Brexit: Indirect Tax implications of a ‘no deal’

31 August 2018

Last week, the Government issued a series of Technical Notices to help businesses to make informed preparations in the event that no formal agreement is reached during the ongoing negotiations between the UK and the EU.

There were 25 Notices published last week with more expected in September.  These included 3 Notices covering VAT for Business, Customs & Excise, and UK Trade Tariffs.  We have summarised HMRC’s Guidance below

VAT for Business

HMRC’s stated objective is to minimise changes to VAT procedures in the event of a ‘no deal’ Brexit.

VAT on Goods

First some good news.  With the current requirement to pay import VAT on goods from non-EU countries also applying to imports from the EU after Brexit, HMRC propose the introduction of postponed VAT accounting.   Rather than being required to fund any import VAT at the port, postponed VAT accounting would apply to both EU and non-EU imports.  As well as alleviating the potential cash flow and associated working capital impact on EU imports, accounting for import VAT through the UK VAT return will also provide a cash flow benefit on non-EU imports.

Low-value consignment relief (which is currently applicable to parcels with a value of under £15 arriving in the UK from outside the EU) would no longer apply. It is proposed that overseas businesses sending parcels worth up to £135 would account for UK VAT using a new technology-based solution, with the VAT on higher value parcels being collected from the UK customer.

Goods exported from the UK will continue to be eligible for zero-rating.   Although the requirement to submit EC Sales Lists would be removed, businesses would still be required to retain evidence of export.  Sales of goods to consumers would no longer qualify for distance selling arrangements.  The treatment when these arrive in another member state will be up to the relevant tax authority; however, they are likely to collect the VAT and duty on import into the EU.

VAT on Services

The main rules on the place of supply of services are likely to be unchanged.   The guidance is silent on the ‘use and enjoyment’ rules; however there is a recognition that changes may be required in relation to VAT recovery for UK businesses supplying financial and insurance services to the EU.

Businesses selling digital services to EU consumers will no longer be able to use the UK’s Mini One Stop Shop (MOSS) portal to account for VAT in relevant jurisdictions.   UK Businesses could register for the MOSS non-union scheme in another EU jurisdiction; however, application would not be possible until after 29 March 2019, with the deadline for applications being 10 April 2019.

Other VAT issues

If not required to register in another EU member state, UK businesses will have to use the existing 13th Directive processes for non-EU businesses to reclaim VAT incurred in another EU Member State.

Customs and Excise and UK Trade Tariffs

The movement of goods between the UK and the EU would require the presentation of a Customs declaration on export and import.  In addition, Customs duty will be payable at import unless deferment is covered by the appropriate financial security.

In the event of a ‘no deal’ Brexit, it is proposed that tariff rates for imports into the UK would be set on a non-preferential basis using the Most Favoured Nation (MFN) tariff schedule of the WTO.   All goods imported into the UK, and exported to the EU, would be subject to Customs duty at the MFN rate.   The UK has no immediate plans to change the current commodity codes except where it is required to align to international standards or for trade remedy purposes.

The Excise Movement Control System (EMCS) would continue to be used within the UK but would no longer be available to control international movements of goods under Excise duty suspension. Instead, Excise goods received from the EU would be subject to payment of the excise duty unless immediately placed into a UK excise duty suspension regime.

HMRC suggest that there are several issues that businesses should consider in preparation for a no-deal Brexit.  In particular, it is suggested that businesses should:

  • ensure they have an Economic Operator Registration and Identification (EORI) number. This is required to submit import and export declarations;
  • understand the tariff classification of the goods they will import in order to establish the correct duty rate;
  • consider arranging a Customs Comprehensive Guarantee (CCG) to cover Customs debts; and
  • review Customs procedures which may help mitigate additional customs duty costs and help supply chain management such as Customs Warehousing or Inward Processing Relief.

In addition, HMRC has suggested appointing a Customs broker or freight forwarder; without highlighting that the demand for these services are likely to far outweigh supply!

Both the UK Government and the EU are confident that a deal can be struck.  However, with negotiation time rapidly diminishing, a ‘no deal’ Brexit may be increasingly more likely.  It is vital that, in the little time we have left before Brexit, UK businesses consider their own circumstances.  Our Indirect Tax team is armed with the knowledge and experience to help you to gain a clearer understanding of how your business will be affected.

For more information contact Alistair Duncan, Director, (alistair.duncan@aab.uk) or your usual AAB contact.

To find out more about Alistair and the AAB Indirect Tax team, click here.

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