significantly and help improve the cashflow of the businesses importing goods.

 

UK businesses exporting goods to EU consumers

The Government says: “If the UK leaves the EU without an agreement, distance selling arrangements will no longer apply to UK businesses, and UK businesses will be able to zero rate sales of goods to EU consumers.  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.”

Our view: Positive.  Currently, VAT is due on goods sold to consumers in other Member States.  Companies will be able to zero-rate their supplies, as long as they provide proof the goods have left the country – although customs and other duties will then be added once the goods have arrived in the EU.

 

UK businesses exporting goods to EU businesses

The Government says: “If the UK leaves the EU without an agreement, VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses, but will not be required to complete EC sales lists.  As UK VAT registered businesses will not be required to complete an EC sales list, there will be changes to how these sales are recorded. Those UK businesses exporting goods to EU businesses will need to retain evidence 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.”

Our view: Neutral.  There will be no EC Sales lists; however further documentation may be required and there may be potential additional costs of importing into EU countries.

 

UK businesses selling their own goods in an EU Member State to customers in that country

The Government says: “If the UK leaves the EU without an agreement, UK businesses will be able to continue to sell goods they have stored in an EU Member State to customers in the EU in line with current Rest of World rules. Current EU rules would mean that UK businesses will continue to be required to register for VAT in the EU member states where sales are made in order to account for the VAT due in those countries.”

Our view: No change from current model.

 

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

The Government says: “If the UK leaves the EU without an agreement, the main VAT ‘place of supply’ rules will remain the same for UK businesses.  The current ‘place of supply’ rules determine the country in which you need to charge and account for VAT.”

Our view: No change from current model.

 

Businesses supplying insurance and financial services to EU customers

The Government says: “For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed.”

Our view: Positive.  Businesses currently selling to the EU are not entitled to recover VAT on their costs.  Any change may allow these businesses to voluntarily register for VAT and recover their input VAT.

 

Businesses importing from the EU in a 29 March 2019 ‘no deal’ scenario

The Government says: “Before importing goods from the EU, a business will need to:

  • register for an UK Economic Operator Registration and Identification (EORI) number. Businesses do not need to do anything now. There will be further information available later in the year. For those businesses that sign up for the EU Email updates, they will be contacted when this service becomes available
  • ensure their contracts and International Terms and Conditions of Service (INCOTERMS) reflect that they are now an importer
  • consider how they will submit import declarations, including whether to engage a customs broker, freight forwarder or logistics provider (businesses that want to do this themselves will need to acquire the appropriate software and secure the necessary authorisations from HMRC). Engaging a customs broker or acquiring the appropriate software and authorisations form HMRC will come at a cost
  • decide the correct classification and value of their goods and enter this on the customs declaration. To help classify the goods correctly, the following may be useful:
  • HMRC publishes tariff information and guidance alongside the list of commodity codes needed to classify goods together with all the tariff rates, and measures.”

Our view: Negative.  Administration not currently required will become necessary under a ‘no-deal’ scenario.  There is also the increased possibility of tariff codes being incorrectly applied.

 

Businesses exporting to the EU in a 29 March 2019 ‘no deal’ scenario

The Government says: “After the UK leaves the EU, in the event of a ‘no deal’ scenario, businesses exporting goods to the EU will be required to follow customs procedures in the same way that they currently do when exporting goods to a non-EU country.

Before exporting goods to the EU, a business will need to:

  • register for an UK EORI number. You do not need to take action now but you will want to familiarise yourself with this process
  • ensure their contracts and International Terms and Conditions of Service reflect that they are now an exporter
  • consider how they will submit export declarations, including whether to engage a customs broker, freight forwarder or logistics provider (businesses that want to do this themselves will need to acquire the appropriate software and secure the necessary authorisations from HMRC). Engaging a customs broker or acquiring the appropriate software and authorisations from HMRC will come at a cost.”

Our view: Negative.  Administration not currently required will become necessary under a ‘no-deal’ scenario.  There is also the increased possibility of tariff codes being incorrectly applied.

 

For more information, please contact Tim Williamson on +44 (0)20 7516 2376 or TWilliamson@pkf-littlejohn.com