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After months of to-ing and fro-ing, a Withdrawal Agreement was finally put in place and the UK departed from the EU on 1 January 2021 in the final stage of Brexit. While there are still some finer details which are still waiting to be hammered out, there is now a concrete basis for ongoing trade.

However, this means that there are now new procedures to consider on imports and exports, with different customs procedures and changes to the VAT accounting as well. This guide will examine the latter, and what it means in practical terms for individuals and businesses alike.

The Relevance of 2021

There has been some confusion over the official Brexit date, and the relevance of January 2021. Technically, the UK left the EU on 31 January 2020 but the country was protected from any impact by a mutual agreement to a transition period.

This was due to expire at the end of 2020, which is why there was such pressure for a deal to be in place. From 1 January 2021, the full effects of departure from the EU were felt by both sides for the first time.

This means that during 2020, there was no impact on VAT, with no customs borders. This has now changed and new processes and rules apply.

The Impact on Businesses

The government warned businesses in advance of the need to prepare for the changes to VAT. The official government website contains a checklist to walk businesses through the measures they need to follow to make sure they remain compliant with the new VAT rules.

Customs declarations are now required for any goods which move between the UK and the EU. This applies to both imports and exports, with a separate declaration for movement in each direction.

On goods where VAT is payable, businesses will use a postponed accounting system. This allows them to include the VAT due on import in their regular VAT return, a system which will help reduce pressure on cashflow.

If your business holds stock in another EU country you will be subject to EU VAT. You will need to register for this in every country where you maintain your inventory. If you provide digital services you can avoid some of the work by registering for VAT MOSS instead, a system which enables you to pay all VAT due to HMRC rather than registering in every country you do business in. It’s worth emphasising that there are no minimum thresholds, so even if you sell low volumes, the same requirements apply.

The low-value consignment stock relief exempting goods from VAT no longer exists. In its place is a system where goods valued at £135 or less will need to be declared to HMRC quarterly, with VAT due at point-of-sale.

If you’re exporting your goods, you won’t need to pay UK VAT, but the sales must still be recorded and help to determine whether your business is above or below the VAT registration threshold.


The Impact on Customers

Some customers who were being charged VAT for services received will find that from 1 January 2021, they will be exempt. This is because customers in the EU can be treated the same way as customers in the rest of the world, and will no longer be liable to pay VAT on certain services and goods.

UK businesses will therefore need to change how they charge customers in the EU, and remove VAT from invoices.

If a business is VAT-registered but has all its customers overseas and no longer charges VAT, it can remain as a VAT-registered business. HMRC states that if the customers would be liable for VAT charges if they were in the UK, the company still qualifies for VAT registration, even if it’s not being charged due to the location of the customer.

Northern Ireland

Northern Ireland is worthy of a specific and separate mention because the rules which apply are somewhat different to the rest of the UK. The desire to avoid a closed border with Ireland created difficulties for VAT.

The solution was to create a dual system for Northern Ireland, where it aligns with the EU for legislation on goods but with the UK for legislation on services. HMRC remain responsible for VAT in Northern Ireland.

This means that goods from Northern Ireland to the EU will follow pre-Brexit protocols and be treated as intra-community transactions. Goods moving to and from the rest of the UK and Northern Ireland will be treated as an import or export, and subject to import VAT.

Expert Advice for Your Business

This guide provides a very high-level overview on what is a complex subject. If your business imports or exports goods, it’s highly advisable to seek expert advice on what steps you need to take to remain compliant.

As the owner and founder of the business, I am responsible for overseeing a range of key activities. These include managing client relationships, spearheading new business development, and crafting the company's development and strategic plans.

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