The movements of goods between the UK & the EU and postponed VAT accounting

The UK Government’s Border and Protocol Delivery Group has recently published a document setting out the new border control arrangements for movements of goods between the UK and the EU when the post-Brexit transition period ends on 31 December 2020.

It is the intention that movements to, or from, the EU will be subject to the same type of processes and controls that apply to the movement of goods to and from non EU countries.  Whether or not there is a free trade deal it seems there will be significant additional requirements relating to EU movements of goods.

The document explains the expected changes will happen in three stages.

From 1 January 2021

Imports

Customs Declarations will be required for goods brought into the UK from the EU. Import duty and VAT may be payable. In the absence of a free trade agreement duties will be payable in accordance with the UK Global Tariff. The duty rates will vary according to the origin, classification and customs value of the goods.

The tariffs have not yet been finalised but here are the latest UK tariffs.

For standard goods a Customs Declaration and, in some cases, pre-notification of the movement will be required. It may be possible to submit a deferred declaration up to six months after importation.

For controlled goods (e.g. firearms, torture equipment, some plants, excise goods and sanction goods etc) standard declarations will be required from 1 January 2021.

Exports

Export declarations and UK exit Safety and Security declarations, which can be combined, will be required for all goods leaving the UK from 1 January 2021.

The process will be different when the goods leave the UK from a location which has existing customs control systems and when they do not.

In the latter case the guidance advises an arrived declaration must be submitted before goods leave the business premises. The declarant should receive a Permission to Progress or be advised of a routing to be checked. Hauliers will need to carry this as evidence a declaration has been made.

This link takes you to the Government tool for checking duties and customs procedures when exporting goods.

From April 2021

Imports

All products of animal origin, for example meat, honey, milk or egg products, and all regulated plants and plant products will require pre-notification and relevant health documentation.

Any physical checks will continue to be conducted at the point of destination until July 2021.

From 1 July 2021 onwards

Imports

Full customs declarations and payment of tariffs will be required on importation. Full UK Safety & Security declarations will also be required.

Commodities subject to sanitary and phytosanitary (SPS) controls will have to be presented to Border Control Posts. There will be an increase in physical checks and the taking of samples. SPS checks for animals, plants and their products will take place at GB Border Control Posts and not at destination.

This is a summary of some of the core changes only. Even these will require significant consideration and planning.

Brexit and VAT: changes to VAT accounting procedures

From 1 January 2021 VAT registered businesses will be able to use “Postponed Accounting” to declare Import VAT. At present Import VAT is generally payable when the goods arrive in the UK and is reclaimed through the VAT return, often months later. Under the new procedures, Import VAT will be paid and reclaimed (subject to the normal rules) on the same VAT return.

Postponed Accounting will be available for imports from the EU and the Rest of the World and has to be used if a business is eligible to defer submitting its import entries.

This will provide a significant cash flow advantage but to use it:

  • the goods you import must be for use in your business
  • your EORI number, which starts ‘GB’, must be included on the customs declaration
  • your VAT registration number must be included on the customs declaration, where needed

Postponed accounting will also be available for goods initially entered into the following customs special procedures:

  • customs warehousing
  • inward processing
  • temporary admission
  • end use
  • outward processing
  • duty suspension

Import VAT can be declared on a VAT Return when the declaration that releases those goods into free circulation is submitted.

Import VAT can also be declared on a VAT Return when excise goods are released for use in the UK. This includes when goods are released from an excise warehouse after being in duty suspense since the point of import.

Completion of VAT returns

An online monthly statement will be available to download and keep which will show the total Import VAT postponed for the previous month. This should be included on the VAT Return as follows:

Box 1

Include the VAT due in this period on imports accounted for through postponed VAT accounting.

 Box 4

Include the VAT reclaimed in this period on imports accounted for through postponed VAT accounting (provided the normal rules allow recovery)

 Box 7

Include the total value of all imports of goods included on the online monthly statement, excluding any VAT.

If a customs entry has been deferred, Import VAT should be accounted for on the VAT return that included the date the goods were imported. When the deferred declaration is submitted the next online monthly statement will show the amount of Import VAT due on that declaration. If the VAT on the statement is different to the estimate an adjustment should be made on the next VAT Return.

The Border and Protocol Delivery Group document states that for consignments with a value below £135, VAT will not be collected on importation, unless the imports are excise goods or gifts.

Any business selling goods to be imported into the UK with a value of under £135 will be required to register for UK VAT and charge VAT on the sale. If the goods are sold through an online market place the online market place will have to register and pay VAT.

However, the latest guidance covering postponed accounting simply says further information will be provided in a later update.

Key messages on Brexit and VAT

Although there is still significant uncertainty about the procedures that will be in force from 1 January 2021 it would be prudent to ensure you and anyone who moves goods on your behalf is prepared.

  • Check whether you have an EORI, if not apply for one here
  • Decide whether you will use an agent, such as a Customs Agent, Freight Forwarder or Fast Parcel Operator to lodge entries or whether you intend doing so yourself. If you do so yourself you may be eligible for Government Grants to cover some of the additional cost.
  • Consider applying for a duty deferment account – this enables customs charges including customs duty, excise duty, and import VAT to be paid once a month through Direct Debit instead of being paid on individual consignments.
  • Consider whether you can use any customs special procedures which may remove the requirement to pay import duties or import VAT
  • Discuss the potential changes with suppliers or customers in the EU

If you would like to discuss the impact of Brexit and VAT then please don’t hesitate to contact our specialist VAT team.

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