A guide to the VAT landscape for UK- EU trade
Chris George, Tax Advisory Partner has put together this guide to the main VAT considerations for UK businesses who are trading goods with the EU.
I t’s safe to say we all agree that VAT is complicated. With its nuances and often logic defying rules and regulations, it’s a topic that fills many businesses with dread. And, following Brexit, the VAT environment for buying and selling goods to and from Europe has become increasingly complex. But understanding the VAT implications here is crucial to ensure compliance, avoid unexpected costs, and maintain smooth cross-border operations.
How do I zero rate an export? As a business you must:
Postponed VAT accounting (PVA)
To ease cash flow pressures, postponed VAT accounting (PVA) is available to UK businesses who import goods from overseas. PVA allows UK VAT-registered businesses to account for import VAT on their VAT return, rather than paying it upfront at the border. This is a significant benefit, as it avoids the need to pay VAT immediately and then reclaim it later. A business can use PVA for goods imported from anywhere outside the UK, including the EU and the business must include the value of imported goods and the VAT due on the VAT return for the period the goods arrive in the UK. The same VAT return allows the business to reclaim the import VAT as input tax, subject to the normal rules. HMRC produce monthly postponed import VAT statements, which detail the VAT you must account for. To use PVA, a business simply needs to indicate this on their customs declaration when the goods are imported, there is no need to apply in advance.
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Ensure the goods are exported from the UK within three months of the time of supply. Obtain and keep valid official or commercial evidence of export. Retain supplementary evidence, such as sales invoices, customer orders, and proof of payment.
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Can I reclaim VAT on exported goods? If you cannot obtain the required evidence within the time limit, then the business must account for VAT at the standard rate (currently 20%). If the evidence is then obtained later, the business can adjust the VAT account accordingly.
VAT on exports to the EU
Since 1 January 2021, sales of goods from Great Britain to the EU are treated as exports for VAT purposes (Northern Ireland has its own special rules which are not considered in this article). Provided certain conditions are met, these exports can be zero-rated for UK VAT. This means you do not charge VAT on the sale, but you must retain evidence that the goods have physically left the UK.
VAT on importing goods from the EU
When buying goods from the EU, UK businesses must treat these as imports. This means that import VAT and, in some cases, customs duties are due when the goods enter the UK. Who pays import tax? The responsibility for paying import VAT and duties depends on the agreement with the overseas supplier. But if a business as the customer is the importer of record, they will be responsible for these charges.
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