Updated: Feb 9, 2021
More than a month into the post-Brexit era, the United Kingdom is still facing nuanced, challenging trading conditions getting goods to market from the EU and to Northern Ireland.
Northern Ireland Protocol
The Northern Ireland Protocol, designed to maintain the integrity of the UK’s internal economic union and prevent a hard border on the island of Ireland, poses nuances which could affect the full implementation of the Free Trade Agreement. EU-based companies can move goods to the UK via Northern Ireland without customs checks, or tariffs and duties payable at the NI border (in most cases). Goods going from EU to Northern Ireland will not have VAT levied on “imports” when crossing the border in Northern Ireland, but VAT may be applied when these goods move from Northern Ireland into Great Britain.
New EORI Numbers Needed
Pre-Brexit, EU businesses relied on a single EORI number, but post-Brexit, both an EU and a UK EORI number are now required for EU businesses to move goods to the UK. Companies shipping through Northern Ireland may need an EORI number beginning with “XI” rather than beginning with “GB”. They also need to ensure that their VAT numbers and EORI numbers are linked to one another.
B2B: Import VAT, Customs, and Accounting Schemes
EU-based companies importing goods directly to Great Britain from an EU member state are required to register as a VAT vendor in the UK, resulting in additional costs associated with registration and ongoing VAT filing. For goods being sold B2B from the EU to the UK, schemes such as postponed accounting and deferment accounts suspend the upfront cash outlay of any Import VAT charged; essentially, these companies can record Import VAT expenses on their UK VAT return which will reduce the company’s VAT liability. Whilst this may benefit businesses from a cashflow perspective, there is more admin and paperwork involved with set-up, and customs documents still need to be completed. Furthermore, if the goods had additional manufacturing in the UK and then are on-sold again from GB to the EU through Northern Ireland, there may be more customs and regulatory checks on those goods.
B2C: Elimination of £135 Threshold
The removal of the £135 threshold for selling goods B2C into the UK is potentially the costliest change, especially for smaller sellers. Previously, low-value goods could enter the UK without VAT being charged. Now, these goods (many of which are sold via online marketplaces) would have VAT charges. The seller also now needs to register for VAT in the UK and pay the output VAT, and UK buying consumers face an additional burden of 20% UK VAT cost on their purchases. Pre-Brexit VAT registration thresholds have also been removed, posing additional barriers in the form of paperwork and costs for sellers.
EU Businesses Must Act Now
Achieving trade compliance from day one has proven to be difficult for many companies on both sides of the channel. To avoid delays, EU businesses need to ensure they are already set-up correctly with VAT registrations and EORI numbers by the time the goods arrive in the UK. Whilst it is possible to amend paperwork retroactively, doing so is more cumbersome and incurs time costs and financial burdens; as compliance experts, re:TRADE urges businesses to act now.
Author: VAT IT
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