UK VAT after the transitional period

Under the UK’s VAT rules:

• VAT is charged on most goods and services sold within the UK and the EU.
• VAT is payable by businesses when they bring goods into the UK.
• Goods that are exported by UK businesses to non-EU countries and EU businesses are zero-rated, meaning that UK VAT is not charged at the point of sale.   
• For services the "place of supply" rules determine the country in which you may need to charge and account for VAT. 

The UK continues to levy VAT and the rules relating to UK domestic transactions continue to apply to businesses as they did previously. VAT procedures on the whole remain as those prior to 31 December 2020, but there have been some changes to the VAT rules and procedures for transactions between the UK and EU member states. 

The existing rules for imports from non-EU countries now apply to imports from the EU, but with some changes. The government has introduced ‘postponed accounting’ for import VAT on goods brought into the UK with effect from 1 January 2021. This means that UK VAT registered businesses importing goods to the UK can 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 important relaxation applies to imports from the EU and non-EU countries.

However, customs declarations and the payment of any other duties are still required. Customs duty (tariffs) apply to some goods and excise duties continue to apply to tobacco, alcohol and certain energy products.

Customs and excise duty payments can be deferred to be settled monthly with a duty deferment account. Businesses need to register with HMRC to open a duty deferment account and will need to provide a bank guarantee.

Since 1 January 2021, VAT on imported goods with a value of up to £135 is collected at the point of sale, not the point of importation. This means that UK supply VAT, rather than import VAT, is due on these consignments.

Online marketplaces (OMPs) involved in facilitating the sale of imported goods, are responsible for collecting and accounting for the VAT, even when the goods are in the UK at the point of sale.

For goods sent from overseas and sold directly to UK consumers, the overseas seller is required to register and account for the VAT to HMRC. Overseas sellers are also responsible for accounting for the VAT on goods in the UK when sold directly to UK consumers.

Business-to-business sales not exceeding £135 in value are also subject to the new rules. However, where the business customer is VAT registered and provides its registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge. 

HMRC support:

• Changes to VAT treatment of overseas goods sold to customers from 1 January 2021
• Declaring goods brought into Great Britain from the EU from 1 January 2021
• How to import and export goods between Great Britain and the EU from 1 January 2021
• List of goods imported into Great Britain from the EU that are controlled
• Check when you can account for import VAT on your VAT Return
• Complete your VAT Return to account for import VAT
• Apply to use simplified declarations for imports
• Making an import declaration in your records

VAT registered UK businesses continue to be able to zero-rate sales of goods to EU businesses. EU member states treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries. This means import VAT and any customs duties (tariffs) are due when the goods arrive in the EU.

Businesses may be able to use the Common Transit Convention (CTC) to complete some customs procedures away from the border and defer import VAT and customs duties until goods reach their final destination. A guarantee may be needed to cover import VAT or customs duties while the goods are being moved, but new procedures are being implemented to minimise the number of businesses that will require a guarantee.

Prior to the end of the transition period businesses that had a low value of sales (up to about £70,000 per annum) to EU member states could benefit from the distance selling thresholds. Sales below the distance selling thresholds were subject to UK VAT unless the supplier has decided to register for VAT in the country of destination. From 1 January 2021, this facility is no longer available, but all such sales are zero rated exports.

GB VAT registered businesses no longer have to complete an EC Sales List. Instead, GB businesses exporting zero-rated goods to EU businesses need to retain evidence to prove that goods have left the UK. Such evidence was already required for exports to non-EU countries. However, businesses in Northern Ireland still need to complete EC Sales Lists. 

HMRC support:

• How to import and export goods between Great Britain and the EU from 1 January 2021

The supply of services to customers in the EU from 1 January 2021 is treated the same for UK VAT purposes as those to any customer outside the EU.

The VAT treatment is covered by the VAT ‘place of supply’ rules. The rules continue to apply broadly as they did previously, but subject to some changes shown below.   

For UK businesses supplying digital services to non-business customers in the EU, the ‘place of supply’ continues to be where the customer resides. VAT on those services is due in the EU member state in which the customer resides.

For UK businesses supplying insurance and financial services, the input VAT deduction rules changed from 1 January 2021, as supplies that were previously exempt become outside the scope with recovery, thereby aligning with the existing rules for supplies of such services to customers outside the EU. 

HMRC support:

• Accounting for VAT on services between the UK and EU member states from 1 January 2021.

Since 1 January 2021, all supplies of digital services to consumers in EU member states have been liable for VAT in the consumer’s member state. The £8,818 annual threshold for cross borders sales of digital services to EU consumers no longer applies.

Organisations have to charge VAT at the rate where the customer is based and declare those sales to the relevant EU member state.

