This is a breakdown of all the relevant VAT implications connected to the UK’s border controls with the EU come 1 January 2021 which is when the Brexit transition period ends.
In July 2020, HMRC released a comprehensive detailed guide to its border controls. HMRC plans to roll out these changes in 3 phases. To learn more about those three phases, read our brief guide to VAT-related Brexit updates or download HMRC’s border control guide.
The below VAT information has been pulled directly from HMRC’s EU Border Control Guide as provides a fast way to find the information you need concerning VAT implications only.
VAT on imports
VAT (Imports) VAT will be levied on imports of goods from the EU, following the same rates and structures as are applied to RoW imports. VAT registered importers will be able to use postponed VAT accounting, however, unless they are eligible to defer their supplementary declarations, will not be compelled to do so. Non-VAT registered importers have the same options available to report and pay import VAT as they do for customs duties. VAT treatment of goods imported in consignments not exceeding £135 in value will be treated differently to those goods in consignments exceeding £135.
VAT registered traders will be able to account for import VAT on their VAT return by using postponed VAT accounting from 1 January 2021. Unless they are eligible to defer their supplementary declarations, they will not be compelled to use postponed VAT accounting. Non-VAT registered traders (and any VAT registered traders not using postponed VAT accounting) will need to report and pay import VAT through the customs processes. Within this context, VAT payments can be deferred using a duty deferment account DDA (more on this below).
Regardless of the method of accounting for VAT on imported goods, checks to ensure that the data on the customs declarations is accurate will continue to be highly important for VAT purposes, for all imports. This will be the primary means to ensure that the correct import VAT is accounted for and paid.
Applying for a GB eori number
This is required for all businesses moving goods into or out of GB, including those deferring their import declarations. Further information, including a link to apply for an EORI number, is available here. It can take up to a week to get one, and around 5-10 minutes to apply. VAT registered businesses with EU trade were previously enrolled with an EORI number, so should check whether they already have a number before applying.
Applying for a Duties Deferment Account
Traders who import goods regularly may benefit from having a duty deferment account (DDA). This enables customs charges including customs duty, excise duty, and import VAT to be paid once a month through Direct Debit instead of being paid on individual consignments. VAT registered traders can instead account for import VAT on their VAT return using postponed VAT accounting, as detailed below. To set up a DDA, traders, or their representatives, apply for a deferment account number (DAN) and will need to be authorised by HMRC. New rules are being introduced which will allow most traders to use duty deferment without a Customs Comprehensive Guarantee (CCG).
After July 2020 (Phase 3): Duties and Import VAT
Import VAT will be levied on all imports of goods valued over £135 from the EU following the same rates and structures as are applied to RoW imports. VAT registered traders will be able (but not compelled) to account for import VAT on their VAT return by using postponed VAT accounting.
Non-VAT registered traders (and any VAT registered traders not using postponed VAT accounting) will need to report and pay import VAT through the customs processes. As is possible for customs duties, traders and agents can use duty deferment to defer payment of import VAT until a prescribed date, delaying payment for an average of 30 days.
Transport Options Import VAT requirements are not impacted by transport into GB or point of arrival. Systems Import VAT for freight will continue to be handled through CHIEF / CDS. Checks The UK already undertakes intelligence-led checks on both EU and RoW movements, which will continue.
Special procedures for duties and VAT relief
Businesses can use HMRC’s Customs Special Procedures to suspend, reduce or claim relief on the payment of customs duties and VAT under specified conditions. Those include:
- Customs Warehousing – allows for goods not in free circulation to be stored without payment of customs duty, and where appropriate excise duty or import VAT, in a customs warehouse.
- Inward Processing – allows for the payment of customs duties and import VAT to be suspended on imported goods whilst processing is taking place. • Outward Processing – allows for the temporary export of goods for processing or repair, and to re-import the processed products whilst retaining domestic status or with partial relief from import duties.
- Temporary Admission – allows for businesses and individuals who are established outside of the UK to be authorised to import goods with total or partial relief from customs duties and other charges because of the specific use to which the goods will be put.
- Authorised Use – allows for reduced or nil rates of Customs duty on certain imported goods, provided they are put to a prescribed end use.
What happens if the exporter wants to zero rate the supply for export (VAT)
Evidence of export is one of the proofs that can be provided in order to zero rate the supply of goods for VAT in an exporter’s records. Crossing the border without the correct customs declarations means that the person responsible for the goods will have to pay VAT both in the EU territory and the UK, in addition to a possible customs penalty at the border.