HMRC VAT Guidance on BREXIT
Delivering the deal negotiated with the EU remains the government’s top priority. This has not changed.
However, the government must prepare for every eventuality, including a no deal scenario. For 2 years, the government has been implementing a significant programme of work to ensure that the UK is prepared to leave the EU.
It has always been the case that as we get nearer to the date the UK leaves the EU, preparations for a no deal scenario would have to be accelerated. We must ensure plans are in place should they need to be relied upon.
In the summer, the government published a series of 106 technical notices setting out information to allow businesses and citizens to understand what they would need to do in a no deal scenario so they can make informed plans and preparations.
This technical notice offers guidance for continued planning in the event of no deal.
Also included is an overarching framing notice explaining the government’s approach to preparing the UK for this outcome in order to minimise disruption and ensure a smooth and orderly exit.
We are working with the devolved administrations on technical notices and we will continue to do so as plans develop.
The purpose of this notice is, in the event that the UK leaves the EU with no agreement, to inform UK businesses of the implications for VAT rules for goods and services traded between the UK and EU member states. It outlines the impacts and gives information for businesses to take into consideration.
While the UK government is confident that it will agree a good deal for both sides, as a responsible government it will continue to prepare for all scenarios, including the outcome that the UK leaves the EU without a deal.
This is contingency planning for a scenario that the UK government does not expect to happen, but people should be reassured that the government is taking a responsible approach.
It is important that businesses consider how a ‘no deal’ scenario could affect them, and begin to take steps to mitigate against such a risk. This technical notice provides further details to support early planning on VAT to help businesses understand the potential impacts, and government will provide further details, including specific actions that businesses should take, in due course.
For most UK businesses there will be no change to VAT rules. UK businesses that are affected may wish to consult other relevant technical notices, including the Trading with the EU if there’s no Brexit deal notice, which covers customs, excise and import processes at the border.
Before the UK leaves the EU
Under current 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 – there are different rules depending on whether the goods come from an EU or non-EU country
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
goods that are exported by UK businesses to EU consumers have either UK or EU VAT charged, subject to distance selling thresholds
for services the ‘place of supply’ rules determine the country in which you need to charge and account for VAT
If there’s no deal
The UK will continue to have a VAT system after it leaves the EU. The revenue that VAT provides is vital for funding public services. The VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now.
If the UK leaves the EU without a deal, the government’s aim will be to keep VAT procedures as close as possible to what they are now. This will provide continuity and certainty for businesses. However, if the UK leaves the EU with no agreement, then there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU member states. The government has taken decisions and actions where necessary in order to mitigate the impacts of these changes for businesses.
This note summarises the main VAT issues that will affect UK businesses trading with the EU in goods and services if the UK leaves the EU without an agreement. Although no changes will be made before then, this note highlights the VAT changes that businesses will need to prepare for when importing goods from the EU, exporting goods to the EU, supplying services to the EU, and interacting with EU VAT IT systems such as the VAT Mini One Stop Shop (MOSS). This technical notice details potential changes in each of these areas.
UK businesses importing goods from the EU
This section provides information about accounting for VAT on goods imported from the EU, and the rules and procedures that will apply. In a no deal scenario the current rules for imports from non-EU countries will also apply to imports from the EU, some additional changes are outlined below. Businesses that import goods into the UK may wish to also consult the ‘Trading with the EU if there’s no Brexit deal’ technical notice which covers import processes at the border.
Accounting for import VAT on goods imported into the UK
If the UK leaves the EU without an agreement, the government will introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to 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 will apply both to imports from the EU and non-EU countries.
In reaching this decision, the government has taken account of the views of businesses and sought to mitigate any adverse cash-flow impacts keeping VAT processes as close as possible to what they are now. To ensure equity of treatment, in a no deal scenario, businesses importing goods will be able to account for their import VAT from non-EU countries in the same way, which will help UK businesses make the most of trading opportunities around the world. Customs declarations and the payment of any other duties will still be required and more detail on these processes can be found in the ‘Trading with the EU if there’s no Brexit deal’ technical notice. More guidance setting out further detail on accounting and record keeping requirements will be issued in due course.
VAT on goods entering the UK as parcels sent by overseas businesses
If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses.
The government set out in the Customs Bill White Paper (published October 2017) that Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK from the EU. This note confirms that if the UK leaves the EU without an agreement then LVCR will no longer apply to any parcels arriving in the UK, this aligns the UK with the global direction of travel on LVCR. This means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing).
For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK. Overseas businesses will charge VAT at the point of purchase and will be expected to register with an HM Revenue & Customs (HMRC) digital service and account for VAT due.
