The deal surrounding the UK’s exit from the European Union was finally formalised on 24th December 2020 with limited time for both businesses and HM Revenue & Customs (‘HMRC’) to effectively plan for the biggest change in indirect tax since its inception in 1973.
Whilst many businesses had started planning for Brexit early, there was still a large amount of uncertainty, and it was clear that the transition out of the EU would not be a smooth one for most businesses trading internationally.
Our indirect tax team has pulled together some hints and tips to assist your business, as we head into the next phase post-Brexit.
Utilise Indirect Tax Easements
The introduction of Postponed Import VAT Accounting (‘PIVA’) which in certain circumstances allows import VAT to be accounted for on the VAT return, rather than on entry into the UK, is one of the better initiatives brought in by the Government to ease cash flow issues in a post-Brexit world.
Whilst it’s not without teething issues, PIVA can be used for all imports, so goods being brought in from outside the EU can also benefit from postponed VAT accounting.
As a result of PIVA, many businesses were able to reduce or cancel VAT deferment accounts held with HMRC, reducing administrative burden and costs of holding a bank guarantee.
Check your customs documentation is up to date
The Government also introduced a grace period for customs declarations to be filed in the UK. Whilst this was welcomed by those eager to get goods into the UK, some businesses quickly became overwhelmed with the new obligations and were required to undertake catch up exercises once the grace period came to an end on 25 June 2021.
HMRC has now extended the grace period for submitting declarations (175 days after the import) until 1 January 2022, but for some businesses getting compliant and up to date will be a difficult and time-consuming task.
As it stands, delayed declarations come to an end 1 January 2022 and businesses need to prepare and be able to complete and submit customs declarations upon import from that date.
Beware of unintended VAT obligations post-Brexit
Brexit has also created a number of unintended VAT obligations for businesses selling into the EU. Those using Incoterms DDP (Delivery Duty Paid) to sell to a customer in the EU import into the EU and make a domestic supply in an EU member state, in most cases giving a requirement to VAT register and account for VAT there.
Whilst it is possible to re-negotiate Incoterms, this can only be done prospectively and many businesses have already identified historic VAT registration obligations.
It should be noted that as a non-EU member state, for UK businesses, it is sometimes necessary to appoint a fiscal representative in order to VAT register (even if they are obligated to VAT register). This represents a cost to the business and not all advisers are willing to act as a fiscal representative because of the risks associated.
Check that the goods you are selling to the EU really are tariff free
The customs duty rate of a good was historically driven by its commodity code, now we must also consider the ‘origin’ of the item. Goods which originate in the EU can be moved to the UK tariff free, and vice versa. However, it is not always clear where the goods originate. By way of example, goods which are imported into the UK from the Far East, and sold onto customers in the EU are unlikely to be ‘origin UK’ and Duty will be due on the sale.
This is an often-misunderstood area of Brexit legislation and as such it’s possible goods have been sold with incorrect duty rates, which poses a risk to importers of records of the goods.
Conversely, the opposite is also true, goods which are ‘origin EU’ are being brought into the UK with UK Duty applied. Duty charges are an irrecoverable cost to the business, so reliefs should be utilised as far as possible.
About Cowgills
Cowgills is a leading independent firm of Chartered Accountants and Business Advisors based in the North West of England – from Greater Manchester to Liverpool. We use our sector experience to deliver tailored financial solutions and support for businesses.
Speak to our VAT Director Gemma McCaldon-Gower or your usual Cowgills contact if you require advice in this complex post-Brexit area, or visit our website here.
Disclaimer
The information was correct at time of publishing but may now be out of date.
