3 Sep 2019

Brexit Part 1: VAT and Customs implications of a No-Deal Brexit

MHA Monahans VAT implications Brexit no deal

HMRC has updated its guidance -see HMRC import/export advice - as part of the UK preparations in the event of a “No-Deal Brexit”.

Background

If the UK leaves the EU without a Brexit deal, the UK will be treated as a non-EU state for VAT and Customs purposes. This will be the end of free movement of goods, and will result in additional customs clearance procedures for goods moving between the UK and EU. On import, applicable customs duties and import VAT will be payable.

Businesses preparing for the VAT & Customs impact of a no deal Brexit, will need to identify the supply chain scenarios applicable to them, to understand the formalities with which they must comply.

This article deals with trade in goods between the UK and the EU.

Basic Position - importing from, or exporting to, the EU

Key steps:-

  1. Ensure that your business has an Economic Operator Registration and Identification number(“EORI”) See below.
  2. Decide who will make your customs decla­rations (find out if your freight forwarder can make declarations on your behalf; hire an agent to make the declarations; or make the declarations yourself).
  3. Consider whether any special customs procedures may be beneficial.
  4. Find out what Customs duties and Excise duties may apply.
  5. Find out whether additional procedures apply to the good you are importing. For example, you might need to change the labelling on the packaging for your goods, or apply for licences.

EORI numbers

At present, businesses need an EORI number to move goods into or out of the EU (including the UK). Should there be a no-deal Brexit, you'll need an EORI number that starts with GB to move goods in or out of the UK. If you already have an EORI number that starts with GB, you can continue to use it. It will be 12 digits long. If you're registered for VAT, it will include your VAT registration number.

HMRC has recently auto-issued EORI numbers to VAT registered businesses that, according to their records, will need an EORI number post-Brexit. If your business is not VAT registered, or was otherwise missed from the recent exercise, HMRC's EORI team (contact details at https://www.gov.uk/eori) can assist.

If you are involved in more complicated supply chains, you may need an additional EORI number and additional VAT numbers issued by the EU state with which you are dealing.

More complex supply chains

At present: the fact that the UK is part of the EU enables UK businesses to use EU VAT simplifications that will no longer be available.

For example:

MHA Monahans VAT blog no deal Brexit scenario

In this scenario, a UK company receives an order from a customer in Germany. To fulfil the order, the UK supplier in turn orders goods from their own supplier in France. The goods are delivered from France to Germany.

In principle, the UK company needs to be VAT registered in either France or Germany, because it will take ownership (albeit not physical possession) in one of those countries. At present, it does not need a French/German VAT number if it can use a simplification called "triangulation" because it has a VAT number issued by an EU member state (i.e. the UK.)

Once the UK leaves the EU for VAT purposes, it will need a VAT registration number issued by a country that is an EU member state.

And if the scenario above is changed slightly, so that the final customer is not in Germany but in, say the US, then once the UK leaves the EU, a second EORI number may be needed in relation to the export from the EU (i.e. the goods being exported from France to the US.)

This assumes that under the delivery terms of the contract, UKCo takes ownership before the goods leave the EU. So the terms on which it trades with Fco will need to be considered and possibly amended.

Conclusion

Clearly, MHA Monahans is not in a position to predict what will happen on 31 October. But the official guidance begins:-

“The UK will leave the EU on 31 October. This page tells you how to prepare for Brexit. It will be updated if anything changes, including if a deal is agreed.”

On this basis, if your business trades with the EU, and your Brexit preparations are not already well-advanced, our advice is to draw up and implement an action plan, now.