Customs and VAT changes from 1 January 2021
Latest update 14 January 2020
Additional FAQs added
The UK has left the EU, and the transition period after Brexit came to an end on 31 December 2020. All businesses trading abroad should, by now, have taken action ready for new rules that came into force on January 2021. A bulletin issued by the Department for Business, Energy and Industrial Strategy (BEIS) provides the latest information for businesses. All information on the UK Transition can be found on the GOV.uk website here.
Download the EU Transition: VAT Imports presentation
Download the EU Transition: VAT Exports presentation
Download the EU Transition: Charging VAT on Export Sales presentation
In the details that follow, special note should be made of references to the United Kingdom (UK) which includes England, Wales, Scotland and Northern Ireland; Great Britain (GB) which refers to England, Wales and Scotland; and Northern Ireland which is dealt with separately for many of the new introductions. It should be noted that there will be no changes to transactions between businesses in GB and those in Northern ireland save for some customs checks that may be required.
Information on the following topic areas below can be found by clicking on the appropriate link
From 1 January 2021, any business moving goods to or from Great Britain and the EU will need to have an Economic Operators Registration and Identification number – an EORI number. It is likely that they will already have this but if not, an application should be made immediately otherwise they will be prevented for moving any goods across the border. Importers will need an EORI number that starts with the letters GB and it may be that an EU EORI number will also be required for goods moving from GB to the EU. They will not usually need an EORI number of they only provide services or move foods between Northern Ireland and Ireland but there will be checks to ensure those goods are not then moved into the EU.
From 1 January 2021 businesses will need an EORI number that starts with XI to:
- move goods between Northern Ireland and non-EU countries
- make a declaration in Northern Ireland
- get a customs decision in Northern Ireland
To get an EORI number that starts with XI, they must already have an EORI number that starts with GB. If they do not have one, they should apply for an EORI number that starts with GB as soon as possible.
If the business already has an EORI number that starts with GB and HMRC thinks they need one that starts with XI, they’ll automatically send one in mid-December 2020.
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Grants for training
Grants are available for businesses to spend on training to update their knowledge in this area to enable them to prepare for the move to the new systems. Further information can be found here.
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The transition period for the UK to finalise its exit from the EU ends on 31 December 2020, and the UK will take control over its borders and new regulations will come into force.
This is being implemented in three stages:
- January 2021 – traders importing standard goods will need to prepare for basic customs requirements such as the keeping of sufficient records of imported goods. Traders will also need to consider how they account for the VAT on such goods (explained later). Traders will have up to six months to complete customs declarations. If tariffs (explained later) are due then these can be deferred until the customs declarations have been completed. There will be some live checks on the import of certain items such as high-risk live animals and plants but they will not have to enter the UK at a Border Control Post (BCP).
- April 2021 – All products of animal origin and all regulated plants and plant products (e.g. honey, milk or egg products) will require pre-notification and relevant health documentations. Any health checks will take place at the destination and not at a BCP.
- July 2021- from this date onwards, traders will have to make full customs declarations at the point of import and will have to pay tariffs at that time. Health checks will take place at a BCP and not at the destination.
Full details can be found here.
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An import tariff is a charge placed on certain imported goods to ensure that domestic products and jobs are protected from cheaper imports. It is intended to reduce the imports by, effectively, raising the cost of those goods. Tariffs also act as a revenue generator for the Government. Tariffs operates independently of VAT but, unlike VAT, cannot be reclaimed. Currently, the UK enjoys tariff free trade with other EU countries, although tariffs may be imposed on goods brought into the UK from outside the EU. 29 December 2020 As the UK Government have agreed the terms of a trade deal with the EU (which has now been ratified by the UK and EU Governments), this tariff free situation between the UK and countries in the EU will continue. Note: exporters to the EU will need to provide documentation on proving the rule of origin of the goods otherwise import tariffs may still be applied in the EU. if the documentation is not complete, or requirements as to the rules of origin are not fulfilled then tariffs may be applied. The basic rules seems to be that 55% of the 'content' of the goods must originate from the UK. It is possible that double tariffs may apply for goods imported into the UK and then exported to the EU.
From 1 January 2021 the UK will operate its own tariff measures, called the UK Global Tariff (UKGT) which replaces the current EU Common Tariff (which applies until 31 December 2020). The main difference between the two is that the UK version has been somewhat simplified.
From 1 January 2021, the UKGT will apply to all goods imported into the UK unless:
- An exemption applies which includes areas such as temporary suspensions and tariff quotas. A ful llist can be found here.
