In recent weeks I’ve had a steady trickle of queries about shipping goods to the EU or receiving goods from the EU, largely because there is very little HMRC guidance. So today I will try to plug some of the gaps left by this distinct lack of government help, with regard to VAT on goods coming from the EU.
Buying goods from the EU
Since the transition period ended on 31st December 2020 and the UK left the EU, all goods entering the UK are considered the same, whether imported from Belgium or Bangladesh; with the default position being that when the goods arrive in the UK, import VAT (and possibly import duty) is due to HMRC.
VAT is payable in one of three ways:
- The freight agent will pay the import VAT and recharge back to the business importing the goods, plus an admin fee.
- If the UK business has a VAT deferment account, the freight agent would not pay the import VAT and instead code the import to the business’ deferment account with the VAT payable on the fifteenth of the following month.
- The PVA (Postponed VAT accounting) method (see below)
With methods one and two, a C79 import certificate will be issued by HMRC around 45 days after the importation. It is important that you must retain this certificate as it is proof to reclaim input tax.
Postponed VAT accounting (PVA)
There is an optional method to deal with the import VAT called postponed VAT accounting or PVA. Here, the freight agent will not pay the import VAT. Instead, the import entry will be coded to PVA and the goods continue their journey without payment of VAT to HMRC.
If the UK business is responsible for the freight agent, the agent must be instructed to use PVA and if the sender is responsible for the freight agent, the sender will need to know if the UK business, as the recipient, intends to use PVA and then it can advise the freight agent accordingly.
There are however two pre-conditions for this:
- The importing business must have a GB EORI number (EORI stands for “Economic Operators Registration and Identification number”).
- The importing business must have signed up for the Customs Declaration Service (CDS)
With PVA no C79 is issued, instead, a monthly postponed import VAT statement (MPIVS) is produced on the Customs Declaration Service (CDS) and the importer needs to access this record and download it. Go to: https://www.gov.uk/guidance/get-access-to-the-customs-declaration-service
The MPIVS is accessed via the CDS and any UK business wishing to use the scheme needs to register via their government gateway account. Do not forget, you’ll need your GB EORI number to register, with access granted normally within 24 hours.
B2C transactions
B2C transactions refer to new importation rules for UK consumers who are importing goods from the rest of the world as a business to consumer transaction.
A) Low-value goods under £135
If the goods are valued at no more than £135, the non-UK based seller will be required to register for UK VAT, and VAT will be charged at time of sale and shown on the VAT invoice. The shipping paperwork, completed by the freight agent or postal service, will identify that VAT has been charged at time of sale and thus import VAT is not due when the goods enter the UK and the customer has nothing further to pay.
The seller accounts for VAT on their UK VAT return like any other VAT registered business. The knock-on effect is that many non-UK sellers have decided the cost of compliance and VAT registering is too great, with many small businesses publicly stating they will no longer sell into the UK.
B) Goods valued over £135 (This is the value when import duty may be payable in addition to VAT)
In this scenario, VAT is likely all be calculated at the checkout stage on the seller’s website, with the UK customer just paying the VAT inclusive total price.
To do this, the retailer would instruct the freight agent that upon goods entering the UK, the freight agent treats the retailers as the importers, meaning the importer pays the duty/VAT. The freight agent would record the import against the retailer’s UK VAT number (and the retailer could reclaim this import VAT in full). There would then be a subsequent sale from the retailers’ UK VAT registration to the UK consumer which would in effect be a domestic sale within the UK following normal VAT rules.
Brexit reality check VAT Conclusion
Now that we’re in this new confusing post-Brexit world, it is clear that a one-size solution does not fit all, but at least with regard to VAT, there are potentially a number of different ways in which to reduce the impact of Brexit.
Today’s Blog is intended to be the first of a series on the impact of Brexit on UK businesses and consumers, with further Blogs being published as and when I can get sufficient clarification from HMRC; but knowing HMRC as I do, it could be a long wait!
As ever, if you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.
