VAT is indeed a slippery tax (which is why I love it).
But, handled in the right way, we can all make sure that we’re in that sweet spot of paying (or not paying, in some cases) the right amount at the right time.
As a VAT practitioner, I always think of VAT as the ‘poor relative’ in terms of the attention it gets from businesses when compared to other taxes; often only tended to when an issue crops up. With that in mind, here are some key areas to contemplate post-Brexit.
Ostensibly, the news of the Windsor Framework Agreement struck between Prime Minister Rishi Sunak and the EU is a timely reminder that this tax is constantly changing and keeping businesses on their toes.
Following Brexit, many businesses have been caught out, having to register for VAT outside the home territory and paying customs duty more than once. This is an administrative headache and a financial burden. So, how can this be avoided, or at the very least, managed?
Moving B2B goods across borders post-Brexit
Goods moving from the EU to the UK or vice-versa are now imports and exports respectively, whereas before Brexit, these supplies were effectively zero-rated, so, VAT is now chargeable. It is ultimately the importer/ consignee that dictates who is liable to pay the import VAT, and this is often dictated by incoterms – a global set of international trade rules. Until Brexit, many businesses paid little attention to whether they were moving goods DDP, but now, it takes on a whole new meaning and responsibility.
If, as a supplier, you are moving goods across borders under DDP incoterms, you will be liable to pay import VAT and duty in the destination country. Without a local VAT registration, import VAT becomes costly. Similarly, goods sourced from the US or China and then sold and moved from the UK to the EU or vice versa will attract customs duties twice. Many businesses have not appreciated this, and so have made no alternative supply chain arrangements to avoid this additional cost.
“Until Brexit, many businesses paid little attention to whether they were moving goods DDP, but now, it takes on a whole new meaning and responsibility.”
Moving B2C goods across borders post-Brexit
For B2C supplies, the UK no longer has the distance-selling simplification (and it has disappeared for EU member states in its original form, too). Instead, we have the import One Stop Shop (iOSS) which, broadly speaking, allows a single VAT registration in the EU, and VAT accounting for all supplies of goods to consumers where transaction values do not exceed €150. Where the value of individual transactions exceeds €150 in each member state, VAT registration is required.
This significant shift has led many UK businesses to ‘switch off’ UK to EU B2C sales until such a time as the value would make it economical to do so, or until the business has the resources (human and financial) to deal with the individual EU VAT registrations.
Importing/exporting services post-Brexit
Brexit has had less of an impact on services. For B2B supplies, the rules are largely the same, although businesses must now focus more on whether any services (supplied or received) may be subject to the ‘use and enjoyment’ provisions that would see the place of supply change from being where the business belongs to where the services are used and enjoyed (think electronically supplied services and telecoms). For B2C supplies, the non-union OSS takes over from MOSS.
“It is possible to benefit from a special tax regime that enables individuals to only pay tax on income brought to the UK (remittance basis).”
Financial services and VAT recovery
A great opportunity following Brexit sits with those providing financial services. Typically, the supply of such services is treated as VAT-exempt, meaning that any VAT incurred when making those exempt supplies is not recoverable. However, there is a lovely quirk of the VAT legislation that means when certain financial services are supplied outside the UK (previously outside the EU), VAT incurred when making those supplies is recoverable (known as exempt with credit). So, any UK businesses providing financial services to EU businesses now have an opportunity to reclaim more VAT on their direct costs and overheads.
If you’d like to discuss Brexit or any other VAT matters, get in touch with Kelly.
Coming to the UK
The UK has a Statutory Residence Test (SRT) that determines whether an individual and their family are deemed to be UK tax residents. Many people confuse tax residency with nationality or the country that has issued their passport, for example. They are completely separate matters.
The relevance of tax residency is that it determines which country you have an obligation to pay taxes in. The UK SRT is based on the number of connections the individual has to the UK, which in turn determines the number of days (midnights) the individual can spend in the UK before they become a tax resident.
When an individual is a tax resident in the UK, the default position is that they are taxable on worldwide income and gains in the UK. However, there are planning opportunities for individuals that are not originally from the UK. It is possible to benefit from a special tax regime that enables individuals to only pay tax on income brought to the UK (remittance basis). The earlier the planning can be done (ideally before they become resident in the UK) the greater the benefits this can present.
We would encourage any members with companies or individuals looking to come to the UK to get in touch for advice as early as possible.