- The goods come from a developing country which is listed under the UK Generalised Scheme of Preferences. The UK is currently planning to continue providing trade preferences to those countries on the existing EU list. Note: not every type of import will be included for every country on the list - for example, there is an exclusion list for arms deals with some countries.
- The country of import has a trade agreement with the UK. The government, whilst currently in the process of discussing an agreement with the EU (note: at the time of writing no such agreement has been agreed) is also discussing trade agreements with individual countries around the world. The full list of countries with whom the UK already has a signed agreement, or with whom the UK is still in negotiation, can be found here.
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For all countries for which the UK does not have a signed traded agreement, the UK will adhere to the World Trade Organisation (WTO) rules.
Some goods are covered by a tariff quota which means that imports up to the quota level can be imported at a lower, or even a zero, level. The limit may be expressed in units of weight, volume, quantity or value. Once the limit has been reached, a higher tariff rate will apply. In order to check the tariff level, you will need to search via an 8 digit commodity code, or a product description or a combination of both. The full list of proposed tariffs can be found here. The list is huge (11,830 commodities) and just glancing at the descriptions is worth it to see the variety and extent of the different commodity areas.
For example, looking at one of the earlier commodities in the list is the import of live horses (excluding those who are pure bred for breeding purposes for which the tariff is zero) - the commodity code is 0101-29-90, the existing EU tariff is 11.5% of the value and the UK Global Tariff will be 10% of the value. As in many of the commodities the percentage has been simplified. Others have changed only because the amounts are changing from Euro to sterling through a currency conversion.
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VAT changes on acquisitions/imports from January 2021
the way we deal with VAT and trade with the EU changes on 1 January with the scope of changes being different depending on whether businesses are trading from CB or from Noerthern Ireland.
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The treatment until 31 December 2020
- A private individual purchasing goods ands services from another EU country will be charged VAT at the rate in operation in that country.
- If a VAT registered business buys in goods from a VAT registered supplier in another EU country then this is termed an Acquisition and the Business to Business (B2B) system operates. The purchaser and seller exchange VAT numbers and no actual VAT is charged on the invoice. However, the value of the nominal VAT is shown on the VAT return in boxes 2 and 4 of the purchaser’s VAT return. The value of the purchase appears in boxes 7 and 9 of the VAT return.
- If a VAT registered business buys in a service from a VAT registered supplier in another EU country then this is dealt with as a reverse charge. The purchaser and seller exchange VAT numbers and no actual VAT is charged on the invoice. However, the value of the nominal VAT is shown on the VAT return in boxes 1 and 4 of the purchaser’s VAT return. The value of the purchase appears in boxes 6 and 7 of the VAT return. No amounts appear in the EU sections of the return (i.e. boxes 8 and 9)
- If goods are purchased from a supplier based in a country outside the EU then this is termed an Import and VAT is paid at the point of import before the goods can be released. Note: currently imported goods for sale of less than £15 value are not subject to import VAT (called Low Value Consignment Relief or LCVR). If the goods are then sold to a UK customer, normal UK VAT must be applied and noted in the VAT return as a normal UK sale. The value of personal gifts that can be imported free of VAT is £39.
Under normal rules, import VAT is paid directly to HMRC. For individual customers this is often via The Royal Mail, Parcel Force or a courier company depending on who is delivering the goods. Such VAT is often not recoverable as the goods are for personal use. For VAT registered businesses who regularly import goods, they will often use a shipping company, who collects the VAT from the customer before the goods are released. The shipping company then reports and transfers that payment to HMRC. HMRC will then issue a C79 form to the purchasing business which can be used to reclaim the import VAT in the next VAT return. C79s are normally received just after the middle of the month following the payment, so depending on the month in which payments are made, it may be possible to claim the VAT back in the current VAT period, or it may mean waiting until the next period. Depending on the size of the amount this could very well cause a cash flow issue as the import VAT has actually to be physically paid and then reclaimed back via the relevant VAT return.
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The treatment from 1 January 2021
For businesses within GB (England, Wales and Scotland) all goods brought in from any other country (either within our outside the EU) will be treated as imports. For businesses within Northern Ireland, the treatment of all goods purchased from businesses within the EU will remain as it is now - i.e. EU Acquisitions. Goods purchased from outside the EU will be treated as imports in the same way as GB based businesses. The treatment of VAT on imports depends on the value of the consignment.
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Imports entering the UK valued at up to £135 per consignment
The LVCR will disappear and be replaced by a new system. If the value of the goods being imported is less than £135 then the VAT is declared at the point of sale and not the point of import. Customs declarations will still have to be made (although these will be made simpler including the use of reduced data sets and bulk recording) and the goods will be subject to normal customs processes and procedures. Note: the £135 limit on the value of goods covers the value of the entire shipment and not individual items in the shipment.
