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It’s safe to say we all agree that VAT is complicated.
With its nuances and often logic defying rules and regulations, it’s a topic that fills many businesses with dread.
And, following Brexit, the VAT environment for buying and selling goods to and from Europe has become increasingly complex. But understanding the VAT implications here is crucial to ensure compliance, avoid unexpected costs, and maintain smooth cross-border operations.
Chris George, Tax Advisory Partner has put together this guide to the main VAT considerations for UK businesses who are trading goods with the EU.
VAT on exports to the EU
Since 1 January 2021, sales of goods from Great Britain to the EU are treated as exports for VAT purposes (Northern Ireland has its own special rules which are not considered in this article). Provided certain conditions are met, these exports can be zero-rated for UK VAT.
This means you do not charge VAT on the sale, but you must retain evidence that the goods have physically left the UK.
How do I zero rate an export?
As a business you must:
- Ensure the goods are exported from the UK within three months of the time of supply.
- Obtain and keep valid official or commercial evidence of export.
- Retain supplementary evidence, such as sales invoices, customer orders, and proof of payment.
Can I reclaim VAT on exported goods?
If you cannot obtain the required evidence within the time limit, then the business must account for VAT at the standard rate (currently 20%). If the evidence is then obtained later, the business can adjust the VAT account accordingly.
VAT on importing goods from the EU
When buying goods from the EU, UK businesses must treat these as imports. This means that import VAT and, in some cases, customs duties are due when the goods enter the UK.
Who pays import tax?
The responsibility for paying import VAT and duties depends on the agreement with the overseas supplier. But if a business as the customer is the importer of record, they will be responsible for these charges.
Postponed VAT accounting (PVA)
To ease cash flow pressures, postponed VAT accounting (PVA) is available to UK businesses who import goods from overseas.
PVA allows UK VAT-registered businesses to account for import VAT on their VAT return, rather than paying it upfront at the border. This is a significant benefit, as it avoids the need to pay VAT immediately and then reclaim it later.
A business can use PVA for goods imported from anywhere outside the UK, including the EU and the business must include the value of imported goods and the VAT due on the VAT return for the period the goods arrive in the UK.
The same VAT return allows the business to reclaim the import VAT as input tax, subject to the normal rules.
HMRC produce monthly postponed import VAT statements, which detail the VAT you must account for.
To use PVA, a business simply needs to indicate this on their customs declaration when the goods are imported, there is no need to apply in advance.
Import VAT and customs compliance
When importing goods from the EU, it is essential to ensure that customs declarations are completed accurately. A business will need to provide the correct commodity codes, values, and origin of goods to determine the correct amount of VAT and any applicable duties. Errors can lead to delays, penalties, or overpayment of tax.
If a freight forwarder or customs agent is used, a business will need to ensure they are aware of the business’ intention to use postponed VAT accounting and that they complete the customs declaration accordingly.
Chain transactions and VAT treatment
If a business is involved in chain transactions (where goods are sold through multiple parties before reaching the final customer in the EU) careful attention must be paid to the flow of goods and invoices.
If a UK business takes title to goods in the EU and sells them on, this often creates a VAT registration obligation in the relevant EU country, even if they never physically handle the goods.
The correct VAT treatment depends on the precise contractual arrangements, the movement of goods, and the location of the parties. Getting this wrong can lead to double taxation or missed VAT recovery opportunities.
Practical VAT tips for UK businesses
- Review supply chains to understand who is responsible for import VAT and customs duties in the EU and the UK.
- Obtain and retain export evidence. This is essential for zero-rating.
- Use postponed VAT accounting to improve cash flow when importing goods.
- Seek local advice. Each EU country has its own VAT rules and registration requirements for sales within the EU.
We’re here to help
The VAT landscape for UK-EU trade is more complex than ever. So, proactive planning, clear contractual terms, and diligent record-keeping are essential to avoid costly mistakes.
As with all things VAT, the rules and requirements can differ on a case by case basis. Meaning the points in this article should therefore be treated as a guide and reminder of the key points to consider.
If your business is uncertain on any aspect of their VAT requirements, our specialist VAT team can assist and provide guidance to help you navigate the evolving VAT environment with confidence.
Get in touch with Chris or one of the team today by calling 0330 058 6559 or email hello@scruttonbland.co.uk
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