The deal surrounding the UK’s exit from the European Union (i.e. Brexit) was finally formalised some time ago now, 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.
Many businesses had started planning for Brexit early but there was still a large amount of uncertainty, and no one expected that the transition out of the EU would be a smooth one for most businesses trading internationally.
Although the UK formally left the EU three years ago, we’re coming across businesses who are still getting things wrong.
Our indirect tax team has pulled together some hints and tips to assist your business, as businesses continue to navigate their way post Brexit.
Utilise Indirect Tax Easements
UK VAT registered businesses are able to account for import VAT incurred in the UK on their UK VAT Return via Postponed VAT Accounting scheme (PIVA). This means that in most cases these businesses can simultaneously declare and recover import VAT on their UK VAT returns, rather than paying import VAT at the time that the goods are released into free circulation in the UK.
The introduction of PIVA is one of the better initiatives brought in by the Government to ease cash flow issues and the administrative burden in a post-Brexit world.
Whilst it’s not been without its 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 have been able to reduce or cancel VAT deferment accounts held with HMRC, reducing administrative burden and costs of holding a bank guarantee.
Beware of unintended VAT obligations post-Brexit
Brexit 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.
Are the goods you are selling to the EU really 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 without further processing are unlikely to be ‘origin UK’ and Duty will be due on the import into the EU, and Customs Duty is an irrecoverable cost.
This is an often-misunderstood area of indirect tax and as such it’s possible goods have been incorrectly declared origin UK, which poses a risk that Customs Duty has been under-declared.
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.
