VAT Implications of Exporting Goods to the EU After Brexit

The Brexit transition period ends on 31 December 2020.  From 1 January 2021 new VAT rules will apply for UK businesses trading with businesses in the EU.  This blog gives an overview of the situation as it will apply to the export of goods to the EU.

This blog is based on published guidance as at 10 December 2020.  As no Brexit deal has been finalised as of this date the situation may change before 1 January 2021.

Exporting goods to the EU

In theory the process of accounting for VAT on goods exported to the EU from 1 January 2021 should be very straightforward.  The UK will no longer be part of the EU trade group and the special rules which have been in place for exporting goods to EU states will no longer apply.  The export of goods from the UK to EU countries will be subject to the same rules which have previously applied for the export of goods from the UK to non-EU countries.

In simple terms, supplies of goods to the EU will be zero rated provided that the supplier has evidence that the goods have been supplied to a purchaser outside the UK.

As the UK will no longer form part of the EU, there will no longer be a requirement to complete an EC sales list.

The complications of exporting to EU states will arise not at the point of export from the UK but at the point of entry into the destination country.  The principle of free movement of goods will no longer apply, so the goods will be subject to the customs procedures and import duties applicable at the destination.  It is likely that VAT will be payable in the destination country at the point of entry for exports to the EU.

For larger businesses, the easiest way of dealing with this scenario will be to engage the services of a customs agent to act on their behalf.  The agent’s fees will, of course, represent an additional cost for such businesses.

Smaller businesses may currently benefit from the distance selling thresholds, but these will no longer apply.  The use of a customs agent may not be a feasible solution for smaller businesses.  As a result it may be that smaller businesses find that there is a requirement for them to register for VAT in the country to which they are exporting and to complete periodic VAT returns in that country.  In addition to this being a considerable inconvenience, there would be a cost associated with the professional advice required to register and submit returns in other jurisdictions.

At the time of writing, the situation remains unclear and it is to be hoped that procedures will be agreed in order to minimise the effects of this situation.

The export of goods is a very complex area and the above comments are intended to provide only a broad outline of the main aspects of VAT as it applies to exports.  It is important for businesses to take specific advice relating to their own situation and activities.

Photo by Rocco Dipoppa on Unsplash