The digital service is an online registration, accounting, and payments service for overseas businesses. On registration, businesses will be provided with a Unique Identifier which will accompany the parcels they send in to the UK. They will then declare the VAT due on those parcels and pay this via their online account. This ensures the process of paying VAT on parcels does not become burdensome for UK consumers and businesses. To give overseas businesses sufficient time to familiarise themselves with their new obligations, the online service will be available for businesses to register in early 2019, before the UK leaves the EU.
On goods worth more than £135 sent as parcels VAT will continue to be collected from UK recipients in line with current procedures for parcels from non-EU countries, guidance on these procedures can be found here in HMRC notice 143. VAT will also continue to be collected in line with current procedures for all excise goods sent as parcels and potentially in cases where their supplier is not compliant with HMRC’s new parcels policy. HMRC is working with the relevant industry stakeholders and will provide further information in due course.
VAT on vehicles imported into the UK
If the UK leaves the EU without an agreement, businesses should continue to notify HMRC about vehicles brought into the UK from abroad as they do now. The Notification of Vehicle Arrival Procedures (NOVA) system will continue to be used for this purpose.
NOVA is an online service that businesses should continue to use to notify HMRC about vehicles brought into the UK from abroad and ensure that VAT is correctly paid on imported vehicles. The Driver Vehicle Licencing Agency (DVLA) will not register a vehicle brought into the UK for use on UK roads unless it has a valid NOVA notification or it has been registered using the DVLA secure registration scheme.
The rules on the movement of goods to the UK from the EU will change when the UK leaves the EU and as a result, import VAT will be due on vehicles you bring into the UK from EU member states. Certain reliefs will also be available as with current imports of vehicles from non-EU countries. Businesses will need to continue to use NOVA to verify that VAT is correctly paid on imported vehicles.
UK businesses exporting goods to the EU
This section provides information about accounting for VAT on goods exported to the EU, and the rules and procedures that will apply. UK businesses may need to plan for customs and VAT processes, which will be checked at the EU border. So they should check with the EU or member state the rules and processes which need to apply to their goods.
UK businesses exporting goods to EU consumers
If the UK leaves the EU without an agreement, distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate sales of goods to EU consumers.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries, with associated import VAT and customs duties due when the goods arrive into the EU.
UK businesses exporting goods to EU businesses
If the UK leaves the EU without an agreement, VAT registered UK businesses will continue to be able to zero-rate sales of goods to EU businesses but will not be required to complete EC sales lists.
As UK VAT registered businesses will not be required to complete an EC sales list, there will be changes to how these sales are recorded. Those UK businesses exporting goods to EU businesses will need to retain evidence to prove that goods have left the UK, to support the zero-rating of the supply. Most businesses already maintain this evidence as part of current processes and the required evidence will be similar to that currently required for exports to non-EU countries with any differences to be communicated in due course.
Current EU rules would mean that EU member states will treat goods entering the EU from the UK in the same way as goods entering from other non-EU countries with associated import VAT and customs duties due when the goods arrive into the EU. Individual EU member states may have different rules for import VAT for non-EU countries and import VAT payments may be due at the border when importing goods. UK businesses should check the relevant import VAT rules in the EU member state concerned.
UK businesses selling their own goods in an EU member state to customers in that country
If the UK leaves the EU without an agreement, UK businesses will be able to continue to sell goods they have stored in an EU member state to customers in the EU in line with current Rest of World rules.
Current EU rules would mean that UK businesses will continue to be required to register for VAT in the EU member states where sales are made in order to account for the VAT due in those countries.
You can find further information on EU rules for storing non Union goods in an EU member state before selling or exporting on the EU Commission’s website.
You can find further information on registering for VAT in EU member states on the EU Commission’s website.
UK businesses supplying services into the EU
This section provides information about accounting for VAT on services supplied into the EU, and the rules and procedures that will apply.
Place of supply rules for UK businesses supplying services into the EU
If the UK leaves the EU without an agreement, the main VAT ‘place of supply’ rules will remain the same for UK businesses.
The current ‘place of supply’ rules determine the country in which you need to charge and account for VAT. These rules are in line with international standards set out by the Organisation for Economic Co-operation and Development (OECD), guidelines can be found on the OECD website.
The rules around ‘place of supply’ will continue to apply in broadly the same way that they do now, areas of potential change are flagged below.
For UK businesses supplying digital services to non-business customers in the EU the ‘place of supply’ will continue to be where the customer resides. VAT on services will be due in the EU member state within which your customer is a resident.
For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed. We will update businesses with more information in due course.
If you are a UK business that currently uses the VAT Mini One Stop Shop (MOSS) you can find more information in the section of this notice regarding access to EU-wide VAT IT Systems.