UK businesses that had been using the UK VAT MOSS union scheme can continue to use the system but must register for the VAT MOSS non-union scheme in an EU member state.

For businesses wanting to continue using MOSS, they must register for the scheme by the 10th day of the month following their first sale after the UK leaves the EU. For example, register by 10 February 2021 if a sale is made in January 2021.

Alternatively, organisations can register in each EU Member State where they make sales. Check the EU’s Europa website for further information about registering for VAT in EU member states.

Non-UK businesses that had previously used UK VAT MOSS non-union scheme now need to register for the scheme in an EU member state.

Non-UK businesses need to declare sales of digital services to UK consumers by registering for VAT in the UK and declaring the sales via a UK VAT return.

To declare the VAT charge, businesses can register for VAT in each EU member state where sales are made or register for the VAT MOSS non-union scheme in an EU member state of their choice.  

The UK VAT Mini One Stop Shop (MOSS) was an online service that allowed EU businesses that sell digital services to consumers in other EU member states to report and pay VAT via a single return and payment in their home member state.

As of 1 January 2021, businesses are no longer able to use the UK’s MOSS scheme to report and pay VAT on sales of digital services to consumers in the EU. Businesses that sell digital services to consumers in the EU have to register for the MOSS non-union scheme in one of the remaining 27 EU member states.

Under the non-union MOSS scheme, businesses wishing to use the scheme must register by the 10th day of the month following a sale. For example, if you make your first affected sale in June 2021 you will need to register by 10 July 2021. Alternatively, a business can register for VAT in each EU member state where sales are made.

More on MOSS

Businesses could only use the UK’s VAT Mini One Stop Shop (MOSS) to declare sales of digital services up to the period ended 31 December 2020.

To allow businesses to register for the VAT MOSS non-union scheme, they were automatically deregistered from the UK MOSS system with effect from 1 January 2021. Businesses are still able to access the system after deregistration to:

• view and amend previously submitted returns, with any amendments to these returns being made by 31 December or directly with the EU member state concerned and not via the MOSS system after this date; and
• update registration details until 31 December 2024.

Further guidance

• TAXguide 18/20: VAT MOSS – what happens following the end of the UK VAT MOSS scheme

You can find further information on registering for the MOSS non-Union scheme on the EU Commission’s website and paying VAT when you sell digital services to EU consumers from 1 January 2021 on gov.uk. HMRC has also updated guidance about VAT on the supply of digital services and VAT MOSS.

Prior to the end of the transition period, a UK business could recover VAT incurred in other EU countries using an electronic system. However, businesses are no longer able to use that system.

UK businesses can claim refunds of VAT from EU member states, but it will need to be done using the existing refund system for non-EU businesses.

The way in which the refund system operates varies across each EU country, so businesses will need to check the precise requirements in each EU country where they incur VAT. 

HMRC support:

• How to claim a refund of VAT paid in an EU member state
• Refunds of UK VAT for non-UK businesses

The EU VAT Registration Number Validation service allows businesses to check if a customer or supplier’s VAT number is valid. UK businesses will be able to continue to use the EU VAT number validation service to check the validity of EU businesses, but UK VAT registrations will cease to be included. HMRC has developed a service to ensure that UK VAT numbers can continue to be validated.

• Tell HMRC if you sell goods in Northern Ireland or move goods between Northern Ireland and the EU from 1 January 2021
• Moving goods under the Northern Ireland Protocol
• Changes to accounting for VAT for Northern Ireland and Great Britain from 1 January 2021
• Accounting for VAT on goods moving between Great Britain and Northern Ireland from 1 January 2021
• Check if you're trading under the Northern Ireland protocol and what to do
• How VAT will apply for goods imported into Northern Ireland from outside the UK or EU
• VAT and overseas goods sold directly to customers in the UK from 1 January 2021 - Covers imports by consumers for GB and NI
• VAT and overseas goods sold to customers in the UK using online marketplaces from 1 January 2021 - Covers imports via marketplaces by consumers for GB and NI

Further ICAEW resources are available on icaew.com/brexit 

HMRC has released a series of helpful guides for businesses. Key resources are:

• Accounting for VAT on services between the UK and EU members states from 1 January 2021
• Apply to use simplified declarations for imports
• Changes to VAT treatment of overseas goods sold to customers from 1 January 2021
• Check when you can account for import VAT on your VAT Return
• Complete your VAT Return to account for import VAT
• Customs, VAT and Excise UK transition legislation from 1 January 2021
• Delaying declarations for EU goods brought into Great Britain
• How to claim a refund of VAT paid in an EU member state 
• How to import and export goods between Great Britain and the EU from 1 January 2021
• List of goods imported into Great Britain from the EU that are controlled
• Making an import declaration in your records
• Making an import supplementary declaration
• Intrastat
• Tour Operators Margin Scheme (TOMS)