There are some exceptions to this rule (what a surprise) which are:
- non-commercial consignments, such as gifts (gift relief for consignments valued up to £39 will remain)
- consignments containing any goods that are subject to an excise duty (such as alcohol and tobacco products, energy products and electricity)
- consignments from Jersey and Guernsey that are covered by the Import VAT Accounting Scheme.
The purchaser will report the VAT to HMRC under VAT supply rules and not VAT import rules. The only reporting required will be the VAT on the sale which will be reported in box 1 of the VAT return.
However, if the customer is also VAT registered then these goods can be sold via the reverse charge scheme provided that VAT numbers are exchanged (so that the amount of nominal VAT will appear in boxes 1 and 4 of the purchaser’s VAT return and not in the seller’s return). If the VAT numbers are not provided then the sale is treated as a business to consumer sale and VAT charged accordingly.
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Imports entering the UK with consignment values over £135
For goods valued at over £135 (per consignment), from January 2021 it will be possible to declare (and pay) the import VAT on the next VAT return instead of paying up front and having to reclaim it later. This is called postponed accounting.
Postponed accounting can be used to account for import VAT if:
- the goods are imported for use in a business
- the business’s EORI number, which starts GB, is included on the customs declaration
- the business’s VAT registration number is shown on the customs declaration, where needed.
There are occasions when goods do not immediately go into free circulation (i.e. ready for selling). This includes, for example, goods that are imported into a bonded warehouse until needed. In such circumstances the VAT will be declared at the time the goods are released for sale.
An online monthly statement will be available to download and keep for your records. It will show the total import VAT postponed for the previous month which you should include in your VAT Return.
Due to postponed VAT accounting, there will be changes to the way you complete the boxes on your VAT Return.
Box 1 - Include the VAT due in this period on imports accounted for through postponed VAT accounting.
Box 4 - Include the VAT reclaimed in this period on imports accounted for through postponed VAT accounting. (Note: this may be a ‘cancelling’ item as they are likely to be for the same amount.)
Box 7 - Include the total value of all imports of goods included on your online monthly statement, excluding any VAT. Any VAT on a subsequent sale will appear as normal.
This could remove the issue of cash flow as no actual import VAT will be paid – the amount is a paper transaction only. If customs declarations are postponed for any reason then an estimate should be made which will be adjusted when the final amounts are known.
To enable the entries to be correctly made in the accounts you should use the relevant reverse charge code for VAT which will put the relevant amounts in both boxes 1 and 4 of the return. You should check with your software provider which code to use as some are introducing new codes.
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Reclaiming VAT paid in the EU
Businesses can continue to use the existing EU VAT refund system for claiming back VAT on expenses incurred in another EU country before 1 January 2021 until 11pm on 31 March 2021. The existing system cannot be used to reclaim VAT incurred after 1 January. Each EU state will have its own rules for refunding VAT and businesses will have to register in each relevant country. A full list of the rules can be found here.
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VAT treatment on the sale of goods and services until 31 December 2020
The current rules with regard to VAT when selling goods overseas are as follows:
- Sales to non-VAT registered customers in the EU – provided that the value of sales to each country within the EU falls below the distance selling threshold for that country the seller charges UK VAT as normal and reports the sale on the UK VAT return. If the value of sales to a particular EU country rises above that country's Distance selling Threshold then the seller must to register for VAT in that country and charge VAT at the county’s rate of VAT, reporting and paying VAT to that country’s VAT authority.
- Sales to VAT registered businesses in the EU – use the B2B EU sales facility – no VAT is charged on the invoice and no VAT appears on the UK VAT return but the value of sales or outputs is recorded in boxes 6 and 8 of the UK VAT return. ASn EC sales list must be completed.
- Sale of services to EU customer are treated as a reverse charge. no VAT appears on the UK VAT return but the value of the sale will appear in box 6 of the VAT return.
- Sales to customers outside the EU – these are sold and exported at zero rate (provided that all relevant rules are followed). No VAT appears on the return but the value of sales appears in box 6 of the UK VAT return. Sellers should be aware that their customers may have to pay import taxes in their own country.
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Exporting goods - Introduction
Exported goods can be sold at zero rate for VAT in GB and NI provided that the seller satisfies a number of requirements. Note however that Import VAT will have to be paid in the relevant EU country.
There are conditions that must be fulfilled for the export to be zero-rated for VAT in the UK:
- The goods must be exported form the UK within specific time limits of the sale taking place (normally 3 months or 90 days)
- Official or commercial evidence must be obtained of export actually taking place
- Supplementary evidence of the export must be obtained if required
Until 31 December 2020, goods are deemed to be exported if they are sold by any UK based business to customers outside the EU.