EU Tour Operators’ Margin Scheme
The Tour Operators Margin Scheme is an EU VAT accounting scheme for businesses that buy and sell on certain travel services that take place in the EU. HMRC has been engaging with the travel industry and will continue to work with businesses to minimise any impact.
UK businesses that access EU-wide VAT IT systems
This section provides information on access to EU-wide VAT IT systems, and the rules and procedures that will apply.
If the UK leaves the EU without an agreement, the UK will stop being part of EU-wide VAT IT systems such as the VAT Mini One Stop Shop, more detail for specific EU-wide VAT IT systems is set out below.
UK VAT Mini One Stop Shop (MOSS)
If the UK leaves the EU without an agreement, businesses that sell digital services to consumers in the EU will be able to register for the MOSS non-union scheme.
MOSS is an online service that allows 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. Non-EU businesses can also use the system by registering in an EU member state.
If the UK leaves the EU with no agreement, businesses will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to report and pay VAT on sales of digital services to consumers in the EU.
Businesses that want to continue to use the MOSS system will need to register for the VAT MOSS non-Union scheme in an EU member state. This can only be done after the date the UK leaves the EU. The non-Union MOSS scheme requires businesses to register by the 10th day of the month following a sale.
Alternatively, a business can register in each EU member state where sales are made. You can find further information about registering for VAT in EU member states on the EU Commission’s website.
EU VAT refund system
If the UK leaves the EU without an agreement, then UK businesses will continue to be able to claim refunds of VAT from EU member states but in future they will need to use the existing processes for non-EU businesses.
UK business will no longer have access to the EU VAT refund system. UK businesses will continue to be able to claim refunds of VAT from EU member states by using the existing processes for non-EU businesses. This process varies across the EU and businesses will need to make themselves aware of the processes in the individual countries where they incur costs and want to claim a refund.
You can find further information about claiming VAT refunds from EU member states on the EU Commission’s website.
EU VAT Registration Number Validation – accessed via the EU Commission’s website
If the UK leaves the EU without an agreement, UK businesses will be able to continue to use the EU VAT number validation service to check the validity of EU business VAT registration numbers and HMRC is developing a service so that UK VAT numbers can continue to be validated.
The EU VAT Registration Number Validation service allows businesses to check whether 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 business VAT registration numbers. UK VAT registration numbers will no longer be part of this service. In the event of no agreement HMRC is developing a system so that UK VAT numbers can continue to be validated. We know this is important for certain businesses to carry out due diligence.
Businesses in Northern Ireland importing and exporting to Ireland
The UK government is clear that in a no deal scenario we must respect our unique relationship with Ireland, with whom we share a land border and who are co-signatories of the Belfast Agreement. The UK government has consistently placed upholding the Agreement and its successors at the heart of our approach. We recognise the basis it has provided for the deep economic and social cooperation on the island of Ireland.
It is the responsibility of the UK government to continue preparations for the full range of potential outcomes, including no deal. In such a scenario, the UK would stand ready to engage constructively to meet our commitments and act in the best interests of the people of Northern Ireland, recognising the very significant challenges that the lack of a UK-EU legal agreement would pose in this unique and highly sensitive context. This would include engagement on arrangements for land border trade. We will provide more information in due course.
The Irish government have indicated they would need to discuss arrangements in the event of no deal with the European Commission and EU member states. We would recommend that, if you trade across the land border, you should consider whether you will need advice from the Irish government about preparations you need to make.
This note summarises the main VAT issues for UK businesses in the event the UK leaves the EU without a deal. Some detail is not yet available but further information will be provided in due course.
The steps and obligations businesses will need to take to continue to trade with the EU if the UK leaves without a deal are broadly the same as those that apply to businesses that trade with countries outside of the EU. There is information on how to trade with countries outside of the EU on GOV.UK. This includes details on customs procedures, excise rules and VAT.
Further information and instructions specifically tailored to cover the actions that businesses would need to take in a ‘no deal’ scenario will be published in the coming months. This notice is meant for information and guidance only, and is not designed to provide recommendations for the specific preparations of businesses. These are plans for a contingency we do not expect to happen. They form part of our responsible preparations for all possible outcomes.
This notice is meant for guidance only. You should consider whether you need separate professional advice before making specific preparations.
It is part of the government’s ongoing programme of planning for all possible outcomes. We expect to negotiate a successful deal with the EU.
Norway, Iceland and Liechtenstein are party to the Agreement on the European Economic Area and participate in other EU arrangements. As such, in many areas, these countries adopt EU rules. Where this is the case, these technical notices may also apply to them, and EEA businesses and citizens should consider whether they need to take any steps to prepare for a ‘no deal’ scenario.