Brexit from the perspective of VAT – effects of the withdrawal of the United Kingdom from the EU on your company.
In connection with the upcoming date of the possible exit of Great Britain and Northern Ireland (hereinafter referred to as the “United Kingdom”) from the European Union (hereinafter also referred to as “Brexit”), we would like to introduce you to several themes in the area of VAT that we recommend you pay particular attention to, as it could have a significant influence on your business.
If some of the themes apply to your company or you are interested in discussing the effects of Brexit on your company with us, please contact our VAT specialists.
The deadline for Great Britain’s departure from the European Union was set for 29 March 2019. In light of the fact that on 15 January 2019 the British Parliament did not pass the Agreement on the Withdrawal of Great Britain from the EU (hereinafter referred to as the “Agreement”), the fate of Brexit is unforeseeable. On a very general level, it is possible to count on three basic scenarios for future developments:
- Great Britain will negotiate the required amendments to the Agreement (the “Irish backstop”), while at the same time the British Parliament will approve the modified Agreement before 29 March 2019. In such a case the transition period would be activated from 30 March 2019 until 31 December 2020 (if the length of the transition period is not changed), during which the current state will be preserved from the perspective of customs regulations and VAT legislation (e.g. transactions between the United Kingdom and the rest of the EU will be considered to be intra-community).
- Great Britain negotiates a delay for the Brexit deadline, which can depend, for example, on the promise of the closing of the Agreement by a certain date.
- If the Agreement will not be concluded and, at the same time, a delay of Brexit will not be negotiated, starting from 30 March 2019 the United Kingdom will be considered to be a third country, with all the ensuing customs and tax consequences.
It is evident that the further developments are completely unpredictable, and thus it is important to be prepared for the possibility that Brexit will occur without a concluded Agreement on 29 March 2019, or alternatively a few months later, which can have a wide range of adverse VAT consequences. This is especially true if it is important to maintain the smooth flow of your goods or provided services.
In the first phase, we recommend discussing the themes presented below in more detail:
- EORI registration
The EORI number is the identification number which the subject shows when importing goods to the European Union and exporting goods from the European Union. If your company will be importing or exporting goods from or to the United Kingdom after Brexit without an Agreement, it will be necessary to ensure registration for EORI. The customs authorities will be flooded with EORI registrations in the coming weeks and they expect that in some cases it may take as long as three weeks to process the registration. For this reason we recommend applying for registration as soon as possible (even if Brexit is ultimately delayed). A timely EORI registration can protect you against potential economic losses caused by a temporary loss of the possibility of exporting goods to the United Kingdom or importing goods from the United Kingdom.
- Changes in settings of INCOTERMS conditions
If Brexit occurs without a conclusion of the Agreement, the delivery of goods to/from the United Kingdom will be subject to customs clearance. The negotiated INCOTERMS terms could thus affect customs and VAT in substantial ways that have not yet been foreseen. In the event of your interest, we can discuss the individual effects with you and propose any suitable alternative solutions together for the case of Brexit without an Agreement.
- Simplified approach to triangular trade
The simplified approach to triangular trade represents a very frequently used system of two successive supplies, which make it possible for the middle entity (distributor) to avoid VAT registration and VAT reporting obligations in the end customer’s Member State. If we end up with Brexit without an Agreement, it will not be possible to use the simplified approach to triangular trade in many cases if one of the participants of the triangular trade is from the United Kingdom, or if the transactions will be connected to the transport of goods to/from the United Kingdom. It is best to prepare for all the related practical impacts and to look for any alternative solutions for the distribution of goods.
- Simplified approach to call-off stock
If you have or rent warehouse capacity in the United Kingdom, Brexit without an Agreement could mean a change for your company in the application of VAT for these supplies. Similarly, if the simplified approach of call-off stock is used for goods relocated from the United Kingdom to the Czech Republic, it will no longer be possible to use this simplification. In this case we also recommend the timely configuration of your business relations so that your company does not have any negative VAT impacts from Brexit without an Agreement.
- Return of VAT paid in the United Kingdom (VAT refund)
Any British VAT that you have paid up until now in the price of the goods/services purchased in the United Kingdom could be claimed through a VAT refund. It is likely that, due to the lack of a reciprocity agreement, it will temporarily not be possible to ask for British VAT to be returned. With regard to this fact, we highly recommend quickly asking for the VAT to be returned before Brexit, if possible.
- Providing services and determining the place of their fulfilment
If you will provide services to customers established for VAT in the United Kingdom after Brexit without an Agreement, it will be very important to check that the existing rules for the specification of the place of supply will continue to be applicable or, for example, if the “actual use” of the services rule will have precedence. Other changes to the specified place of supply can apply to you if you provide services to non-taxable persons (i.e. individuals). It is very useful to prepare for these impacts even before Brexit.
- Distance sales
The supplies of goods to individuals (distance sales) to the United Kingdom will have different VAT impacts after Brexit than until now. The same applies if British companies will send goods to the European Union. We highly recommend getting to know the rules for applying VAT in these cases.
- Change of reporting obligations
Except for certain exceptions, transactions with companies from the United Kingdom after Brexit without an Agreement will be reported differently than they have been until now. Brexit will have an influence not only on the reporting of transactions in the VAT return, EU Sales List and control statement, but also in Intrastat and we cannot forget about different requirements for the requisites of tax documents.
- Change of method for submitting returns
Beyond the impacts directly related to Brexit, we would also like to point out the change in the manner of submitting VAT reports in the United Kingdom, which applies to all subjects registered for VAT in the United Kingdom with a turnover exceeding £85 000. The effects of the aforementioned changes will take place starting from 1 April 2019 (for entities established outside the United Kingdom from 1 October 2019). If you are interested in more information, we would be glad to provide you with a contact to our British colleagues, who are dealing with this issue.
If some of the aforementioned themes apply to your company or you are interested in discussing the effects of Brexit on your company with us, please contact our VAT specialists.