From 1 January 2021 there will be a difference to the definition of an export depending on whether the business is based in GB or Northern Ireland. Goods are deemed to be exported from Great Britain if they are transported to any country outside the UK. If a business is exporting to an EU country then the exporter must check that the receiver has the necessary certificates to import those goods (if relevant). However, we are still awaiting final decisions on how to deal with moving goods through Northern Ireland. For sales to EU customers further information will follow on the treatment of VAT as import VAT will need to be paid in any EU country.
For businesses in Northern Ireland goods will be deemed to be exported if they are transported to any country outside the EU. If the customers are based within the EU they are deemed an EC sale. From 1 January 2021 all goods leaving Great Britain (i.e. England, Scotland and Wales) will be subject to export rules. For the purposes of VAT, as we understand it at the moment, businesses in Northern Ireland will still be subject to existing rules (i.e. EC sales to customers within the Eu and exports to customers ourside the EU). The following rules apply to all exports.
Exporters will need to make customs declarations when exporting goods to all countries, including those in the EU and suppliers may also need to obtain relevant licences.
There are two types of exports (classified by the way they are transported) - direct and indirect exports. Direct exports are ones that are exported by the seller; indirect exportss are ones where the export if organised by the buyer.
Direct export and goods can be transferred in one of the following ways:
- In the seller's own baggage
- In the seller's own transport
- By rail, post or courier service
- By a shipping line, airline of freight forwarder employed by the seller and not the customer
An indirect export is one where the overseas customer or their agent collects, or arranges for the collection of, the goods from the supplier within the UK and takes them outside of the UK or EU.
The conditions that must be fulfilled if the export is an indirect export are that these goods must not be:
- supplied to a private individual who is resident in the UK
- supplied to a customer that has a place of business in the UK from which taxable supplies are made
- delivered to, or collected by, a UK customer at a UK address
If all the conditions for the relevant type of export are fulfilled then goods can be zero rated for VAT, regardless of whether the customers are VAT registered or non-VAT registered in the country of destination.
If the conditions cannot be fulfilled then the goods must be supplied subject to the appropriate UK rate of VAT. If the goods are sold under zero rate VAT for export but are later found not to have been exported, or the correct evidence provided, then VAT must be accounted for as if the goods had been sold within the UK. This involves an amendment to the VAT return to ensure that the selling price is re-allocated as VAT inclusive and, for a rate of 20%, the VAT element of the sale is calculated at a fraction of 1/6. The VAT must be accounted for in box 1 of the return for the period in which the relevant rime limit expires. Ig the goods are subsequently exported then the VAT can be reclaimed in the period in which the evidence is produced.
For the purposes of the VAT return, no VAT will be shown in box 1 but the value of any exports must appear in box 6.
Further details and a full list of conditions and evidence requirements can be found here.
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VAT treatment on the sale of goods and services from 1 January 2021
Provided that the rules for export are followed and satisfied, any sale by a GB business to any country outside the UK is deemed an export. Any sale by a business based in Northern Ireland to any business outside the EU is also treated as an export. (Note: any sale by a business based in Northern Ireland to a business within an EU country will be treated exactly the same as any EU sale at present).
Exported goods (and services although these do no need to fulfill the export of goods conditions) are sold at zero rate as far as a GB VAT return is concerned. No VAT appears in the top half of the VAT return and the value of the sale appears in box 6 of the VAT return. However - the rules for selling to customers within the EU will involve the charging of EU VAT in the form of import VAT in the EU country of destination.
There are several options:
- The seller simply exports the goods at zero rate and lets the customer deal with the import VAT and customs at the other end - this is fairly simple for the seller but will involve the customer in additional paperwork and cost and will likely lose them as a customer
- The seller pays the import VAT (and charges it on to the customer) but that involves the seller in additional paperwork and cost and is not completed correctly (including all customs declarations) may delay delivery and cause issues at the foreign port of import
- Register for VAT from day 1 in each country to which you sell, charge VAT to the customer and complete the EU VAT return - this means multiple registrations and returns whihc is very time consuming
- Register in one country for EU VAT and sell under the normal EU selling rules. Once 1 July 2021 sees the introduction on the EU-wide One Stop Shop (OSS) this could simplify the whole process
Note: some countries in the EU insist on a local Fiscal Representative who will deal with all customs and VAT details but this can be very expensive
For GB based businesses, HMRC have confirmed that selling goods and services (such as bookkeeping) to private (non-VAT registered) customers in the EU will no longer have UK VAT added. EU VAT may have to be applied depending on the type of service provided.
