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Changes to VAT rules from 1 January 2021

 

The UK continues to levy VAT and the rules relating to UK domestic transactions continue to apply to businesses as they did previously. VAT procedures, on the whole, remain as those prior to 31 December 2020, but there are some changes to the VAT rules and procedures for transactions between the UK and EU member states.

 

Importing goods from the EU

The existing rules for imports from non-EU countries now apply to imports from the EU, but with some changes. The government will introduce ‘postponed accounting’ for import VAT on goods brought into the UK with effect from 1 January 2021. 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 important relaxation applies to imports from the EU and non-EU countries.

However, customs declarations and the payment of any other duties will still be required. Customs duty (tariffs) will apply to some goods and excise duties will continue to apply to tobacco, alcohol and certain energy products.

Customs and excise duty payments can be deferred to be settled monthly with a duty deferment account. Businesses need to register with HMRC to open a duty deferment account and will need to provide a bank guarantee.

From 1 January 2021, VAT on imported goods with a value of up to £135 is collected at the point of sale not the point of importation. This means that UK supply VAT, rather than import VAT, will be due on these consignments.

Online marketplaces (OMPs) involved in facilitating the sale of imported goods are responsible for collecting and accounting for the VAT, even when the goods are in the UK at the point of sale.

For goods sent from overseas and sold directly to UK consumers, the overseas seller is required to register and account for the VAT to HMRC. Overseas sellers also remain responsible for accounting for the VAT on goods in the UK when sold directly to UK consumers.

Business-to-business sales not exceeding £135 in value are also be subject to the new rules. However, where the business customer is VAT registered and provides its registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge.

How to export goods from GB into the EU from January 2021

Decide how you will export your goods from GB into the EU. The main options are • Exporting goods through standard export procedures. • If you are moving goods through multiple territories or want to complete your customs formalities away from the border, you may wish to consider using Transit. If you are moving things temporarily, temporary admission procedures such as ATA Carnets may be for you. Note: Additional processes may be required depending on what location of the exit you are using. Further guidance on exporting is on GOV.UK.

Supplying services to the EU

The supply of services to customers in the EU from 1 January 2021 is treated the same as those to any customer outside the EU.

The VAT treatment will be covered by the VAT ‘place of supply’ rules. The rules continue to apply broadly as they did previously, but subject to some changes shown below.

For UK businesses supplying digital services to non-business customers in the EU, the ‘place of supply’ continues to be where the customer resides. VAT on those services is due in the EU member state in which the customer resides.

For UK businesses supplying insurance and financial services, the input VAT deduction rules change from 1 January 2021, as supplies that were previously exempt become outside the scope with recovery, thereby aligning with the existing rules for supplies of such services to customers outside the EU.