UK VAT return on no-deal Brexit

If the UK leaves the European Union on October 31, 2019, there will be a number of changes to VAT filings covering cross-border transactions. These arise as the UK leaves the EU VAT regime and becomes a ‘third-country’ under EU rules.

Major changes to the VAT submissions will include: reporting for the new ‘postponed accounting’ import VAT scheme; and ending intra-community reporting on transactions between businesses in the UK and remaining 27 EU states (‘EU27’).

In the case of a deal being signed in time for the October 31 deadline, it will likely include a transition period until at least December 31, 2020. In this case, the changes will only come into effect after that time when the UK leaves the EU VAT regime.

Reporting postponed accounting and avoiding cash payments

Leaving the EU VAT regime means the ending of the zero VAT rating simplification on sales of goods, ‘intra-community supplies’, between businesses in the UK and EU27. Instead, these transactions will become imports and exports, subject to UK or EU27 import VAT for the first time. There will be two options for settling the 20% UK VAT on goods coming into the UK from the EU27, or from anywhere in the world:

1. Pay the import VAT at customs to clear the goods into free circulation; or
2. Use the postponed accounting scheme to be launched by HMRC from October 31, 2019. This will enable the importer of record to account for the import VAT in their next UK return. This is recorded twice as both VAT due and paid, the ‘reverse charge’, alleviating the need for a cash payment of the import VAT.

If a UK VAT-registered business opts for postponed accounting, it must first apply to HMRC. Post-Brexit, it can declare on import documentation that it has opted for the scheme to ensure there are no VAT charges at customs clearance. The business will then be able to download monthly statements from HMRC of imports and related postponed import VAT. This can be entered in the VAT return boxes as follows:

2. Current entry: VAT due on acquisitions from other EC Member States
New post-Brexit entry: VAT due in this period on imports accounted for through postponed accounting

4. Current entry: VAT reclaimed on purchases and other inputs (including acquisitions from the EC)
New post-Brexit entry: VAT reclaimed in this period on purchases and other inputs including imports

8. Current entry: ‘Total value of all supplies of goods and related costs, excluding any VAT, to other EC member states
New post-Brexit entry: Total value of all exports of goods, excluding any VAT

9. Current entry: Total value of acquisition of goods and related costs excluding any VAT, from other EC member states
New post-Brexit entry: Total value of all imports of goods, excluding any VAT

Ending Intra-community reporting

Aside from VAT return, under the EU VAT Directive obligations, larger EU businesses must submit reports on the movements of goods, ‘Intrastat’. This itemises cross-border shipments and enables EU states to monitor trade flows and detect VAT fraud. In addition, taxpayers have to submit listings of sales of goods and services to VAT-registered businesses in other EU states.

After Brexit, and when the UK leaves the EU VAT regime, both of these reports will cease. There will be some new reporting in the UK, such as Extrastat, to replace this.