Note: selling via an online market place will have specific rules which may differ from these. Further details to follow.
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Selling digital services abroad
Currently, if a VAT registered business sells digital services to a VAT registered business in the EU they sell this under a reverse charge and have to report the sales via the VAT Mini One Stop Shop (MOSS).
For sales made on or after 1 January 2021, businesses will not be able to use the UK’s VAT Mini One Stop Shop (VAT MOSS) service to declare sales and pay VAT due in EU member states.
The final return period for the UK’s VAT MOSS system will be the period ending 31 December 2020. Businesses should only include sales made before 1 January 2021 in the final return, which should be submitted by the 20 January 2021.
Businesses will also be able to use the UK’s VAT MOSS system to:
- amend your returns until 11pm on 20 January 2022
- update your registration details until 31 December 2024
- view previous returns
Where sales are still covered by MOSS rules, for sales made from 1 January 2021, businesses will need to register for either:
- VAT MOSS in any EU member state
- VAT in each EU member state where you sell digital services to consumers
Full details can be found here.
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Receiving personal data from abroad
From 1 January 2021, if you or your clients currently receive personal information on (say) customers from abroad, including the EU, you should take measures to ensure that the data transfer falls within legal boundaries. Further information can be found here.
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Employing staff from abroad
Although not part of the VAT scheme, if any business employs staff from abroad (including EU and EEA nationals), from 1 January 2021, they must act as a sponsor and fulfil all the necessary requirements. Full details can be found here.
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Working abroad - social security coordination
The UK has reached an agreement with the EU on its future relationship. The social security coordination provisions in this agreement ensure workers who move between the UK and the EU only have to pay into one country’s social security scheme at a time.
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Going to work temporarily in the EU under the detached worker rule
The country you and your employee will pay social security contributions in depends on whether the EU country has agreed to apply the detached worker rules.
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Where an EU country has agreed to apply these rules:
- UK workers who are sent by their employer will only need to pay National Insurance contributions for the period of work in the EU country (up to 24 months). More information on going to work temporarily in the EU can be found on GOV.UK. Information is also included on going to work temporarily in Norway, Iceland, Liechtenstein and Switzerland.
- EU workers sent by their employer to work temporarily in the UK from a country which has agreed to apply the detached worker rule will remain liable to only pay social security contributions in the EU country. More information on coming to work in the UK can be found on GOV.UK. Information is also included on coming to work temporarily in the UK from Norway, Iceland, Liechtenstein and Switzerland.
For EU countries that don’t apply these rules, you and your employee will be liable to pay contributions in the country where they are temporarily working if the they are not in scope of the Withdrawal Agreement.
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What you should do if you go to work in the EU
You should continue to apply to HMRC for the same forms on behalf of the individual going to work in the EU. If they do not qualify for a certificate, you or your employee will need to contact the relevant EU social security institution to start paying social security contributions in that country.
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|My business is not currently registered for VAT. Will I have to register for VAT if I start to trade abroad?
||No, the current threshold for VAT registration remains the same but you may have to register for VAT in an relevant EU country on your first sale
|I have a client in Northern Ireland. What VAT do I charge?
||All transactions between GB and NI re subject to UK VAT as normal. The sale of goods might mean additional import/export customs paperwork but the VAT remains unchanged
|A client is based in NI and sells to a customer in Ireland. What are the VAT implications?
||Any trade between NI and any country in Europe uses exactly the same VAT treatments as prior to 1 January 2021 i.e. B2C and B2B (where VAT numbers are exchanged and zero VAT is charged).
|Do I need an EORI number if I only sell services?
||No, the EORI number is for the export of goods only
|How will I know if I need an EU EORI number?
||You should contact the shipping or freight company used - they should be able to advise you - it will depend on who is making the customs declarations
|Reclaiming Import VAT
|Can an EU business reclaim their Import VAT?
||It depends on the country but yes they should be able to in the same way that the UK can
|Can I use postponed VAT for imports from (say) China as well as from the EU?
||Yes - postponed accounting is for all imports regardless of the point of origin
|EC Sales and Intrastat returns
|Do we still need to complete EC sales and Intrastat returns?
||EC Sales lists are no longer required for businesses in GB. For NI the situation with B2B EU sales remains unchanged. Businesses importing (arrivals) goods into Great Britain from the EU are still be expected to prepare monthly Intrastat reports if over the £1.5m reporting threshold. This will only apply for 2021.
|VAT codes and the accounts
|Which VAT code should I use when entering EU transactions in the accounts?
||It depends on the software you are using - we know that some have already issued new codes to use but check with your software provider
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