When the UK left the EU, we also left the customs union, single market and EU VAT regime. As such, businesses are having to get used to new processes and procedures when it comes to VAT after Brexit as well as other VAT 2021 changes not linked to Brexit.
Here we look at a high-level overview of the VAT changes which may be impacting your business post Brexit.
VAT after Brexit
As a result of the UK leaving the EU some rules relating to VAT have changed including:
- The UK no longer has to comply with the EU’s minimum VAT rate of 15 per cent
- All goods now moved between the EU and UK are counted as imports and exports meaning they are subject to import VAT
- An EORI number is required to move goods between the UK and EU
- The UK has introduced postponed VAT accounting – meaning you declare and recover import VAT on the same return rather than paying it upfront and recovering it at a later date
Domestic VAT rules 2021
Rules and procedures relating to VAT within the UK remain the same following the completion of Brexit.
VAT rules relating to import and export of goods to the EU
Importing Goods from the EU after Brexit
Existing rules relating to importing goods from non-EU countries now apply to goods imported from EU countries. In addition, when importing goods from outside the UK which do not exceed £135 in value, the point at which VAT is collected has changed from the point of importation to the point of sale.
Goods imported to the UK valuing less than £15 are no longer exempt from import VAT.
- If an online marketplace is involved in facilitating the sale, they will be responsible for collecting and accounting for the VAT.
- This change also impacts business to business sales of the same value. But if the business customer is VAT registered in the UK and provides its valid VAT registration number to the seller, the VAT will be accounted for by the customer by means of a reverse charge.
Given the complexities, refer to the full government guidance relating to VAT treatment for imported goods.
These changes to VAT in 2021 have seen some customers facing unexpected charges for deliveries from the EU.
Exporting Goods to the EU after Brexit
Before Brexit, goods transferred to the EU from the UK were not considered exports. But this has now changed as the UK operates outside the EU regimes. As such, when you export goods from the UK to the EU you may be able to charge customers 0% VAT or ‘zero rate’.
However, in order to do so certain conditions must be met which are provided in full detail in this guidance to VAT on goods exported to the EU.
Other factors affecting VAT in 2021
Reduced rate of VAT for hospitality, holiday accommodation and attractions
The government introduced a VAT rate reduction for certain sectors of the economy in response to the COVID-19 pandemic. Meaning that some businesses can temporarily reduce the VAT rate from the standard 20% down to 5% on certain supplies relating to:
- hotel and holiday accommodation
- admissions to certain attractions
When originally announced, this reduction was set to last until 31st March 2021. But in the 2021 budget it was announced that this would be extended by a further 6 months until 30th September 2021. With a new reduced rate of 12.5% introduced after this point through until 31st March 2022.
Making Tax Digital
Businesses will need to continue to make changes relating to Making Tax Digital in relation to VAT in 2021.
According to the gov.uk website, Making Tax Digital ‘requires VAT registered businesses with taxable turnover above the VAT registration threshold to keep records in digital form and file their VAT Returns using software.’
Find full details of Making Tax Digital rules your business will need to follow on the government website.
Your business will need to stay up to date with VAT requirements and likely seek help and advice from a qualified professional in order to make sure you follow the correct rules and procedures.
If you are reviewing your business management processes currently, one area you may be reviewing is your insurance. At Anthony Jones we have teams of business insurance experts who can get to know you and your business and help ensure you have the correct cover for your needs. Get in touch with us today on 020 8290 9080 or email us at firstname.lastname@example.org.