No-deal Brexit & VAT
How can you prepare for a no-deal scenario, which remains a possibility? Below are a few practical tips that may serve as an initial step towards a no-deal-Brexit preparation plan. If you already have a plan in place, you can use the 20 points below as a checklist to make sure you have everything covered.
- If your business has no experience with import and export procedures with ‘third countries’ (countries outside the EU), then make sure your staff get the necessary training and contact a customs agent who can carry out the required import and export formalities for you, since intra-EU rules will no longer apply as between the UK and the EU 27 immediately Brexit happens.
- Do you already have an Economic Operator Registration and Identification (EORI) number? Any EU person importing goods from or exporting goods to the UK will be required to have an EU EORI number and may also need an UK EORI number.
- Do you know the correct commodity code for all your products?
- Do you know the origin of your products, i.e. according to the customs rules of origin?
- If you are exporting, are you able to provide your customer with a commercial invoice for their customs clearance at their request?
- You must modify your VAT reporting system so that UK customers and suppliers are no longer identified as ‘intra-Community’. Make sure that the required modifications are performed correctly. A credit note issued to an UK customer after Brexit day for a discount relating to a delivery made before Brexit day will still be an intra-Community credit note. Furthermore, don’t forget to chart the impact on other invoice streams. For instance: the VAT scheme relating to invoices of carrier companies transporting your goods to the UK will also change. Bookkeepers and IT staff will have a hard time making sure that all the changes are implemented at the point of Brexit. It would seem a good idea not to send any invoices to UK customers in the days immediately following Brexit day.
- If you have already incurred UK VAT that can be recovered through the EU Directive for VAT Refunds (‘the Eighth Directive’), you should act on it as soon as possible, as in the event of a no-deal Brexit, starting immediately after Brexit, the Eighth Directive will no longer apply to UK VAT refunds to EU businesses, which will have to use the so-called ‘Thirteenth Directive’ procedure.
- Check which Incoterms you use to sell goods to UK customers and adjust them as necessary for any quotes you will be sending out as from today. Adjust your quotes for additional costs to be incurred post-Brexit, such as export or import formalities and customs duties.
- Allow for considerably longer delivery periods to and from the UK. If necessary, include additional resolutive conditions for perishable goods in your terms and conditions.
- Check which currency (sterling, euro, dollar, Czech crones or other local currency) would the best option for invoicing to UK customers: a no-deal Brexit may well produce considerable currency fluctuations.
- Have you been placing larger-than-normal orders with your UK customers? The UK Government has been encouraging UK businesses to make sure that they have additional supplies over and above their usual buffer stocks prior to Brexit, where possible and appropriate.
- Check the impact of the customs duties to be imposed on both imports and exports – is your product in its current format still sellable in the UK after the imposition of import duties? Have you checked the import duties that may become due based on the WTO tariffs?
- Supplies including installation in the UK must be reassessed for VAT and customs duties.
- Sales from UK call-off stocks and purchases in consignments from UK suppliers must be reassessed for VAT and customs duties.
- Cross-border contract work involving the UK must be reassessed for VAT and customs duties.
- If your business involves regular imports from the UK, it is necessary to set up the right calculation of tax base.
- Triangulation (ABC) transactions involving the transportation of goods to or from the UK must be reassessed for VAT and customs duties.
- Web shops selling products to UK private consumers (B2C) must review their VAT processing.
- Moving excise goods between the UK and EU 27 countries will no longer be possible under the Excise Movement and Control System (EMCS).
- Businesses selling digital services to UK private consumers will no longer be able to use the EU’s Mini One Stop Shop (MOSS) scheme to declare VAT.
These are just some of the issues to consider and is no more than an initial guide. Each business will have to assess the consequences of a no-deal Brexit to their specific activity and prepare a no-deal Brexit plan.
What if a Brexit deal is reached after all?
In such a case, there will be a transition period, which will probably run at least until the end of 2020, but which could be extended after that. The intention would be to reach an agreement on the future trade relations between the UK and the EU 27 during the transition period. The negotiations about the conditions of such a free-trade agreement have yet to start.
Failure to reach an EU-UK agreement will trigger the ‘backstop’, under which Northern Ireland will remain aligned with the EU single market, while the remainder of the UK will be coupled to Northern Ireland (hence also to the EU) via a customs union. This would avoid the creation of an EU external border between Ireland and Northern Ireland. In this scenario, customs formalities would still have to be fulfilled in goods transactions with the UK (including Northern Ireland), but no customs duties would be due. This so called Irish backstop is the main dispute in the UK and can be reworded after approval of the EU 27.
Anyone who has regular transactions involving UK suppliers or customers must put Brexit at the top of their list of priorities and prepare a concrete no-deal-Brexit plan.
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