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VAT and Duty - planning for a no-deal Brexit

With a no-deal Brexit remaining a possibility and with under a month to go, time is running out to prepare for the VAT, Duty and Customs clearance issues businesses may face, in particular those that trade in goods with the EU. Here is a reminder of what you should be planning for now…

  • If the UK leaves the EU without a deal, goods arriving from the EU will be classified as imports. To be able to import goods into the UK an identification number, an ‘EORI’ is required. You should apply for this now if you have not already been allocated one by HMRC and if you intend to be responsible for imports from 1 November. Without it, goods will not clear Customs. This applies to both UK businesses importing goods as well as EU entities bringing their own goods into the UK for sale. It is necessary whether the intention is to sell business to business (B2B) or business to consumer (B2C). By implication, if you are an EU established importer and you need a UK EORI to clear goods through Customs, you are likely to have an obligation to be VAT registered in the UK. A temporary EORI can be obtained from HMRC to facilitate a shipment, but this number will become the same as your VAT number when that arrives.
  • HMRC have stated that they will introduce a scheme called ‘postponed accounting’ for the VAT due on import of goods to the UK, if a business is UK VAT registered. This will alleviate the cashflow issue that would ordinarily arise, as import VAT won’t be paid at the time of entry. Instead it will be accounted for (paid and usually recovered) through the VAT return.
  • In addition to a UK EORI, if a business exports goods to the EU on Incoterms that mean it is also the importer in an EU country, it will also require an EU EORI and a VAT registration in that EU country. Multiple registration requirements could arise without consideration of revised arrangements.
  • Customs Duty may be applied to products coming into the UK and also to goods moving from the UK to the EU. Duty is not a recoverable expense. You should consider the classification of your goods, the WTO and draft tariff rates that may apply and whether any reliefs are available for the Duty. You should consider your pricing policy and your contracts with customers as a result of this issue. The payment of Duty can be deferred if you have a deferment account or Customs Warehousing arrangement. Both systems have application processes with strict requirements.
  • In addition to the need for an EU EORI to clear goods imported into the EU, if your business is not established in the EU you may face additional Customs clearance issues post Brexit. That is unless you have a clearance agent established in the EU that is willing to accept joint liability for any unpaid Duty and VAT. It is not clear how rigorously overseas authorities will apply the Union Customs Code legislation in this regard, or whether the UK will adopt similar rules in the UK. This may though lead to a requirement to establish a company in the EU.
  • Other areas that do need specific consideration for UK businesses include: overseas VAT refund claims, ‘distance sales’ of goods (goods sold via websites and mail order to private consumers around the EU), the Tour Operators Margin Scheme, the Mini One Stop Shop for B2C supplies of digital services, and EU specific simplification rules that would no longer apply, i.e. call off stock, triangulation and supply and install contracts.

With the uncertainty and complexity of a no-deal Brexit, there may well be issues that you have not yet identified and considered. We would be pleased to help you navigate the indirect taxes minefield, to ensure your supply chains continue to run as smoothly as possible. Please contact one of our VAT and Duty specialists if you would like any assistance.

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