VAT Implications of Importing Goods From 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 import of goods from 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.

Importing goods from the EU

As the UK will cease to operate EU procedures with effect from the end of the transition period, imports from EU countries from 1 January 2021 will essentially be treated in accordance with the same principles which have applied up to now for imports from non-EU countries.  The basic principle is that VAT will be payable to HMRC on goods which are imported and VAT registered businesses will be able to recover this VAT on their returns.

In the past, VAT on goods imported from outside the EU has been payable at the point of importation.  Businesses have then been able to recover the VAT when submitting their next return.  The cash flow implication of this has been that there has been a delay between a business paying the VAT on import and then reclaiming it through their return.

An important change to this process is the introduction of “postponed VAT accounting”.  Under this new scheme, rather than having to pay the import VAT upfront, eligible businesses will be able to account for both the payment of import VAT and the reclaim of that VAT through their normal VAT returns.  This will assist with cash flow by removing the delay between payment of the VAT and its recovery.

Postponed VAT accounting will apply to imports from EU states and also imports from countries outside the EU.

Businesses will be eligible to apply postponed VAT accounting if:

• the goods are imported for business use; and
• the business’s VAT registration number is shown on the customs declaration.

Accounting software providers are in the process of updating their software to deal with postponed VAT accounting.

Consignments with a value not exceeding £135

Previously, small value imported consignments were exempt from VAT.  From 1 January 2021, consignments with a value not exceeding £135 sold to UK consumers will become subject to UK VAT.  The VAT will be applied at the point of sale, not the point of importation, and it will be the responsibility of the seller to account for the VAT.

As a result of this, businesses situated outside the UK will be required to register for VAT in the UK, and account for VAT on their sales to the UK, regardless of the total value of those sales.  This would appear to be a significant disincentive to small businesses to sell to the UK and it remains to be seen whether such businesses will continue to offer their goods for sale to customers in the UK.

Online marketplaces, such as Amazon and eBay, which facilitate the sale of imported goods, will be responsible for accounting for the UK sales of such goods and will be putting in place their own procedures to deal with this.

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

Photo by Habib Ayoade on Unsplash