Brexit VAT: Treatment of Overseas Goods Sold to Customers and What’s Happening with Northern Ireland

Dec 2, 2020News

The Brexit transition period will be ending as of the 1st of January and the government will be introducing a new model for the VAT treatment of goods arriving in the UK from outside the UK. Goods from the EU and non-EU countries will be treated in the same way so that UK businesses are not disadvantaged by competition from VAT free imports. 

This expands on The Border Operating Model paper published in July, specifically the sections covering VAT treatment of consignments not exceeding £135 as of 1st January 2021. The new model will help improve the effectiveness of VAT collection on import goods and address the problem of overseas sellers failing to pay the right amount of VAT on sales of good that are already in the UK at the point of sale.

What is Changing for the VAT Treatment of Overseas Goods?

Imports of goods from outside the UK in consignments not exceeding £135 will have VAT collected from the point of sale instead of the point of importation.   This will mean that UK Supply VAT, rather than Import VAT will be due on these consignments. It will also get rid of the low value consignment relief. 

  • Where they are involved in the sale, Online Marketplaces will be responsible for collecting and accounting for the VAT through a UK VAT registration and filing of a VAT return. 
  • Goods sent from overseas and sold directly to UK consumers without Online Marketplaces, will require the overseas seller to register for VAT in the UK and account for the VAT to HMRC. 

There are 2 strands to the measure, which will change the way VAT is collected on sales of goods in the following circumstances:

  • Goods sold to UK customers where the goods are located outside the UK at the point of sale and the supply involves the later importation of the goods into the UK.
  • Goods sold to UK customers where the goods are in the UK at the point of sale, sold by an overseas seller and where an OMP facilitates the sale.

B2B sales for less than £135 will also be subject to new rules. However, where the business customer is VAT registered in the UK and the goods are outside the UK at the point of sale,  the UK VAT registered business provides the OMP or direct seller with a valid VAT registration, the VAT will be accounted for by the customer through a reverse charge.

For goods in the UK at the point of sale, the following will apply: 

  • For consignments of goods containing excise goods or to non-commerce transactions between private individuals, the changes will not apply, and it will stay under the existing rules. 
  • Sales of goods by overseas sellers, where the goods are already in the UK at the point of sale, responsibility for accounting for VAT from the overseas seller will move to the online marketplace that facilitates the sale. 
  • Sellers overseas will still be responsible for account for VAT on goods already in the UK and sold direction to UK consumers without online marketplace involvement. 

The new arrangements will mean that consignments of less than £135 will no longer have to collect VAT at the border however customs declarations will still be needed, primarily for the collection of trade statistics, rather than for fiscal reasons. 

In recognition of the changed role of the customs declaration for affected consignments, a number of facilitations, including the use of reduced data sets and bulk declarations will be available.

There will be some UK VAT registered businesses where imports of goods is not covered by this guidance. For these businesses, they will be able to postpone VAT accounting to account for import VAT on their VAT return for goods imported from anywhere across the world. These businesses will be able to declare and recover import VAT on the same VAT return rather than having to pay it up front and recover it later. This will be subject to normal VAT recovery rules

For full information visit the Government website.

Brexit and Northern Ireland VAT Rules

HMRC has confirmed that Northern Ireland will remain part of the UK’s VAT system, which means there will be no requirement for a new VAT registration for sales of goods in NI. If a business is already VAT registered, existing registration won’t be affected. Businesses moving goods into, out of, or within NI will continue to account for VAT on all sales across the UK through their single UK VAT return. 

UK VAT will continue to be accounted as it is currently on goods sold between Great Britain and Northern Ireland, so sellers of goods will continue to charge its customers UK VAT and the seller must show this on invoices. 

The VAT charged will be accounted for as output VAT on the seller’s VAT return in the same box as it is now. Where the customer receives an invoice from the seller showing that UK VAT has been charged, it may use this as evidence in order to reclaim the VAT as input VAT, subject to the normal rules. 

In 2019, HMRC amended its policy in relation to the recovery of import VAT so that only the owners of imported goods are entitled to reclaim import VAT. There was some concern that the new policy would apply to these movements as, according to the EU commission, goods moving from GB to NI (and vice versa) are to be treated as imports and exports, HMRC has confirmed that its interpretation of the Protocol means that it is able to collect what is, technically, import VAT by maintaining the existing system of VAT accounting (ie collecting VAT on supplies). 

There will be no requirement for businesses in GB or NI to be the owner of the goods in question. As long as the purchaser has a tax invoice from the seller, they will be able to quality for input VAT (rather than import VAT) recovery.  

Exceptions to this rule include:

  • Where goods are declared to a special customs procedure are subject to a domestic reverse charge or an Onward Supply procedure, the customer or the importer will be required to account for any VAT due through its VAT return. 
  • Many overseas businesses will be required to register for VAT in the UK when they operate under DDP terms of trade.

However, HMRC has confirmed that it is still considering the operational impact of allowing non-established businesses to register outside of the usual 30 days future test rule set out in UK VAT law. (Where a business expects to exceed the UK VAT registration threshold within the next 30 days it has an immediate liability to register for UK VAT).