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Post Brexit VAT

In 1st Jan 2021, the UK officially left the EU – this meant changes to the way VAT is dealt with for imports and exports.

What were the old rules? Pre Bexit, VAT was chargeable on most sales and purchases for and between EU based countries. No VAT was charged on goods exported outside of the EU. VAT between EU countries was charged as a “reverse charge”.

So, could the UK abolish VAT post Brexit? Possible, but unlikely given the amount of revenue to generates It accounts for about 20% of all tax both in the UK and globally. The main changes however are how the UK charge VAT with the remaining 27 EU countries, and the rest of the world. Here’s the changes that have been announced:

  • There are no changes to the way that VAT in the UK is charged. VAT registered sellers will charge the buyer VAT at the relevant rate on products and services. The VAT collected is then paid to HMRC
  • Import / Export of Goods:
    • HMRC have announced a new scheme called “Postponed VAT accounting” or PVA which deals with EU and UK trading in the same way that the UK deals with the rest of the world.
    • PVA can be used for UK businesses importing and exporting goods from both the EU and the rest of the world assuming a value of over £135. PVA allows for VAT on imports to be “postponed” and claimed or paid on their usual VAT return. Can be used for EU and the rest of the world, potentially improving cashflow
    • First, the business moving the goods will need a EORI This will link to the business’s government gateway and VAT account.
    • Once linked, businesses can download a Postponed VAT statement which can be uploaded to your accounting software as part of your standard VAT return.
  • Selling Services to EU & Rest of the World:
    • As with the previous rules, what VAT is charged is dependent on who the business is selling to.
      • For B2B sales, VAT is charged at the VAT rate of the purchasers country. For UK sales to other countries, we mark the item as zero rated, and the customer will account for VAT under the reverse charge system as before.
      • For business to consumer sales, firstly, we need to confirm that no “special rules” apply – these are stated on HMRC website – https://www.gov.uk/guidance/vat-how-to-work-out-your-place-of-supply-of-services).
      • Provided no special rules apply, then VAT is charged at the selling businesses VAT rate – so for the UK that is 20%.
      • If a special scheme is applicable to your business, then you may be using the EU’s online Mini One-Stop Shop (MOSS) scheme. There are various changes that you will need to make as a result.
    • VAT in Northern Ireland:
      • Cross-bored VAT will be different in Northern Ireland, in summary:
        • Business to Business transfers and exports will be exempt from VAT, with the purchaser paying the applicable VAT where they live.
        • There is a new VAT border in the Irish sea, meaning Northern Irish customers buying from Great Britain will have to pa VAT on imported goods when they are imported. This will be assisted by PVA.

 

Changes to TOMS post Brexit:

The Tour Operator Margin Scheme (TOMS) is a scheme mandatory for all businesses that buys in, then sells travel services in it’s own name. This can be travel, accommodation, food & drink to name but a few. Under the scheme, VAT is only payable on the margin. For wholesale businesses, TOMS remains optional. Prior to Brexit, this was split between EU travel, and non-EU travel. So, what are the changes from 1st Jan 2021?

  • For TOMS businesses making supplies in the UK and the rest of the world, TOMS now only applies to the supplies. UK supplies will be subject to standard rate of UK VAT.
  • The calculation will work in the same way, but businesses must now show the calculation split between UK travel and rest of the world travel.
  • Outside of UK trips taking place from 1st Jan 2021 onwards are now zero rated. Even though no VAT will be applicable, a summary calculation should be kept for audit purposes.
  • UK VAT still needs to be thought about for “in house” services such as event management fees, staff guides.
  • We recommend that a “per event” calculation is completed to keep track of all the moving parts.
  • For predominantly “rest of the world” travel businesses, VAT payable therefore likely to reduce substantially!

Note, that it is still unclear as to whether the remaining 27 EU states will require UK businesses to register for VAT in their countries.

TOMS can be tricky, for more information we recommend reading information from TOMs Specialists, VATNAV – https://www.vatnav.com/

 

Any further queries, feel free to contact us and book in a discovery call or date with a bookkeeper power hour!

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