Major changes to UK VAT

From the 1st January 2021, the Brexit Transition Period will end and the United Kingdom will operate as a completely separate soverign nation.

HMRC have recently published legislation covering changes to the VAT treatment of overseas goods sold to customers. These changes are to come into place effective January 1st, 2021 – the official start to the post-Brexit era. The main summary of changes are as follows:

The main changes include the abolishment of low consignment relief, relieving import VAT on consignments of goods valued at £15 or less.

For consignments of goods not exceeding £135 in value, VAT will be accounted for at the point of sale rather than at importation. If an online marketplace (OMP) is involved in the facilitation of the sale, they will be responsible for collecting and remitting VAT to HMRC.

What if an online market place isn’t involved?

If an OMP is not involved in facilitating the sale, there will be a supply direct from the seller to consumer, and UK VAT will be payable by the seller.

According to the new legislation, any business that operates an OMP facilitating the sales of goods to UK customers, as well as any business selling directly to UK customers with goods located outside the UK and under £135 in value will need to register for UK VAT.

In addition to this, for businesses based outside of the UK but storing their goods in the UK and selling them to UK customers, Amazon will be deemed supplier for the transactions and collect and remit the applicable VAT to HMRC.

How will VAT be collected on my sales?

There are 2 strands to the new measure, which will change the way VAT is collected on sales of goods in the following circumstances:

Goods sold to UK customers where the goods are located outside the UK at the point of sale and the supply involves the later importation of the goods into the UK.
  • If an OMP is not involved in facilitating the sale, there will be a supply direct from the seller to the consumer, which will be deemed to take place in the UK and so liable to UK VAT
  • If an OMP is involved in facilitating the sale, they will be deemed, for VAT purposes, to be making the supply to the UK consumer. They will be responsible for collecting and remitting the VAT to HMRC.

Please note that the above is in relation to B2C sales to UK consumers. In the event that the sale is made to a UK VAT registered business (B2B) and the customer can provide a valid UK VAT number, the responsibility to account for VAT switches to the UK VAT registered business customer, who will account for it by means of reverse charge.

This means that the OMP/direct seller will not be responsible for collecting VAT in these circumstances.

Goods sold to UK customers where the goods are in the UK at the point of sale, sold by an overseas seller and where an OMP facilitates the sale.

This strand of the new measure will apply to goods of any value where the:

  • Goods are owned by a seller who is based outside the UK.
  • Goods are located in the UK at the point of sale.
  • Seller sells the goods to a customer in the UK through an online marketplace.
  • Supply is not to a VAT registered business.

These goods will have already been imported into the UK and the existing import VAT and import duty obligations will apply.

UK VAT will be due at the point of sale as usual. However, the difference is that, providing the four conditions above are met, the OMP will be classed as the deemed supplier and will therefore be liable for collecting and remitting the VAT. The responsibility is no longer on the overseas seller.

However, this does not mean that the overseas seller is redundant from UK VAT registration. At the point of sale, the overseas seller must make a zero-rated supply to the OMP. This will mean that the supply will be recorded on the overseas seller’s VAT return. It will also mean that any import VAT that the overseas seller has paid at customs will be reclaimable on the VAT return as usual.

The above rules apply to B2C sales to UK consumers. If the sale is B2B to a UK customer and they can provide a valid UK VAT number, the VAT obligation falls on the overseas seller rather than the OMP. Usual VAT rules will apply here and no reverse charge will take place. The OMP will be responsible for notifying the overseas seller that they need to account for VAT on such transactions, and must provide the overseas seller with the UK VAT number of the customer.

Finally, for transactions that are not facilitated by an OMP where the goods are located in the UK at the point of sale, the existing rules remain unchanged and the overseas seller must account for the VAT on such transactions.

As your dedicated tax advisors, AVASK will ensure that your VAT computations and returns are reflective of the changes that are coming into play effective January 1st, 2020. As always, we are on hand to answer any questions that you may have as a result of the new measures being introduced.

What is postponed VAT Accounting?

Postponed VAT accounting is the process of accounting for import VAT on the UK VAT return. If you are VAT registered in the UK, you will be able to declare and recover the import VAT in the same UK VAT return. This eradicates the need for paying the import VAT upfront at customs and reclaiming later, as is currently the requirement using a C79.

A seller does not need to be authorised to account for import VAT on their UK VAT Return and can start doing so from January 1st, 2021. The qualifying criteria is:

  • The goods imported are for business use.
  • The GB EORI number is declared at customs.
  • The GB VAT number is declared at customs where required.

This should be easy to remember, as this is the current criteria for customs clearance and having a C79 issued.

With regards to accounting for the import VAT on the UK VAT return – an online monthly statement will be available to download - this will show the total import VAT postponed for the previous month which should be included in the VAT return.

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