As Brexit draws closer, with many questions still unanswered, it is important for businesses to understand what is currently certain as regards VAT and what they need to do to ensure compliance and to avoid missing out on reclaims.
In common with most Brexit-related issues, there will soon be an increased VAT administrative burden. There are also complications around VAT claims, new legislation and the individual VAT regimes of EU Member States.
Cross-border VAT claims
Many UK businesses trade internationally and incur cross border VAT. Currently, UK businesses incurring VAT in EU countries can claim that VAT back (subject to national rules) via HMRC’s portal. That arrangement will be in place until 31 March 2021, after which time, there is currently no provision in place to claim for VAT incurred in 2020, under the terms of the Withdrawal Agreement.
Whilst we expect some form of provision to be put in place at some point, at the moment it is uncertain. Therefore, we could see a situation where businesses only have the 3 months to 31 March 2021 to reclaim all of the EU VAT incurred in 2020. The same will apply to EU businesses recovering UK VAT.
Affected businesses should make sure to plan ahead and avoid missing this deadline.
As regards EU VAT incurred from 1 January 2021 onwards, the landscape is as yet unclear. It is possible that compliance with individual country rules will be required and that these will differ across the EU.
For example, any French VAT incurred by a UK business from 1 January 2021 which is refundable in France will have to be recovered under the 13th VAT Directive, for which the appointment of a tax representative in France will be required.
For e-commerce businesses, there is various new EU legislation in the pipeline which will impact UK firms selling into the EU after 31 December 2020. For example, the EU VAT e-commerce package will come into effect on 1 July 2021 and will impose new reporting and filing obligations on non-EU companies selling small value goods to non-VAT registered customers within the EU.
In effect, this means that for many UK businesses involved in e-commerce, the VAT system will change three times in just over six months and keeping abreast of this will add cost and extra administration.
For some EU countries, such as France, their domestic legislation currently requires that non-EU businesses making supplies for VAT purposes, not subject to a reverse charge in France, need to appoint a French tax representative to operate in France. That tax representative is liable for any unpaid or undeclared VAT due on that non-EU business’ activities.
Finding such a tax representative can be challenging because of the unlimited liability that representative will have.
It is vital therefore to understand your obligations early and plan well ahead, bearing in mind, of course, the possibility that this could all yet change.
For advice tailored to your situation, please get in touch with your usual PM+M adviser or contact our team at email@example.com, and we’ll direct you to the right person.